Ivanhoff Capital

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Interest rates continue to rise which is putting downside pressure on most momentum stocks. There are always exclusions like AFRM which staged a major short squeeze last week. The norm for most momentum names lately has been downside to choppy. Inflation expectations are rising- not so much because of pent-up demand and rising wages or skyrocketing money supply but mostly because of supply chain disruptions and shortages which might take many months to resolve. As long as this remains the case, most high-multiples stocks are in danger  –  think tech and biotech.

In the meantime, financials and oil stocks are owning the 52-week highs list. Less than 18 months ago WTI Crude oil went into negative territory because there was too much of it in storage. Right now,  it is pushing $80 per barrel and the energy space is having a massive comeback – not just oil & gas but also coal and uranium.

The so-called recovery stocks (travel, leisure, entertainment) had a brief moment under the sun in late September. They gave back most of their gains in the past week.

Chinese stocks finally woke up. I don’t know if this is just another dead-cat bounce. What I know is that sentiment towards them has never been so negative. Low expectations plus a good technical setup typically equal potential for significant profits. Speaking strictly from a short-term swing point of view. Long-term, they are still in a downtrend. Personally, I would not hold them overnight. 

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We saw a big upside move in reopening stocks across the board on Friday after Merck announced their Covid pill. Airlines, restaurants, gyms, entertainment, hotels, casinos are currently among the leaders. 

Inflation plays were also on fire. Oil, coal, food producers, fertilizer stocks had a notably strong week. It seems inflation might not be as transitory and low as previously expected by the Fed. One sector’s rising revenue is often another sector’s rising costs. Stocks rarely rise together in a bull market. Every major macro theme has big winners and big losers. 

Retailers were hit hard after Bed, Bath, and Beyond reported a big decline in sales and Bank of America downgraded Kohls. In both cases, supply chain pressures were cited as the main reason. The market didn’t wait long and extrapolated that in the entire retail sector. XRT was down almost 5% last Thursday. 

Many tech stocks were under heavy pressure for most of the week as interest rates spiked. The overall level of rates is still historically low, so this pullback might end up being a buying opportunity for the best among them but overall there is a good number of broken charts in the sector and they will need time to set up again.

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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

This time the bounce was led by small caps and “back-to-normal” stocks – not only financials and energy but also travel and leisure. Airlines were the best performing industry for the week followed by oil & gas, and entertainment. The market is acting as if Covid will be gone in a few months or at least its impact will be reduced. Either that, or we just witnessed just another quick sector rotation and short covering that won’t last long. 

We saw a big spike in interest rates after the FOMC briefing last week. The Fed is acknowledging that inflation might be a bit higher and linger longer than previously expected. One small change in the Fed’s message can lead to a big move in financial markets which like to extrapolate and discount what could happen 6 months in the future. Long-term US Treasuries sold off and financials took off. With banks so strong, it’s hard to imagine SPY having any significant pullback any time soon.

Tech is not looking too shabby either. Software (IGV) and Semiconductors (SMH) never closed below their 50-day moving average and had a powerful bounce after the gap down last Monday. One would think that rising interest rates will hit richly-valued tech names, but so far we are not seeing any evidence of it. Stocks like U, SNOW, ZS, CRWD, BILL, ESTC, DDOG, ZI, TTD, AVLR, TEAM, CRM, DOCN, NET, NTNX, PLAN, SPLK, WDAY, PLTR, OKTA, DLO, etc. are either pushing higher or consolidating sideways. This is not a price action of a market worried about inflation too much.

Another thing that stood out late last week is the carbon emissions ETF – KRBN, making new all-time highs. This explains the strength in many electric vehicles stocks – TSLA, GOEV, LCID, FSR, 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.