Stock and Crypto Markets Have More Downside Momentum Again upon Hawkish Fed and Bearish Earnings
Written by Moneypig Trading Inc. on April 24th, 2022
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1. Last Week Plays
Moneypig Trading delivered a great week! Some highlights this week are:
Long Term Investment $NUE +61% $VALE +7.83%
2. Market summary
There are many headlines last week and the past weekend that put extreme pressure on the stock and crypto markets.
a. Powell stated 1-2 50 BPS will be on the table in May FOMC
b. Netflix, Snapchat, $FC, $VALE growth slowing down
c. Apple supply chain disruption (https://www.scmp.com/tech/big-tech/article/3175358/foxconn-suspends-production-two-factories-eastern-city-kunshan?module=live&pgtype=homepage )
d. Beijing is up to lockdown while Shanghi is still partially lockdown
f. COVID19 surges in many Asian countries
3. Individual Charts to watch
The daily downtrend is still intact, but the downside momentum speeds up again. Currently, $SPY is entering another momentum downside: $SPY gap filled at 426.21 on Friday.
Choppy zones: 440.09~445 & 435.02~415.57 If $SPY breaks 415.57 range low, we could see momentum to the downside to the key levels 410.80. On Monday, the market will be technology-driven, but starting Tuesday, the earnings will dedicate the market until Friday.
Possible Action (no action yet):
Long $SQQQ $SPXU to hedge
Daily chart bear flagging. On April 24, Foxconn suspends production at two factories in eastern city of Kunshan, putting Apple’s China supply chain on edge.
If $AAPL 165.6 EMA breaks and Friday close 161.79 breaks down, $AAPL doesn’t have too much downside resistance and could test 158.09 which is 200-day EMA support. If $165.6 holds, $AAPL is likely to have a range-bounce between 165.6, 168.44, and 169.33 before the earnings. Expect $AAPL to lower the guidance due to all the supply chain challenges, China lockdown, etc.
Possible Action (no action yet):
If 161.79 doesn't hold, long $AAPL weekly 160p or $AAPL weekly 160-157.5 vertical bear put spread at $0.88/con~$1/con
3.c. Advertisement Revenue Model Tech Stocks: $GOOGL
Both daily and weekly breaking the key 2500~2520 key support area. The weekly next EMA supports are 2301, 1893.
There are fundamental reasons why asset managers are dumping $GOOGL: on April 21, $SNAP CFO said that “we note that revenue growth from Jan 1, 2022 through February 23, 2022 grew at a 44% clip. The Ukraine war then started, and revenue growth from February 24, 2022 through the end of the quarter then dropped to 32% growth.”. The market is expecting the same negative outlook on $GOOGL as 70% of revenues are from ads. If $GOOGL has the same 12% ads revenues growth slowdown, expect their revenues growth to drop 8.4%, and EPS and the stock price could drop another 10~15%.
3.e. Other Sectors:
We have to watch other sectors carefully as well. Biotech ($XLV), consumer defense ($XLP), material ($XLB), and energy ($XLE) are usually the four strongest sectors in the last stage of the economic cycle. Now they are all (about to) breaking the daily uptrend. This is another signal of the whole market sell-off.
3.f. $VALE $AA Material Stocks
There are some fundamental reasons why material ($XLB) sells off so hard this week:
1. The hawkish Fed might slow down the economy
2. $FCX copper stocks lower the guidance on the copper outlook last week (also lower $AA)
3. China tells the steel industry to cut production, adding to industrial export restrictions. $VALE is a Brazilian iron ore company and China is their largest client. This headline will quickly beat $VALE down back to $15 or lower.
This sector is very headline-driven in nature. As we see in the daily chart, all these stocks are oversold within a few days. However, the stock price could hang there in the low after some bounce. Some weekly vertical bear put spread could get us 50~100% returns.
3.g. Bitcoins $BTC Ethereum $ETH
Both $BTC and $ETH are holding up the 2022 low, but start to form a daily downtrend. Crypto has been correlated to growth stocks and technology stocks lately. If $SPY breaks 2022 low as mentioned above, we could see $BTC tests $35,414 and $32,780 range low and $28,178, which is 200 day EMA support on the weekly chart.
Similarly, if $ETH breaks 2309 resistance, and head down to $2100, $1500~$1700, $1371 (2021 low) levels.
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Thank you for reading and have a great day!
Moneypig Trading team
Just a quick disclaimer: Moneypig Trading (https://www.moneypigtrading.com/) is not a financial advisor. Please invest at your own risk.