The Bear Market Is Upon Us

May 22, 2022 | How can Traders Make Money in the Bear Market?

The Nasdaq Continues to Plummet, Down 30% From Its Highs  

Stocks were once again under heavy pressure last week. With another week of heavy selling in the books, the tech-heavy Nasdaq is down nearly 30% from its all-time highs. The all-time high was set just 6 months ago, back in November. The Nasdaq dropped nearly 4% this week. That brings its losing streak to 7 straight weeks of red. Meanwhile, the S&P is down nearly 20% from its highs, solidifying the Bear Market we are currently in. The Technology Sector is experiencing some of the heaviest selling ever seen by the index. Tech companies haven’t been selling this heavy and this quickly since 2001. That period, as you’re probably aware, will be forever remembered as the ‘Burst of the dot.com bubble’.  When technology stocks cratered after receiving sky-high evaluations tied to the explosion of the internet.  

The Pain Continues, Relief Unlikely 

Though we reported about a brief rally that was forming during last week’s newsletter, these tough economic conditions are not expected to go away anytime soon. At least not without a proper catalyst to give stocks a reason to reverse. Inflation, rising interest rates, the war in Ukraine, and new Covid-related shutdowns in China, an extremely ugly stock market with a particularly Bearish outlook. This has been a historically brutal stretch for investors, and nobody is above feeling the pain. While we have been able to find temporary safe havens in sectors like Healthcare and Energy, tech and growth investors are experiencing historic levels of pain caused by months of prolonged selling. Additionally, we know the Fed has been ruthless in its battle to stop inflation. The Fed has made it very well known they will continue to raise hikes as needed until we can finally get inflation under control. This only adds to the Bearish Market sentiment as investors are concerned that rising prices and depressed consumer confidence are sure to eat into profits going forward as well. 

Retail Continues with Earnings this Week 

Last week started out hot, carrying momentum from the previous week. But those gains were quickly eliminated after earnings misses from both Walmart and Target sent the market into a tailspin. Misses from these companies are particularly troubling, given that both of these giants sell such a wide variety of goods. The surprising weakness of these two stocks was enough to put stop a rally before it could even get started. Any gains realized from the week were quickly wiped out. Key retailers like Costco and Best Buy will both report earnings this week. After what we just heard from Wal-Mart and Target, it’s hard to be enthusiastic about a surprise earnings beat. We will also get some key consumer spending data this week. Investors worry this will again highlight growing fear from consumers. 

What it Means:  Many key metrics highlight those stocks have been oversold for way too long already. But without a real catalyst to signify a reversal, it’s hard for investors to get excited. We’re currently experiencing a bottoming out process, but it’s impossible to say how much lower stocks could go. Many of the market’s top stocks are already down over 50%. As the earnings season begins to slow down, investors will need strong economic data to help change market sentiment.  We’ll be watching as key housing data and consumer spending data are also released in the coming weeks. 

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

Retail Misses Big 

As we previously noted, last week was a pivotal one for the Retail Sector. Usual stalwarts Target and Wal-Mart both reported disappointing earnings last week. Wal-Mart reported an unexpected earnings miss which sent shares tumbling downward. Before Target even reported earnings, the stock was under heavy selling pressure given Wal-Mart’s miss, just one day before.   

Profits are Down

Target sales actually held up reasonably well last quarter. While sales were mostly flat, a few key areas did increase revenue ever so slightly. Despite consistent sales, revenue was down nearly 20% in Target’s bottom line. Target blamed the profit shortfall on higher-than-expected freight costs, which can certainly be tied to supply chain issues. Additionally, Target noted sales for some of its higher-priced items such as TVs and laptops did fall sharply. Target noted heavy markdowns and incentives that were used to try and get supply off the shelves. Though sales on discretionary items and things you can’t live without did increase last quarter. Wal-Mart also noted a steep decline in revenue last quarter. Though they stated, “bottom-line results were unexpected and reflect the usual environment and inflation levels”. Wal-Mart also went into great detail about how rising gas prices have been affecting their profits as well. Wal-Mart did note that they’ve seen a rise in spending for private brands or ‘off-brand’ products. This means customers are making deliberate choices to buy cheaper products.  

What it Means: After disappointing earnings from Wal-Mart and Target, investors are working hard to gauge the impact of rising grocery prices on consumer spending. There was hope coming into this week that these two giants could help swing investor sentiment upwards. These two reports are particularly important because they helped shine a light on what consumers are purchasing and what they are willing to live without, all while inflation continues to soar.  Investors should pay close attention to what products are still being purchased in heavy demand, despite inflation and numerous supply chain shortages.  

Bitcoin Drops Key Resistance As Selling Continues 

In last week’s newsletter, we reported on all the factors working against crypto, as investors look to de-risk their portfolios. This week Bitcoin broke another key support line of $30K, tumbling all the way down near $25K. A far cry from last-years high of over $65,000. Bitcoin has lost over half of its total market capitalization, after reaching a new high last November. This week alone, the crypto market cap lost over $30B in the last seven days alone. Crypto’s second leader Ethereum hasn’t been above the selloff either. The asset previously broke a key support line of its own, when it briefly dipped below $20K. Several other lesser-known and more speculative stable coins have seen their entire market cap disappear over the last 6 months. 

El Salvador’s Rising Crypto Debt 

We’ve discussed El-Salvador’s embrace of crypto several times over the last year. The nation has been a pioneer for Bitcoin and cryptocurrency. Unfortunately for the nation, as Bitcoin goes down, so does their economy! With the massive selloff of Bitcoin over the last 6 months, their debt level has continued to rise. After racking nearly $40M in one-day losses last week (thanks to Bitcoin) the national debt is now estimated at $23.3B. After purchasing even more Bitcoin during this week’s latest selloff, El-Salvador has now spent nearly $105M on over 2300 Bitcoins. 

What it Means: Much like tech and other growth stocks, Bitcoin has been hit especially hard over the last 6 months. Crypto volume is down from the hedge funds, and consumers are spending less given the rising cost of just about everything else in their lives.  And whether you’re an individual investor or an entire nation, you’ve certainly been feeling the pain in recent months. Many of the key players in the Cryptocurrency space have all cratered through normally resilient support lines.  It’s hard to say when the selling will stop, but the entire sector is trading at monumental discounts, compared to just a few months ago.  As the Fed continues to battle inflation, we’ll see if and when the volume begins to tick higher for Bitcoin. 

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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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