The Shakedown 5/1/22

LAST WEEK, S&P 500 (-2.68%)

Monday:  +0.58%

Tuesday: -2.90%

Wednesday: +0.28%

Thursday: +2.53%

Friday: -2.75%

For the 4th straight week, the markets closed deeply in the red with panic setting in Friday, causing the S&P to fall just under 4% while the Nasdaq closed down 4.5%. April was the worst month for the Nasdaq since 2008, falling 13.6% in the process. We got some tech heavyweights reporting earnings this week and the less than stellar reports only fueled the markets down move. Amazon had a big miss which was largely chalked up to inflation and supply chain issues, nothing we haven't heard about the state of the economy, but only paints a clearer picture of the environment. Amazon has such a strong hold on the market, I like to believe it's a great indicator of consumer behavior in the US. With a big surprise to the downside in their earnings report, it's another gloomy sign for the economy.

Looking ahead to May, we have another week of tech heavy earnings while we begin to get a large portion of the energy names as well. I have a feeling lots of these energy names have finally topped in the short term as they've broken steep uptrends and have begun to bearflag. When the market was weak for the past few months, these names would become safe havens and show great relative strength, but all that has changed in the recent market weakness. I have a feeling they have another leg lower this week as you'll see in the report below.

The biggest event of the week is the Fed meeting that will commence Wednesday at 2pm and in all likelihood will debut the first 50bps rate hike of this rate rising cycle. When the Fed raised interest rates in March, it actually led to the fierce rally that saw 10 of 11 green days in the S&P, which then ended up being the most recent market top. The market's still pricing in rate hikes until the end of the year so this week it's up for a big test with the first 50 point raise.

The one thing we can depend on right now is volatility. The market has traded below the 200sma all month and it's been nothing but drama at every corner. We're closing a month below the moving average for the first time in two years. This confirms we've been in the midst of a macro downtrend with heightened spots of volatility in both directions. Friday's session was ugly as we lost nearly 4%, but Thursday saw the opposite action as we gained 3%. Of the 50 best and worst days in the history of the market, 47 of the 50 have come when we're trading below the 200 day moving average. So get used to the volatility.

As we look ahead to this week, it appears the SPY needs to crack that major support right where we closed around the 410-412 area. We're getting a bit oversold, but still have room to go on the downside, so I'm thinking the SPY catches a bounce at the 404 resistance level. High cash levels continue to be recommended as the random action caused by the volatility can crush and overtrader's account. Better times ahead folks. The plan is to continue to build the earnings watchlists as we largely await for the market to stabilize and will be ready to buy the next set of leaders whenever that time will be. 

Earnings This Week

DGX Short

Listen folks, it pains me to make the trade of the week a short setup, but after thousands of charts there's not much out there in the realm of long technical setups. Who knows, maybe this is what the market needs to bottom ;) As for now, this DGX short setup was the best technical setup I came across this weekend.

With earnings last week, DGX spent the week creating a bear flag at a pivotal support level that looks poised for lower prices. This trade setup is much more geared towards the active trader. If you're a longer term trader who's been dollar cost averaging or just sitting in cash, that is definitely still recommended. For the active traders, look for an entry through the 132 support area.

Trigger: 132

Stop: 138.51

Target: 122

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