Can Markets Sustain the Rally

Mar 27, 2022 | How long can the Current Market Rally Continue?

Weekly Newsletter - Week of 3.27.2022

Markets Are Hot, but Can the Rally Continue?

This week, we’ll be watching for the release of the March employment report, but Ukraine, the rising price of oil, and a new inflation report are all set to once again become key market drivers too.

Last Week in the Markets

Stocks mostly traded higher last week, all while interest rates have begun to rise, and oil prices continue to climb higher and higher. Energy stocks were once again the top-performing sector, notching gains of nearly 7%. Rising gas prices have been negatively affecting everyone, but Energy stocks have been one of the few to benefit from the jump in oil. All major indexes were winners this week, with the S&P jumping 1.8%. The DOW took home minimal gains while still trading green, and the tech-heavy Nasdaq had a great week, taking home gains of nearly 2%. Additionally, the 10-Year Treasury Yield used to measure rates was once again on the move. With the Fed finally beginning to implement their much- discussed rate hikes, it’s no surprise the 10-Year soared higher this week. Touching 2.5% on Friday, while reaching its highest levels since 2019.

Can the Rally Continue?

It seems like each week we have a new economic factor to watch. Despite the compounding uncertainty within the markets, stocks have mostly traded higher for March. Did you know over 50% of the entire S&P 500 is currently trading above their 50-day moving average?? This shows positive momentum in the short-term, and with volume staying high, there are reasons to be optimistic of a continued rally in the stock market.

Some of the higher-quality FAANG stocks have also begun to reclaim their 50- DMA. Stocks such as Tesla, Microsoft, Apple, and Alphabet have all been rallying higher while pushing the entire Technology Sector green. While we continue to stress the importance of only trading profitable tech companies given the current climate, the recent rally has presented buying opportunities within the sector.

Jobs & Inflation

While daily news on the war and the uphill battle against inflation has been market drivers for weeks, March's pending jobs report due may also force some immediate action within the market. Additionally, consumer confidence and home sales data will be releasing key reports, each due out on Tuesday. Inflationary data is expected to remain sky-high, while a key manufacturing survey will be released on Friday. Economists are also predicting a positive report for job data, while the unemployment rate is expected to tick lower as well.

What It All Means: After months of brutal selling in the stock market, it appears many stocks have finally hit ‘bottom’. Despite a growing list of reasons to be Bearish on the market, overall sentiment continues to increase. While we recommend continuing to steer clear of pre-revenue tech stocks, the current rally has opened up buying opportunities for other sectors to outperform, and not just within Energy.

This Week’s Picks

EDR (Endeavor)

August 14, 2022

Entry Price:

24.50

Stop Price:

23.35

Target Price:

26.46

Time Frame:

3 Week Hold

EDR has been in a channel pattern over the last few weeks. As it approaches the bottom band, after a some mid-week volatility, look to make enter the trade off the rebound. As noted in KMX, keep a trailing stop loss and close the position quickly should the market turn.

KMX (Carmax)

August 14, 2022

Entry Price:

101.85

Stop Price:

96.45

Target Price:

109.15

Time Frame:

4 Week Hold

KMX, along with most of the market, has been rebounding off June lows. We've seen strong momentum and a crossover of our long-term MAs. Watch for a market pull-back and keep a trailing stop loss. We're riding strong tailwinds, so get in and out quickly

Housing Market Continues to Slump

While many stocks have begun to turn things around, the Real Estate Sector has continued to underperform. For comparison, Zillow and Redfin (two of the most popular stocks in the sector) are both trading down, at least 50% off their
one-year highs. Redfin has had an especially rough year, with the stock down over 70% this year alone!

Newly released data within the housing market may be able to shed some light on the struggling sector. As we move into Spring, typically the busiest time of the year for home buying, we see that pending home sales dropped nearly 5% in February compared to January.

Declining Sales

We've reported extensively on the 2021s red-hot housing market, through this newsletter and our blogs page. But now, for the fourth straight month, we're seeing a decline in overall home sales.

