Month: January 2022

The charts in this video are powered by MarketSmith

The Nasdaq 100 had a 7% range last week but it finished flat. Correlations have been extremely high as they usually are during corrections or bear markets. Lately, stocks have been moving in tandem regardless of fundamentals or sector belonging. Just look at the intraday charts on Friday – everything is looking very similar.

Unless your view is longer-term and you are slowly accumulating an index or a strong business at progressively lower prices, the most common-sense way to make money in this environment is intraday trading. This type of market behavior usually doesn’t last too long, except if it’s a new long bear market which is clear only in hindsight. Eventually, things calm down and multi-day swings become easier.

The new earnings season is just warming up. So far, the market has been fading every strong earnings report (minus Apple) and slamming any remote weakness. This is the first earnings season in a long time where we haven’t seen a breakout and a proper follow-through in the next few days. It’s still early but the price action so far speaks volumes about the current sentiment. 

Last week, the Fed confirmed what they have been saying for a while – bond purchases will end in early March and then they will start to gradually increase interest rates. The market initially sold off after the FOMC meeting, only to bounce towards the end of the week. Let’s see if it can follow through next week. Quite a few earnings reports are on tap and they will have a major impact on the market’s direction – GOOGL, AMZN, FB, QCOM, PYPL, AMD, XOM, etc. It’s important to remain flexible and open-minded to different scenarios. If there’s follow-through, SPY can test 450 where it will encounter resistance. If Friday’s low is lost, SPY is likely to tet 420-400.

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The charts in this video are powered by MarketSmith

The stock market was only open four days last week but it managed to do selling for eight. There was non-stop selling everywhere. All brief intraday rallies were faded towards the end of the day. Anything that had held relatively well before last week, was hit with a hammer – semis, industrial metals, financials. Oil and gas stocks are the last standing Mohicans but even they are starting to crack. Anything that was already weak, was completely destroyed – biotech, software, Internet retail. I will give you just one example to get an idea of the ongoing selloff – Shopify is down 50% in the past two months. This is not obscure small-cap biotech. It’s a high-growth mega-cap tech stock.

The new earnings season has begun. We judge market sentiment by the reactions to earnings. I haven’t seen so scared and pessimistic market reactions in a long time. Semis were clobbered despite record earnings from TSM and Micron. Financials were hit hard despite rising interest rates and improving margins. NFLX was annihilated because it suggested that future growth might be a bigger challenge. Don’t they always do that anyway? So what gives? One of the bull market’s major characteristics is multiples expansion where due to FOMO and complacency, people are willing to pay higher and higher multiples for most companies’ earnings and sales. The markets are currently in a multiples compression mode. Everything is getting repriced and receiving a lower multiple. The challenge and also the magic of markets is that they tend to overshoot – first to the upside and then to the downside. They don’t just stop in the middle and settle for “fair” prices.

There’s an FOMC meeting on Tuesday and Wednesday. In previous months, we would see a selloff ahead of the FOMC meeting only to experience a big short-term rally afterward if it becomes clear that Fed’s actions don’t align with their hawkish words. Something similar might happen next week. All major indexes are down significantly multiple days in a row. A big snap-back bounce, even if for a day, is very likely. Some of the most fierce rallies happen within downtrends – recognize them as such, take advantage of them but don’t overstay your welcome. The trend remains lower. Stay nimble or stay on the sidelines.

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Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email to get an idea of the content I share with members.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.

The charts in this video are powered by MarketSmith

The main theme remains fear of tapering and rising interest rates which is pressuring richly-valued stocks – software, Internet retail, biotech. Many are already down 30-50% in the past 2-3 months alone. Can they go down further? Absolutely. It’s normal for momentum stocks to give back 50% to 90% of their gains. Many never recover from such drawdowns. The likes of AMZN, AAPL, NVDA, TSLA, GOOGL that keep climbing higher for many years are the exception; not the rule. 

In the meantime, anything commodity-related is showing relative strength. Many oil & gas stocks are up 20%+ in the past couple of weeks. The metals and miners ETF – XME, is hovering near all-time highs. 

Outside of the basic material space, semiconductors, and carmakers have held the best. The biggest chip producer in the world, TSM broke out to new all-time highs lifting the entire semiconductor equipment space with it – AMAT, LRCX, ICHR, KLAC, ASML, etc. 

The S&P 500 and the Nasdaq 100 are below their 50-day moving average while the small-cap Russell 2k is below its 200-day moving average and close to breaking down from a very long range. The choppiness level in the indexes has increased significantly. We are seeing bigger and more frequent gaps that often get faded and much wider daily ranges. It’s a challenging tape for swing trades but an excellent one for nimble, intraday ideas on both the long and short side.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email to get an idea of the content I share with members.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.