Author: Ivanhoff

MarketSmith powers the charts in this video

I published a new trading book recently. Check it out on Amazon.

It was a week of panic in the market. First, stocks sold off when Fed chairman Powell mentioned that they were ready to raise rates by 50bps if the data require it. He said that rates are likely to reach a higher level than previously anticipated. Then, the bank crisis came along and spooked everyone. The 15th largest bank in the US – SIVB announced they need to raise money to strengthen their capital position. This led to a run on the bank and a massive selloff in the entire banking sector. On Friday, the FDIC closed Silicon Valley Bank. This is the second biggest bank failure in history and the biggest one since the Great Recession in 2008. Literally, half of all venture-backed startups and venture funds have accounts with SIVB. Most accounts are significantly higher than the FDIC-insured minimum of 250k. You can understand why this led to contagion and a selloff in many other financial, biotech, and tech stocks.

On Sunday, it became clear that all depositors will have full access to their accounts on Monday. The uninsured deposits were essentially bailed out. The Fed has also set up a liquidity facility that allows banks to pledge Treasuries and MBSs at their original value to take short-term loans and recapitalize. This should stop the panic for now but for how long is anyone’s guess. Everyone knows that if the Fed is eventually forced to choose between fighting short-term inflation and saving the banking system, they will choose the latter. One thing is sure – volatility will remain elevated in the next few weeks.  

I wonder what the impact on crypto will be. Currently, I don’t have any crypto holdings. The current bank debacle might eventually become a positive pivot for select cryptocurrencies. I can see some companies deciding to keep 5-10% of their cash in bitcoin, Ethereum, or others and store them in cold wallets for emergencies. It’s just an educated guess. We are already seeing cryptos rallying and the US Dollar pulling back this weekend.  

Semiconductor stocks showed notable relative strength in the first half of the week, but the overall market weakness on Thursday and Friday also took them down. Obviously, if the stock market really starts to worry about a recession, semis will be one of the hardest hit sectors. 

The silver lining of last week’s bank debacle is that the 50bps rate hike is now off the table. Even the 25bps might be off if equities have another leg lower. Panics create incredible opportunities but you have to put yourself in the financial and mental condition to capitalize on them.

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MarketSmith powers the charts in this video

I published a new trading book recently. Check it out on Amazon.

We saw a significant bounce in most sectors toward the end of the week. All major indexes are now above their 10 and 20-day EMA. This might be the beginning of a new swing leg higher. This doesn’t mean that we won’t see frequent shake-outs but as long as last week’s lows hold, the bulls have the initiative. The one factor that can spoil the rally is the action interest rates. They had a major rally in February and early March, causing a selloff in equities across the board. Yields started a pullback on Friday and if they continue to decline, tech stocks are likely to benefit in the short-term. 

It is interesting to see a wide variety of sectors rallying last week. Basic materials led earlier in the week when interest rates were perking up. The premise was that the inflation trade is back. Then, all sectors went up on Friday when rates pulled back – tech stocks were the big leaders, especially cloud stocks. Equities going up in the face of both rising and falling interest rates is the stock market saying that there won’t be a recession this year. In the meantime, the inverted yield curve is saying there will be one. One of them will be wrong. When and when one is not important right now. We can strictly focus on the setups that the market is providing. February was very choppy and filled with many shake-outs. So far, March is off to a great start. I believe the entire year will consist of several 2-4 week strong rallies intercepted by violent 2-4-week pullbacks. This is a great environment for active traders as long as you protect most of your gains during the big pullbacks or find a way to take advantage of them.

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.

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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.

MarketSmith powers the charts in this video

I published a new trading book recently. Check it out on Amazon.

Interest rates and the US Dollar have been rising for most of February. Most stocks have been in a pullback mode for most of February. The current destiny of the market depends on inflation expectations. The latest CPI, PPI, and PCE reports show that inflation is slowing down but not fast enough. This combined with a still very low unemployment rate gives the Fed all the reasons to continue to raise interest rates and keep them high until something breaks badly – the stock market, the economy, the employment rate, or inflation. 

The silver lining of this earnings season is that we saw many tech companies releasing lackluster reports and their stocks still went higher; at least initially. Many of them have already given back the majority of their earnings rallies in the past 2-3 weeks. Some examples – RBLX, MSFT, MBLY, ROKU, ETSY, ON, TTD, ABNB, AMD, NFLX, TWLO. This is not how new bull markets behave.  

The S&P 500 and the Nasdaq 100 are sitting right near their 200-day moving averages. This is a make-or-break point for the indexes and many stocks because the market direction currently impacts 80-90% of the stock moves.

If interest rates continue to go higher, most stocks will be under tremendous pressure, especially tech and retail stocks. Higher interest rates eventually mean slower consumption and growth; therefore basic material and energy stocks are also not immune in this environment. Financials might do initially well but prolonged higher interest rates will eventually lead to less business for them and more delinquencies. Everything is connected. Everything depends on the interest rates right now in the mid to longer-term perspective. Anything is possible in the short term which is ruled by the sentiment of the day.

It seems the market had its monster rally in January and it now needs time to consolidate and digest while waiting for the Fed’s next move. Will they be as aggressive in their actions as they are with their words? In such an environment, one has to remain nimble and willing to change directions and positioning often. Everyone prefers to simply allocate their capital to a few strong stocks and ETFs and let them ride. This approach only works in a certain market environment and I am not sure we will be one for the foreseeable future. It is way more likely to continue to have 4 to 8 weeks of strong rallies intercepted by major rug pulls and selloffs that shake many out.

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.