The price of a new home has been on the rise for years, but with inflation pushing the price of just about everything up, consumers are holding onto their dollars even tighter than before. For starters, thanks to inflation, mortgage payments are taking up a larger part of a consumer’s monthly spending. With the price of gas and even your groceries increasing, that leaves even less available in the pot to pay your mortgage.

Housing Reacts to New Rate Hikes

As we head into what is typically a chaotic spring season of home buying, overall sales are down 5.5% in March compared to February. This is the fourth straight month of declines in pending sales, which is an indicator of future closings, typically one to two months out.

The decline in home sales seemed to amplify in February when mortgage rates really began to take off. This is clearly a strong indicator of the housing market reacting to higher rates. And again, this comes right before the busiest time of
year to buy a home. Rates have been rising since January while moving even higher in February. The average rate for a 30-year mortgage is now over a percentage point higher than a year ago. When dealing with arguably the biggest purchase in one’s life, a single percent can cost the consumer thousands.

Sales By Region

Regionally, pending home sales rose by 1.9% in the Northeast, though total sales are still down nearly 10% since compared to a year ago! Home sales in the Midwest declined nearly 6% last month alone. In the South, home sales dropped over 4.5 last month, with total sales down 5% for the year.

What It All Means: Homebuying is typically considered the largest purchase you’ll ever make in your life. As if that’s not stressful enough, consumers are also contending with inflationary price increases for all their daily activities. Consumers are now adjusting what their dream home should look like, to account for the new rates. Spring is usually the busiest time to buy a home, but with inflation taking up more and more of your paycheck, it’ll be interesting to see what homebuying looks like for the remainder of 2022.

Is Exxon Mobil the Next Great Bitcoin Miner?

ExxonMobil has been working with a Denver-based energy company to mine Bitcoin in North Dakota as part of a new initiative to slash emissions. The program initially launched in early 2021 but has been picking up steam since last July.

From Oil to Crypto

Exxon is known for being the top oil and gas producer in the U.S., but they are beginning to pivot toward turning wasted energy, or flare gas, into a useful resource. Exxon is attempting to divert natural gas that would otherwise be burned off into generators, into electricity that would be used to power shipping containers for bitcoin mining. This isn’t seen as a new endeavor to generate revenue for Exxon, but rather as a pledge to help reduce emissions worldwide. In early March, Exxon joined the World Bank’s Zero Emissions by 2030 initiative.

Given that energy consumption is one of the biggest pain points to crypto mining, Exxon is helping to incentivize miners to find the cheapest and most efficient energy sources. With all the hazards caused by wasted energy, this could end up being a huge win for crypto and the Energy market.

Upcoming Economic Reports

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Weekly Watchlists

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Weekly Review

Market Performance- Week of 08.14.2022

Recent Winners

CF (CF Industries)

CF (CF Industries)

Entry Price:

87.40

August 14, 2022

Price at High:

105.10

Return for Members:

16.84%

Timeline:

4 Week Hold

CF is a manufacturer of fertilizer and other farming products. Similar to our thesis on oil last week, we're expecting more global tensions to arise over the coming months. Although not directly related, CF should appreciate if adverse events occur. Technically speaking, we're seeing a bounce off the 180MA. However, there is negative momentum so be careful with entering too early.

MRNA (Moderna)

MRNA (Moderna)

Entry Price:

168.85

August 7, 2022

Price at High:

197.33

Return for Members:

16.86%

Timeline:

1 Week Hold

We're starting to see a reversal take place. Watching the 50 day moving average cross over the 100 day. Saw some weakness to close this week, so wait for upward momentum before jumping in.

X (US Steel)

X (US Steel)

Entry Price:

20.15

July 31, 2022

Price at High:

23.75

Return for Members:

17.86%

Timeline:

1 Week Hold

Stark momentum shift from the lows on this one. Tracking our moving averages on the 2-hour time chart. Looking for an early entry and quick trade.

Recent Watchlist Winners

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