Fed Spooks the Market

Jun 20, 2021 | How to monitor and swing trade the FED meetings

Weekly Newsletter- Week of 6.27.2021 

Fed Spooks the Market 

On Friday, St. Louis Fed official James Bullard said that he expects a rate hike sooner than anticipated. This forecast prompted an immediate market sell-off to close the week. As we've mentioned in the past, the Fed is stuck between a rock and a hard place. Think about it this way: roughly speaking, the Fed only has so many options in the toolbox to impact the economy. They can change rates (Fed Funds rate), change regulations (bank reserve requirements), or they can print more money (Quantitative Easing or QE). The problem we find ourselves in right now is that rates are already so low we can’t go much lower (real rates are essentially negative), reserve requirements are also at the bottom (when the pandemic first started these were cut to zero), and we’ve already expanded the monetary baseline through QE. 

What Do Rising Rates Mean For Business? 

As we’re seeing a move up in rates, it makes sense that investors would shift out of the tech heavy NASDAQ and into more value based companies. But why did it the sell-off occur? It’s all about the cost of capital and the risk-free rate. Think about it this way, if you’re a new tech company that can borrow at 1%, you’re able to fund lots of new projects to generate future cash flows. In an environment with low interest rates, you can fund R&D, M&A, and other initiatives to further expand your business. Now what happens when rates rise and a company’s revenue can’t keep up with their debt obligations? Nothing good.

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.

Retail Sales Miss, But Prices Keep Rising 

This past week, we saw retail spending drop in 8 of the 13 categories for the month of May. This decline follows two straight months of stronger gains and increased retail spending. Total retail purchases dropped 1.3% in May, a much larger drop than the consensus numbers estimated. 

Zooming out, we did see an increase in spending over the pandemic. However, this increase was only minor compared to the personal savings figure throughout the same time as American’s savings rose by $1.6T during the pandemic. Data around consumer spending continues to be a key driver in today’s market. The data shows that increased spending in entertainment and travel are again on the rise- this is expected to continue as spending on consumer goods looks to level off.  One of the biggest concerns in regards to the spending number is that heightened price increases, due to inflation, will inevitably slow down spending. 

Amazon Continues to Expand Reach 

We recently reported, through our social media accounts, that Amazon will begin expanding into telehealth. “Telehealth — sometimes called telemedicine — is the use of electronic information and telecommunication technologies to provide care when you and the doctor are not in the same place at the same time.” - Tellehealth.gov 

Amazon said they will begin launching virtual health pilot programs to all of their US employees, starting this summer. The new initiative is known as "Amazon Care". The eCommerce and retail behemoth has no plans to stop there- with recent initiatives in grocery, artificial intelligence, and web services, it’s hard to imagine a world where Amazon isn’t entrenched in every niche.  For now, Wal-Mart is still the leading vendor by market share in grocery stores Amazon has plans to wrestle that title away from Wal-Mart by 2025. 

Another Rough Week for Crypto 

As of today, June 20, 2021, the entire crypto market is was down another 8-10%. We recently reported on our social media that Bitcoin was getting its first software update in over three years. Although the news initially caused the price to jump, Bitcoin continues to trade sideways. From a technical standpoint, many traders are bearish in the short-term due to a commonly referred to pattern called the “death cross”. A death cross occurs when the short term moving average (50 Day) passes under the long term moving average (200 Day). Aside from the technical analysis, BTC is still receiving regulatory scrutiny as China continues to push towards an outright ban. 

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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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