Bear Market Rally Over?

Aug 21, 2022 | Is the bear market rally over? Are we in a bear market?

Bear Market Rally Over?

The stock market turned red after four straight winning weeks. Almost all sectors were under selling pressure, as Utilities and Defensive stocks were the only parts of the market to trade higher.

There’s been plenty of great news in the economy lately, but concerns are rising that stocks may be overdue for a pullback. Stocks have soared high over the last month, but many investors are starting to wonder if the summer rally has begun to fizzle. Several key metrics within the market have also highlighted how stocks have quickly moved from oversold to overbought territory.

For the week, all major indexes took losses. The S&P 500 dropped nearly 1.5%. The DOW saw a slight drop in value, while the Nasdaq was the week's biggest loser. The Nasdaq saw losses of over 2.6% present. 

Now traders are wondering if stocks are heading toward a pullback into bear market territory? 


Defensive Stocks Rally 

As we previously noted, defensive stocks were one of two outperforming sectors this week. When the defensive sector is leading the way for stocks, there’s generally a concern of underlying volatility not far behind.

Cyclical stocks, or those heavily dependent on economic stability, saw strong gains throughout July and August. That trend appeared to come to an end this week, as investors moved from cyclicals to defensive stocks. Additionally, we also saw consumer staples and utilities flying higher than the rest of the market. 

Conversely, we saw basic materials and communication services each dive lower. Adding more strain on the S&P 500.

Bond Yields are Rising 

Last week we also saw movement in the bond market as yields ticked higher. Higher yields can be problematic for stocks because they make bonds look like a more attractive investment. Treasury yields also moved higher this week just before stocks began to slide. This could be another sign that the current market rally is nearing an end.

Value of the U.S. Dollar Moves Higher  

Rising treasury yields and softening inflation have helped drive the U.S. dollar higher, creating another potential headwind for stocks. The U.S. dollar index, which measures the dollar against its rivals, has risen to its strongest level in a month. 

A stronger dollar can sometimes be associated with a weaker stock market. Why? This can negatively affect foreign earnings of American multinationals by making them worth less dollars.. 

Crypto Down

Another reason stocks may be heading lower is due to the volatility we’re seeing in crypto. As crypto value moves lower, this highlights a reversal of risk appetite within investors. Both Bitcoin and Ethereum have begun to trade lower lately. And for the year, most of the crypto sector has moved in step with the direction of stocks. 

What it Means: Stocks had been rolling for the last month, but we may have seen a screeching halt to the rally last week. With defensive stocks leading the way, crypto trading down, and bond yields moving higher, there are a lot of reasons to be cautious of the current market. 

When experiencing a bear market, it’s not uncommon to see stocks make a quick swing higher, leaving investors to wonder if the worst is over? We’ll be watching to see what new catalysts may impact stocks this week. 

Weekly Swing Trades

PNRG (Prime Energy)

October 2, 2022

Entry Price:

80.62

Stop Price:

76.85

Target Price:

88.04

Time Frame:

1 Week Hold

Expecting a short-term bump after a recent OPEC+ announcement regarding the a supply constraint to oil. The constraint would result in ~1M less barrels of oil per day, which should cause a price jump. Low RSI and bouncing off our 250 day moving average, both hallmarks of a good swing trade.

DV (Doubleverify)

October 2, 2022

Entry Price:

27.75

Stop Price:

26.75

Target Price:

29.00

Time Frame:

3 Week Hold

Using our moving averages heavily on this swing trade, look for continued strength as we try to notch out a 6-8% gain. Specifically, we are taking advantage of of a recent cross over in the 50 day moving average. Last week closed down, so wait for confirmation of a reversal.

The Meme Stock Roller-coaster

Bed, Bath & Beyond, ticker BBBY, saw a wild week of trading last week! Fueled once again by Reddit and the Wall Street Bets community. The stock soared upwards of nearly 70% last week, before shares came crashing down to the end week. On Friday alone, BBBY shares lost over 51% of their value.  


BBBY Rise & Fall

BBBY has been a struggling retailer, trying to fight off the same fate as other recently failed retailers, such as Sears, Kmart, Borders or Circuit City. The wild rally for BBBY shares was initially tied to investor enthusiasm after learning Gamestop Chairman Ryan Cohen had recently taken a large stake in the company. 

We’ve seen this in the past with Cohen and other venture capitalists like Elon Musk or Jeff Bezos… just having their names attached to a company can be enough to send shares soaring. Cohen had recently disclosed a 9.8% take in the company, leading to an initial surge for BBBY shares. 

On late Thursday evening, it was disclosed that Cohen had sold his entire position with Bed Bath & Beyond. 

What it Means: Bed Bath & Beyond is a struggling business with no fundamental explanation for its stock price doubling in just a few days. We would subsequently learn, the entire rally can be tied back to a large investor taking a position in the company. As we’ve seen, a focused and mobilized online community can significantly impact a stock’s price. But we continue to caution against chasing after these kinds of plays… as demonstrated by a 50% slash in the stock’s value on Friday alone. 


FDIC & Crypto Drama

On Friday, the Federal Deposit Insurance Corporation (FDIC) sent cease and desist letters to 5 separate companies, including a popular crypto exchange known as FTX US. The FDIC regulates and insures the deposit of FDIC-insured community banks and financial institutions. 

The letters demanded that the companies in question cease and desist from making false misleading statements about FDIC deposit insurance. FDIC claimed each company made false representations on their websites and social media accounts suggesting that certain crypto related products are FDIC-insured.

Each company quickly took to their Twitter accounts to clear up confusion regarding the lack of FDIC provided insurance. 

What it Means: This was not the first time the FDIC has taken action against a crypto company. Just last month, they issued a similar letter to Voyager Digital. That company just filed for bankruptcy protection… Showing just how important reputation is within the expanding crypto sector.

As crypto gains in popularity, it will continue to be scrutinized intensely by lawmakers. When buying or trading crypto, we implore you to do your own due diligence about what you are buying, what’s insured and what platform you are using.  

Upcoming Economic Reports

Market Performance- Week of 09.25.2022

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Weekly Watchlists

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Weekly Review

Market Performance- Week of 09.25.2022

Recent Winners

SBUX (Starbucks)

SBUX (Starbucks)

Entry Price:

85.00

September 11, 2022

Price at High:

89.90

Return for Members:

5.76%

Timeline:

2 Month Hold

Strong momentum over the last few weeks. Watch for a mean reversion, but if moving averages stay consistent look for an early play to open the week.

PNRG (Prime Energy Resources)

PNRG (Prime Energy Resources)

Entry Price:

83.20

September 4, 2022

Price at High:

100.00

Return for Members:

20.19%

Timeline:

3 Week Hold

PNRG had a drawdown to historical levels of support (around the 100 day moving average). Looking to make an entry in the coming days as we also have macro tailwinds with the energy crisis in Europe.

PYPL (Paypal)

PYPL (Paypal)

Entry Price:

87.00

August 28, 2022

Price at High:

103.00

Return for Members:

18.39%

Timeline:

4 Week Hold

Playing off the dip in June, we're starting to see momentum as the 50MA is crossing over the long-term averages. Look to for momentum to continue and an early entry on Monday.

Recent Watchlist Winners

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