Ivanhoff Capital

The charts in this video are powered by MarketSmith

As widely expected, the Fed raised interest rates by 50bps and started to reduce its balance sheet. The initial enthusiasm last Wednesday was immediately followed by heavy selling the rest of the week. One day up 5%, the next day down 6%.  Excessive volatility which means a lot of choppiness and frequent reversals is a typical price action for a bear market. 

Tech has been dismantled this earnings season. QQQ is trading below its volume-weighted average price since the Covid lows in March 2020. The small-cap growth ETF – IWO, has given back its entire profit for 2021 and 2020. The rips to declining 20 and 50dmas keep getting shorted on a regular basis. We are yet to see the real panic in the tape. So far, the selling has been slow and steady – the kind that can continue a lot longer than most expect. 

There are slim pickings on the long side – oil and gas names are holding the best as crude oil is setting up for another potential breakout and natural gas is at 12-year highs. If the market is really worrying about a global recession, oil and gas will also get eventually hit but until then, they are in an uptrend and uptrends tend to keep going higher until there’s a high-volume breakdown that changes the sentiment/narrative.

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.

The charts in this video are powered by MarketSmith

April was four weeks of relentless selling for all major indexes. Small caps Russell 2k (IWM), large caps S&P 500 (SPY), the Nasdaq Composite which includes 3,000 stocks made new year-to-date closing lows. In fact, all of the above with the exception of SPY, have fully erased their entire 2021 gains. SPY has held better thanks to the Q1 strength in basic materials, energy, and consumer staples but even those sectors have been under some pressure lately. In a bear market, eventually, they get to every sector. There are no safe places to hide. The picture is not pretty but it is not surprising either. Last week, we talked about the recent tendency of stocks (especially tech) to sell off ahead of FOMC meetings. There’s a new one scheduled for the next week – May 3rd and 4th. The big question is do we get the usual post-FOMC bounce or will this time be different? The main indexes are on the brink of breaking down and having another leg lower. If the Fed doesn’t tone down its stance on future interest rate increases, look below. 

The earnings season has just begun. The big theme so far is resetting expectations. Juggernauts like Google and Amazon, which everyone thought were invincible, missed estimates. Apple beat them but gave wide-range guidance citing supply chain challenges in China and the market sold it anyway. Tesla dropped 20% since its best earnings report ever as Elon Musk is raising money to fund his Twitter purchase and short-sellers have smelt blood in the water. If those major stocks can get hurt, no one is safe. This is why market sentiment has turned quite bearish. Many have already reached a point where they just want out of the market. Hitting everyone’s favorite stocks will do that.

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

Correlations between stocks went up significantly in the past few days. Tech stocks are not the only ones under pressure. They have been joined by basic materials. Everything is getting sold; even the defensive sectors like consumer staples and utilities. I see two main reasons behind the recent weakness:

1. The market is pricing in an aggressive interest rate hike. Stocks went down significantly in the two weeks ahead of the FOMC meetings earlier in the year – Jan 25-26 and March 15-16. The next meeting is May 3-4th. It seems we are seeing something identical right now. Stocks bounced after the FOMC meeting the past two times. 
2. After the Netflix earnings fiasco and lower guidance, the market is worried that other companies will report similar issues and it is pricing them in advance just in case. Remember that financial markets move based on sentiment and expectations in the short term. They often panic before they ask questions. The silver lining is that the worst might be discounted ahead and see more constructive price action after the majority of earnings reports are behind us.

Obviously, many basic material stocks are still in an uptrend. They might still find some support near their rising 50 and 100-day moving averages. It usually takes some time for an uptrend to turn into a downtrend. There is a period of clear distribution and choppiness in-between. Keep in mind that the first half of 2008 was somewhat similar to 2022. Basic materials were strong while the rest of the market was weak. At some point, even commodity-related stocks started to break down and then the entire market accelerated lower. Pay attention when correlations go to 1.0. It’s a sign of widespread liquidation. 

What’s next? We are in the midst of earnings season. The next three weeks will be heavy in reporting. What I have noticed so far is that stronger than expected earnings reports are getting little to no market love – the upside gaps are smaller and they are often getting faded. See Tesla (TSLA) or United Airlines (UAL) for example. Downside earnings gaps on the other side are following through. Look at ISRG, VZ, HCA from last Friday. They all gapped down right below previous support and quickly sliced lower from there. With the risk of saying the obvious, upside earnings gaps do a lot better during bullish markets and downside earnings gaps find better tractions during bearish markets. 

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.