Market Closes Worst April Since 1970

May 01, 2022 | How Much Further can Tech Markets Drawdown?

Weekly Newsletter- Week of 5.1.2022

Big Tech Down as Markets Continue to Slide

The brutal selloff in the stock market continued through April. In fact, April marked the worst month for the entire Nasdaq Composite since 2008! As we reported in last week's newsletter, big tech and many of the FAANG stocks reported earnings last week. None of those stocks were hit harder than Amazon, whose down nearly 15% this week alone. It's not just tech stocks that are feeling the pain though, as investors struggle to find any signs of a reversal. The S&P dropped nearly 3.5% this week and the DOW had another rough week, shedding 2.5% in market cap. Stocks have struggled to gain any momentum in recent weeks as the war in Ukraine continues, new Covid closures in China are again impacting supply-chain and the continuous tightening of fiscal policy thanks to the Fed.

Investors were hoping that big-tech and the FAANG stocks could turn around market sentiment this week, but that was not the case. After Netflix’s stock took a nose-dive a week ago, big-tech continued to see red this week also.

Amazon Sinks 14% on Friday

Big tech has been at the heart of recent selling, as rising interest rates have hurt company valuations while eating into profitability. Unfortunately, Amazon is battling more than just interest rates after taking a surprise loss last quarter.
Amazon expects losses to mount after giving muted guidance for the next quarter. Amazon's biggest pain point currently centers around consumer spending. Amazon noted that as prices rise thanks to inflation, consumers are unsurprisingly spending less than in previous quarters. When the pandemic started, Amazon doubled down on eCommerce, investing billions into their shipping and logistics departments. Now, Amazon is sitting with tons of unused inventory they have been unable to offload. Slowing demand and increased inventory have Amazon shares down big.

Apple Continues to Battle Supply Chain Issues

While not as violent as Amazon's shares, Apple is also down after reporting earnings. The tech giant is once again citing major supply chain concerns as Covid cases pick up in China. Apple continues to emphasize its future plans will not rely so heavily on China. But they aren't there yet, and shares are down because of it. But it's not just supply chain issues that are mounting for Apple... with such a reliance on Chinese manufacturing, we don't always consider how much business Apple conducts in China. China is Apple's second-biggest market thanks to a growing middle class. But sales in China are down as lockdowns increase.

Cloud Carries Microsoft

Despite getting swept up in the larger selloff on Friday, Microsoft shares are up nearly 2% after a strong earnings report. While citing similar manufacturing issues as Apple, Microsoft has been able to weather the storm thanks to its ever-expanding cloud division. Cloud services continue to grow and luckily for Microsoft, cloud software has been virtually unaffected by Covid. If anything, the move to more virtual environments has only made Microsoft Azure (their key cloud-based product) even more attractive for businesses and investors alike.

What it Means: Stocks were down all April as we close out one of the worst months for the markets in over a decade. Investors had been hoping that the usually resilient FAANG stocks could help turn around the market sentiment. Unfortunately, even these giant technology companies are not immune to massive selloffs. This week left investors eyeing a ‘bottom’, as many profitable companies continue to bounce off 52-week lows. Right now, stocks are battling inflation, the Fed and ongoing war. Until one of these issues begins to reverse, the selling could continue.

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

Inflation Forces a Shift in Consumer Spending

Everyday items cost more than they did a year ago and it's forcing consumers to make shifts in their spending habits. Consumers have been forced to ask themselves, what do I really need? And what can I not live without? Some industries like airlines have actually benefitted from rising prices. After an extensive period of lockdowns and closures, consumers were eager to leave their homes, regardless of the price. But for every expensive plane flight, could that mean fewer dollars for your Amazon shopping cart? As we noted above, Amazon is battling a slowdown in spending as inflation drives consumers back to pre-pandemic levels of spending.

Prices Are Rising at a Record Pace

Consumer prices have increased at their fastest rate in four decades. The cost of just about everything from your home to your coffee has been increasing. But think about it, the consumer is paying higher prices because it costs more for businesses to operate. Companies are attempting to raise prices to offset their own pricing pressure.

See below to review how rising costs have been impacting big business:
      1.) Amazon – has just experienced their slowest sales growth since 2001
      2.) Netflix – lost subscribers last quarter for the first time in over 10 years
      3.) Activision Blizzard – reported significantly weaker sales videogame sales than expected

All three of those businesses could be categorized as ‘luxury’ items. Or purchases you could theoretically live without.

What it Means: We’re in a Bear-Market right now, make no mistake. When looking for stocks to invest in, now more than ever, it’s vital you analyze the current economic climate. As prices continue to rise, you must identify whether the underlying business can survive regardless of increased pricing pressure.

Buffet Still Hates Crypto

Warren Buffet is often considered one of the greatest investors of all time. On Saturday he led an earnings call for his company Berkshire Hathaway. With years of experience behind his name, lately, Buffet has been making headlines for his stance on crypto. As crypto has continued to gain mainstream acceptance, Buffet continues to take a hard stance against Bitcoin and the entire sector. When asked about crypto during this earnings meeting, Buffet proclaimed “It doesn’t produce anything! It’s got a magic to it and people have attached magic to lots of things in the past.” He went on to say... “In my life, I try to avoid things that are stupid, evil and me look bad. Bitcoin does all three...”. He went on to exclaim that Bitcoin is stupid because he expects its value to eventually be zero over time. In the past, Buffet has been quoted calling Bitcoin “rat poison” and “delusional”.

What do you think?? Has crypto become a legitimate asset in your eyes? Or is Buffet right in predicting Bitcoin will eventually be worthless? Despite the ongoing acceptance of the entire crypto industry.

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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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