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May 15, 2022 | When will the Market Bottom and How to Trade the Coming Pain

Weekly Newsletter - Week of 5.15.2022

The Bear Market Continues

The stock market closed out last week on a positive note as a new market rally may have begun to form. This comes after months of selling which has pushed numerous quality stocks deep into oversold territory. The market has been experiencing a brutal selloff as of late. But Friday represented Nasdaq’s best one-day gains since November 2020. Investors continue to look for any signs of optimism in today’s current climate.

Markets Close the Week on a Rally

Stocks were hot to end the week as all major indexes saw sizable gains on Friday. The DOW jumped 1.5%, the S&P was up over 2% and the Nasdaq jumped nearly 4% on Friday alone! But even with those giant gains, the DOW is still in the midst of a 7-week losing streak. The longest for the index since 2001. Stocks were green across the board on Friday as over 95% of the S&P 500ended the day higher. Nike and Salesforce were some of the biggest winners of the day, jumping 4.5% and 4% respectively.

Tech was also a big winner on Friday as many of the beaten names started making a comeback through the one-day rally. Meta Platforms and Alphabet were both up 3% on the day. Tesla jumped by nearly 6%. Semiconductors also roared back, as AMD and Nvidia each had huge gains of over 9% each. Meanwhile, Twitter shares plunged nearly 10% after Musk announced a standstill in the takeover deal.

Will Next Week Represent a Reversal for the Markets?

After last week’s selloff ended with a market rally, there are reasons for optimism in the week ahead. This week we’ve got key retail and housing data set to be released. And Tuesday, we will hear the latest from the Fed and Chairman Powell. We’ve also got a big week of earnings as Retail takes center stage. Wal-Mart, Home Depot, and Target are all due to report. Their reports should provide key data on consumer spending habits amidst soaring inflation. From a technical standpoint, many quality stocks are down upwards of 70% from their one-year highs. Many of those names have moved well into oversold territory, which could also help fuel a mini-rally.

What it Means: The Markets have been down for months, but Friday was the most profitable day for stocks in quite some time. After months of brutal selling, investors are hoping to see signs of a bottom or a reversal. Friday’s strong day of trading could be the first sign of a real reversal, as many
stocks have fallen significantly off their one-year highs, thus helping to de-risk the stock. With retail dominating this week’s earnings, positive reports could help further a reversal in the 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

Coinbase Shares Continue to Crater

Coinbase, the #1 leading exchange for trading Crypto assets went public in 2021. For crypto skeptics, this represented a prime opportunity to invest in the trend of crypto without being tied to a single asset. Since going public, the stock market has been in an inflation-fueled bear market that has caused most of the technology sector to plummet. This is especially true for Coinbase, whose shares are down 75% in the last year.

Coinbase Drops 40% in a Week

The entire crypto sector has been taking a beating as of late, as inflation has forced technology into red Bear Market territory.
Several factors are working against crypto right now:
1. As we reported in last week’s newsletter, the chances of a recession in the U.S. seem to are climbing higher
2. The war in Ukraine continues to amplify global unrest Soaring inflation is leaving consumers with less cash

All of these factors have investors looking to de-risk their portfolios. These have all helped contribute to Bitcoin breaking down, all the way to $30K. Last week Coinbase reported earnings that came in well below analyst projections. They also noted a sizable loss which was not expected. As investors look for safe havens in these troubling times, traffic and trading volume within crypto has also been ticking lower. Thus, eating into Coinbase’s bottom line further.

Coinbase was once considered another ‘pandemic winner’ as stay-at-home orders left consumers with fewer options to spend their money on. Customers pay Coinbase a fee for every crypto transaction completed on the platform, which led to massive gains over the last 2 years for Coinbase. Coinbase thrives during periods of high trading volume, but now the stock is getting slaughtered as crypto enthusiasm wains.

What it Means: Not long ago, Coinbase shares once traded for over $300. Just last week, shares were as low as $50 a share. After a rough first quarter of earnings, Coinbase investors could be in for more pain in subsequent quarters. Crypto market capitalization is down 18% in April alone. With investors looking for safe havens to park their money, the overall crypto volume has been trending down over the last few months. With so much of Coinbase’s revenue tied to trading volume, 2022 looks to be a rough year for the leading cryptocurrency exchange.

Long-Term Unemployment Dropping

Despite the effects caused by Omicron, long-term unemployment fell significantly in January. This has continued the downward path of peak unemployment, after spiking during the early stages of the pandemic. The number of Americans out of work for at least 6 months dropped by 317,000 in
the last month. This brings the total number of long-term unemployment to 1.7M. Long-term unemployment accounts for nearly 26% of the entire unemployed population. This number dropped by nearly 6% last month as well. As the recovery continues to march on, we’ve seen a steady increase of workers getting back into the workforce.

Elon Musk Says Twitter Deal “Temporarily On-Hold”

We’ve talked extensively about Twitter and Musk’s bid to take over the social media platform in recent newsletters. This week, we learned Musk’s $44B planned purchase of Twitter is ‘temporarily on hold’ pending details of spam and fake accounts on the platform. In a recent tweet from the Tesla CEO, Musk linked to a Reuters report citing that upwards of 5% of the company’s monetizable daily active users could be fake. This is just the latest in a whirlwind story that is Musk’s takeover of Twitter. While Musk remains committed to purchasing Twitter, he has noted he is skeptical that the number of fake accounts on the platform could be ‘that low’. When trying to assess Twitter’s real value, Musk clearly needs stronger data on who’s actually using the platform.

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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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