The Bears are Feasting

Apr 24, 2022 | Big-tech Hits Bear Market Territory, is Broader Market Next?

Weekly Newsletter- Week of 4.24.2022

We’re in a Bear Market, and Big-Tech is on Deck

As soaring inflation continues to drive market sentiment, all major indexes took losses this week. The tech-heavy Nasdaq continues to see some of the biggest losses, with the index down another 4% this week. Meanwhile, the DOW closed the week with heavy selling to once again end red. This represented the fourth straight week of losses for the DOW. As earnings season continues to march on, more and more companies are reporting on how inflation has been affecting their bottom line. As it’ becoming costlier for companies to do business, those additional costs have been coming at the expense of revenue and growth.

Latest from the Fed

This week, statements from Chairman Powell once again had major impacts on stocks. Powell noted that taming inflation is ‘absolutely necessary and he sees another rate hike of 50-points being on the table in May. The hawkishness from the Fed and rising yields were once again pushing stocks lower to end the week. While Powell did not announce anything particularly new this week, he continues to reinforce the shift in monetary policy. Powell also noted there may be a benefit to front-loading rate hikes and being very aggressive early, which he has been doing as of late. This would allow the Fed to potentially cut rates down the line, should the economy need the additional support again.

While concerns of a 75-point rate hike in May were put to bed, investors should brace for another round of rate hikes. The prospect of even more aggressive rate heightening continues to weigh on stocks and investors.

Big Tech Earnings

As investors continue to process inflationary data not seen in decades, big tech takes center stage during this week’s earnings. Apple, Microsoft, Amazon & Google lead this week’s reports. Growth stocks have particularly struggled to gain traction in the current climate, and this will be a huge week of earnings with some of the biggest companies in the world all on deck. With monetary policy compressing stocks, bullish investors are looking at the FAANG stocks to provide support in the markets. Investors are hoping to see that even during extreme inflation, key companies within tech are still increasing their bottom line.

So far, stocks with disappointing results have been crushed during this earnings season. Look no further than Netflix, whose shares dropped 35% after disappointing on their earnings call. All of the largest players in the mega-captech space are down this year, but next week may show the selling has been overdone if these companies are still able to report on robust earnings.

What it Means: It’s been a tough few weeks for stocks as inflation has kept any market rallies in check. With some of the biggest and most profitable companies in the world all reporting next week, investors are looking for any signs of optimism. With more confirmed rate hikes on the way, stocks will need to report blowout earnings to change current market sentiment.

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

Netflix Shares Tank as the Streaming Wars Saturate

Netflix, the long-time FAANG stock reported earnings this week. The stock that saw nearly 400% gains over the last 5 years, is now down nearly 40% in 5 days while shedding close to $50B in market cap. Down 62% over the year, this now makes Netflix the worst-performing stock in the S&P 500 this year. It’s been a rough week for the long-time winner as slowing user growth has the stock cratering. Netflix started as a business for consumers who were looking to cut the cord with cable, or who just wanted more options for entertainment. But now, Netflix is just one player in an increasingly crowded space for tv and movie streaming. And consumer enthusiasm is starting to wane.

Too Many Options

With the launch of Disney+, HBOMAX, Youtube TV, Peacock, and many, many others, consumers now have a dizzying amount of options when it comes to content. A recent survey showed that nearly 40% of consumers surveyed said they now felt overwhelmed by all the streaming options out there. The survey also noted that most people find paying for 3 or 4 subscriptions was just too much of a burden. Leaving consumers to pick and choose what works best for them from the crowded field. Netflix’s recent earnings report shined a bright light on an issue we’ve been tracking for a while. There are too many players in the ‘Streaming Wars’ and each provider is battling for a smaller and smaller piece of the pie.

The Streaming Wars

Today, we’re currently tracking over 200 different options for streaming entertainment. Netflix noted they lost over 200,000 paid subscribers last quarter, and they’re on track to lose another 2 million over the coming months. Outside of revenue, new subscriber growth has always been Netflix’s most vital data point. As more and more options have become available for consumers, Netflix has had a difficult time continuing to gain new subscribers. Netflix’s earnings immediately sent ripples throughout the entire sector. Shares of Disney dropped nearly 10% after the Netflix earnings report, while Roku is down nearly 20% in the same timeframe. Additional streaming options like Discovery, owner of HBO Max have also seen their shares drop 15%.

What it Means: For those investors lucky enough to get shares of Netflix in its early growth days, you’ve undoubtedly had a multi-bagger winner in your portfolio. But if you’re still holding or interested in buying the beaten-down stock today, it’s important to understand why shares have been trading down as of late. With so many streaming options, subscriber growth was always going to take a hit. We’ll be watching to see if and when streaming options consider merging to increase total market share.

Germany, the latest to Stop Russian Oil Import

This week, Germany was the latest country to roll out a plan to gradually halt its imports of Russian oil. Germany proclaimed it would be completely phasing out Russian energy imports and it plans to stop Russian oil imports by the end of 2022. Russia currently accounts for close to 55% of Germany’s natural gas imports and 35% of Germany’s imports last year. Though Germany has identified several additional energy suppliers in recent months, economists do fear elevated prices for Germany without its reliance on Russian energy.

What it Means: If the EU announces a ban on Russian oil as they have discussed, we would likely see a larger embargo passed as part of the sanctions. Germany’s willingness to no longer rely on Russian energy could be a key factor in an eventual ban on Russian oil. Though economists warn an embargo would likely be a gradual process.... fears of an outright ban could cause gas prices to skyrocket even higher than their current 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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