Market Tumbles as Confidence Wains

Jan 23, 2022 | How can swing traders win in a declining market?

Weekly Newsletter- Week of 1.23.2022

Nasdaq Plummets to a Pandemic Low

We all know the technology sector of the stock market has been under serious pressure for months. In fact, the tech-heavy Nasdaq has cratered nearly 15% in the last 3 months alone. This week marked another milestone in the technology selloff.

Worst Week Since Early Covid

After shedding another 2.5% on Friday to close the week down over 7%, the Nasdaq composite just had its worst week since the early stages of the pandemic dating all the way back to March 2020. We all remember those early Covid days. The entire market was red regardless of the sector given the rise in fear and uncertainty. Yeah, technology is now taking losses that can only be compared to the early days of Covid. Friday’s selling was simply icing on the cake to another brutal in the stock market. No index has been safe from the selling as of late. For comparison, the S&P 500 also had its worst week in over a year, dropping 5.6%. The DOW also dropped 5% while the small-cap index of the Russell 2000 also shed nearly 8% of its total value.

What's Driving Markets Lower

This week marked the third straight losing week for the S&P. Nearly all the 11 sectors ended up as losers when the markets closed Friday. The Nasdaq is currently on a 4-week losing streak, after recording 6 straight consecutive down days. Rising interest and the prospect for higher benchmark rates are once again dragging investor sentiment lower. The market continues to get dragged lower as the bonding selling increases. Investors are also becoming more fearful over how the Federal Reserve may battle inflation, which has caused high multiple tech stocks to be continuously hammered.

Rocky Start to Earnings

We’ve only just begun the latest round of reporting earnings, but so far, earnings have done little to increase market sentiment. Banks and the Financial sector are always first to report and can set the tone for the rest of earnings seasons. Underperformance within the banking industry has only added to the Bear market fears. Long-term FAANG stock winner Netflix reported last week and discussed future guidance for their slowing new user growth. Wall Street did not take kindly to the new guidance which helped Netflix plummet over 20% this week alone! Netflix’s massive selloff has caused ripple effects across the market and the numerous ETFs it weighs on.

What we’re watching this week: Given all the recent selling, we’re looking for any signs of stability or optimism within the market right now. Technology giant Microsoft will report on Tuesday and they have been one of the few tech stocks, mostly immune to the recent selloffs. We’ll be watching to see what they report and how the markets react.

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.

Microsoft's Big Acquisition Send Sony Investor's Running

Speaking of Microsoft, they made major headlines after acquiring videogame publisher Activision Blizzard. Activision was another pandemic winning stock as the lockdown once again vaulted videogame playing into mainstream acceptance. Activision has been trading lower with the overall market lately, but controversy and allegations regarding the CEO had the stock flashing sell signs. Microsoft timed their acquisition of Activision Blizzard nicely as ATVI shares were trading down nearly 50% from their all-time highs. After news of the acquisition broke, shares of Activision soared jumping over 25% this week alone! Microsoft will be acquiring Activision for $68B in cash, which sent their shares trading down nearly 5% for the week. Microsoft has many different revenue streams, but its gaming division makes up over 30% of the business. After acquiring such a key name in the videogame space, it’s no surprise Sony shares tumbled down on the news.

What the Deal Means for Sony

After news of Microsoft’s acquisition broke, shares of Sony dropped over 10%. The obvious concern among Sony shareholders has been, what will Microsoft do with all of the new properties it acquired through ATVI. None of those intellectual properties are more popular than the massively over Call of Duty franchise. Call of Duty is currently available to play on both Microsoft and PlayStation platforms. With the new deal, Microsoft also controls the future of; Tony Hawk Pro Skater, World of Warcraft, Crash Bandicoot, Candy Crush, and many other videogame titles.

As the proprietor for these new intellectual properties, Microsoft must decide whether to continue to license out these titles, thus making them available for PlayStation owners. Or, to take these very popular titles and make them exclusive Xbox properties. Thu ensuring the only way to play one of these properties would be through an Xbox. With that said, Sony management expects Microsoft to honor the agreements in place with Activision. Xbox has indicated a willingness to continue collaborating with their videogame rival.

What it means: With their acquisition of Activision Blizzard, Microsoft now has the ability to significantly alter the current landscape for video games. Though it seems likely Microsoft will want to continue the agreements already in place with Sony, there’s no doubt they currently have the potential to drastically alter the future of the industry with all of their new properties.

Bitcoin Nosedives

With most of the market being oversold recently, crypto has traded sideways and lower for the past few months. Despite the increased volatility, Bitcoin has been able to maintain ample support lines which kept the asset from a full- blown selloff. That recently changed as the entire crypto landscape has cratered, causing the entire space to flirt with one-year lows. For context, Bitcoin currently sits at $35K, with a one-year low of $32K. This is a far drop from its all-time highs when the asset traded just under $70K.

Russian Bans

Within these newsletters, we frequently report on crypto and Bitcoin’s landscape across the globe. For crypto to truly become a form of currency, it’s important to track its standing across multiple countries. For instance, we've cited several stories surrounding El Salvador moving to make Bitcoin legal tender. During the recent selloff, the El Salvadorian president acquired over 400 more coins for the nation. Conversely, China and now Russia are both making moves to ban all transactions involving crypto from its borders. The move from Russia was the latest catalyst to send the sector lower, though the asset has become increasingly tied to technology stocks over the past few months.

As concerns over the security of the asset once again arise, Bitcoin has broken a key level of support while plummeting below $40K. Ethereum was recently riding a wave of momentum thanks to the growing interest in Non-Fungible Tokens (NFT) but their shares have also sunk over 40% in the last month. What it means: When a country as large as Russia moves to ban cryptocurrencies, this is sure to cause the asset to trade lower in the short term. Unfortunately, Bitcoin is also battling growing concerns over a more hawkish Fed Reserve going forward. While crypto’s long-term outlook remains bright, the short to medium term may continue to see elevated volatility.

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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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