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Rates Climb and Stocks Slide

Last week we talked about how a mini-rally was beginning to form in the stock market thanks to some macro events that were helping to improve overall sentiment. Well, this week we were reminded yet again, just how important the Fed will continue to be when assessing the value of stocks. Stocks slide lower on Friday to help ensure all market indexes are closed red. The Dow dropped 1.1% this week, while the S&P saw losses of over 1.5%. The technology-heavy Nasdaq was once again our biggest loser, dropping 2.5%.

Good News for the Economy, Bad News for Stocks

This week also delivered positive news for growth in the job market. While estimates predicated 325,000 new jobs would be created in May, new job growth actually soared, bringing in nearly 400,000 jobs. While job growth looks robust, higher than expected job growth did help trigger a rise in the 10-year Treasury rate. This rise in rates was one of the key contributing factors to this week’s losses for the market. Now investors are beginning to fear that strong numbers in job growth may actually increase the likelihood of future rate hikes. As more people are getting back into the workforce, it becomes more likely that the Fed will continue to raise interest rates. While the labor market remains very tight, investors are looking out to July in hopes of slowing rate hikes. As we’ve talked about in the past, all these concerns only add fuel to the fire of a potential recession. Investors fear higher rates could slow the economy and tip us into a recession. Higher yields have caused tech stocks to crater as of late. As higher rates can affect future earnings, thus making a stock look less attractive.

Tech Slides Again

As we’re all aware by now, technology and growth stocks are the two sectors that have been hit the hardest as rates have continued to rise. This was true again on Friday as many top tech stocks took big losses. Chip makers were down, with Micron and Nvidia each taking 5% losses. While Google and Meta-Platforms were each down 3% and 4% respectively. Apple dropped another 3.9%, while Tesla shares plummeted nearly 10% after talking about possible job cuts!  

What it Means: Stocks came into this week hot, with a mini-rally forming. While we received very positive news regarding job growth this week, this data ended up having a negative impact on stocks. While technology and growth stocks have provided ample opportunities for a swing trade as of late, given how far they have fallen, until we get inflation under control, any move the Fed makes is sure to send ripples throughout the stock market.

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

Amazon Announce 20:1 Stock Split

Amazon recently announced they would be issuing a 20:1 stock split. Meaning, that for every 1 share of Amazon stock a shareholder owns, they will now get 20 shares at 1/20th the price. This does not change the overall value of shares, but stock splits due tend to come with investor enthusiasm. Amazon’s stock price closed last Friday at $2,447 per share. Meaning, that after the 20:1 split, each share will now be worth about $122, but you’ll own significantly more shares as an investor. Stock splits obviously have a huge impact on the total number of available shares as well. While stock splits do not change the value of the company, they are often used as a way to increase price action. For an investor who wasn’t willing to pay nearly $2500 for one share, they may be more inclined to purchase Amazon at the new lower price. But it’s important to realize there are now 20x as many shares of Amazon stock available. Before the split there were 509 million shares available, there will now be over 10 Billion shares of Amazon stock going forward. The more available shares, the harder it is for a stock price to move.

What it Means: The biggest reason a company may issue a stock split is to make the share price now more accessible for the retail investor. An additional benefit for Amazon is the stock could not potentially be added to the Dow. The Dow is weighted according to share price, therefore making it difficult for high-price shares to join. Since the split, Google has also announced a 20:1 stock split. These announcements tend to come with a quick surge in price action, as people attempt to accumulate additional shares before the split. Amazon is up over 10% this week, while Google saw a 6% jump as well. We’ll be watching for any new stock split announcements, within big tech.  

Bitcoin Miners in Need of Liquidity

Bitcoin miners have been selling their tokens at an increasing rate lately as Bitcoin continues to lose steam.  Nearly 200,000 Bitcoin was transferred to public exchanges in May, the largest monthly increase of tokens in 6 months. This indicates that companies may be moving large amounts of coins to exchanges for sale. While all 200,000 were not sold, this does indicate people may be more bearish on Bitcoin’s future. As Bitcoin has struggled to come anywhere close to its all-time high of $64K, it appears more companies are opening to selling at these levels. 

Upcoming Economic Reports

Market Performance- Week of 08.14.2022

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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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