Category: Uncategorized

MarketSmith powers the charts in this video

What a crazy week! It wasn’t a big surprise that both PPI and CPI came above estimates on both year-over-year and month-over-month basis. What was somewhat unexpected was the initial market reaction. Most stocks sold off hard in the pre-market on Thursday when the CPI news broke out. The second the market opened, all we saw was relentless dip buying all day. What started as short sellers taking some profits after the indexes went down multiple days in a row and gapped down; ended up with a full-scale short squeeze that brought SPY and QQQ back to their declining 20-day EMA. You know what happened afterward – quick and complete rejection on Friday. 

All and all, we saw more distribution last week. 155 stocks went down more than 10% last week. More distribution. Interest rates keep perking up which is a big headwind for tech. 22 went up more than 10%. The minimum price requirement for this universe is $10, the minimum average daily volume is 300k. Tech was hit the hardest. Semis, cloud, internet, and mega-cap tech stocks had a new YTD low on a weekly closing basis. 

The new earnings season has just begun. Expectations are already low as most stocks have been declining ahead of earnings season. This doesn’t mean that valuations are still low. Another 10-15% flush to the pre-Covid high seems like a more reasonable base for a potential bear market rally. If SPY loses last week’s lows around 348, it is quickly going down to 340. If 340 doesn’t act as major support, the next level is 320. 

The silver lining for the bulls: 

The silver is very grey and it is not shiny at all but here it goes. Last week, we saw some positive market reactions to the first reported earnings. Dominos Pizza (DPZ) and  JPMorgan (JPM) missed estimates and still went up after their earnings. Can we see something similar for the rest of the earnings season? This was the story of the last earnings season. We will keep a close eye. Every earnings season has its pattern – be it a market reaction to earnings surprises or misses, be it notable strength or weakness in a certain industry. Finding out that pattern early on is a big source of edge for the remainder of the season.

There is still a chance for the so-called follow-through day next week if the indexes don’t go below their lows from last week and rally more than 1% on volume higher than the volume of the previous day. The problem is that there’s nothing to buy. There are almost no stocks setting up above their 50-day moving averages. For me, the availability of good stock setups overwrites any follow-trough day in the indexes. Besides, correlations remain high. Most stocks move in tandem, up and down, regardless of individual characteristics. Why would you pick an individual stock in an environment like this? If you have/want to buy something on a follow-through day, using an ETF is a viable substitute. If you want more volatility, you can pick up a triple-leveraged ETF – SPXL, TQQQ, LABU, SOXL, etc. 

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.

The charts in this video are powered by MarketSmith

We are in the sentiment cycle where good news for the economy is bad news for the stock market. September jobs number came a bit above estimates and the market sold off on Friday erasing most of its gains for the week. The Fed won’t pivot until it sees a significant uptick in unemployment or a decline in inflation. More interest rate increases mean a lower valuation for most stocks. 

The silver lining from last week is that we might have caught a glimpse at the future market leaders. The second the market bounced, we saw quite a few biotech stocks try to break out to new 52-week highs. These are the future leaders of the next more sustainable bounce – be it a bear market rally or a new bull. The former is way more likely. I am not saying that biotechs won’t get hit if the general market has another leg lower. They will get hit but they’ll probably also build new bases to work with. 

The other names showing relative strength lately are oil & gas. Most have had a tremendous bounce lately and are now back to their 52-week highs. It’s a big conundrum – higher oil prices mean sustained inflation for longer; Sustained inflation means Fed will continue to rise interest rates. Higher interest rates mean a higher likelihood of a recession next year. Recession means lower demand for oil & gas and therefore lower prices down the road. This is how the cycle usually goes. I don’t think the market is looking that far ahead. Oil companies are likely to report robust earnings this quarter and the market is discounting that.

The past few weeks were perforated by lowering guidance news from various sectors. AMD is the latest more notable example. Companies are actively trying to reduce market expectations. It could be because their business is really deteriorating at a fast pace or because they want to be able to surprise or at least look less bad during earnings season. The latter is knocking on the door. Everyone was afraid of the last earnings season. The fear of weaker-than-anticipated earnings reports was confirmed in many cases but the market reaction was predominantly bullish because of the expectations for Fed to pivot. Will we see something similar this time? So far, the data doesn’t confirm it. Let’s see how the market will actually react to earnings. Seasonally, stocks tend to do well past the mid-term elections which are in a month. 

One thing is clear. The new earnings season will provide good opportunities on both the long and the short side. They might last only a few days. We will take what the market is offering.

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.

The charts in this video are powered by MarketSmith

The S& P 500 finally tested its summer lows and actually closed at new year-to-date lows at 357. The next levels of potential support are 350 and 340. Typically, nothing goes down in a straight line. It is normal to see bounces along the way. 

There will be an emergency FOMC meeting on Monday. I doubt it is because they want to raise rates sooner. It has come to a point when federal officials might start worrying more about financial stability than inflation. Decent odds that they might say something that will spark a short-term rally. Probably the market is expecting that and it might gap up on Monday. Or not. The market might also be too scared to bid up before the actual FOMC statement is released. There are rumors going around that a major international bank is on the brink of going under.

The trading world continues to revolve around macro. Every equity trader is keeping an eye on the US Dollar and interest rates. The recent moves in forex and bond markets have been of historic proportions. Pension funds in England were close to going under before the Bank of England stepped up to buy $65 Billion of gilts. I don’t see how all those increases in interest rates around the world don’t lead to more QE at some point next year or earlier. No wonder gold and Bitcoin have stabilized lately. When the US Dollar finally starts to really pull back, those assets are likely to outperform. I am not saying buy them now. Just keep a close eye on them and look for a setup.

In the midst of all the macro dislocations and relentless selling last week, one sector stood out. Biotech is still in a long-term downtrend and if there’s forced liquidation, can go lower from here. And yet, the few stocks that are showing up on the 52-week high list, gap up on good news, and high volume are from that sector. When this bear market subsides, biotech is shaping up to be among the leaders: APLS, SNDX, RXDX, CPRX, VRNA, REGN, PTCT, SRPT, RVNC, CYTK, AXSM, KDNY, VRTX, AMLX, PLRX, etc.

I don’t know at what stage of the bear market we are. We could be in the middle, we could be towards the end. The former is more likely. We are already seeing major companies like Nike down 54% from their 52-week highs made in November of 2021. This is a bigger correction than the one they had during the Great Recession in 2008/2009. Obviously, valuations are very different. Many companies are still trading at high P/E multiple and the one thing that characterizes a bear market is P/E multiple contractions, especially in the current environment of rising interest rates. What I am saying is don’t buy a stock blindly just because it is down 50%, 60%, or 80%. It can go lower and scare you out or it can go sideways for a very long time and wear you out. You don’t need to catch the exact bottom in order to participate in a bear market rally or new bull market. You can wait for a stock or a major index to go back above its 20-day exponential moving average and its 10dEMA to be above its 20dEMA before you participate and you can still get a nice chunk of the move at a lot lower risk.

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.