Market's In Turmoil! (April 22-April 26)
April 22-April 16, 2024 by Adit Dayal for RIPPYGLOBAL.
Happy weekend everyone and welcome back to the Rippy Global weekly outlook. The markets had six consecutive days of decline, the longest since 2022 and many traders are shaken after what has been a difficult pivot. The SPY fell 3.07% last week and the sentiment for where money is going has shifted.
Let’s take a look at what next week has in store for us!
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The big trade last week was to be short semi-conductor and AI stocks which tumbled into the close with no buyers and a huge breakdown. NVDA closed -10% and SCMI -23% after what has been a huge period of consolidation in those names. One thing I always say is that the bigger the base, the bigger the break, and that has not been more true. Another thing that I have noticed on these semi-names is that these large moves tend to come on a Friday, and this is not a random occurrence. Moves are likely exaggerated due to the amount of options being positioned in them. Last February, 25% of all options volume on single-stock names were in NVDA. So why would this exaggerate a move to the downside? Well, if on a Friday like this past one, where a bunch of options expire (since it’s a quarterly and monthly expiration), the stock is prone to a gamma squeeze, but this time to the downside. If NVDA begins to fall greater than the risk parameters of those who have sold put options, the put options increase in value and these dealers must hedge their bullish position (the sold puts) with a bearish position on the underlying stock (going short). As more options require hedging, the more exaggerated the moves become.
Commodities are also rallying with concerns in the Middle East not easing down just yet. Gold prices rose as a safe haven against the Israel-Iran conflict, which seems to be tapering, but is one headline away from being a larger worry for the market. This was the fourth week of gains in gold, with other industrial metals hitting new highs in their respective markets as well. Commodity names are seeing inflow during a time when riskier stocks are underperforming. Oil continues to remain volatile in this market, but prices don’t remain high for too long as the supply to the market remains uninterrupted. I mentioned last week the area that is under the most watch is the Strait of Hormuz, which transports more of the world’s oil than almost anywhere else. As long as Iran doesn’t do anything in this area, the price of oil is likely to remain volatile, but ultimately flat, in my opinion. This chart for oil from MarketWatch displays the news along with price:
With 4/20 closing out this weekend, weed stocks have been the talk of the town with a rescheduling for marijuana seeming to be just around the corner. The rumor is that the term 4:20 comes from a group of high schoolers, whom after practice, would go at 4:20 after smoking a joint in search of a weed patch. The band Grateful Dead had a member close to one of the high schoolers, and the slang caught on. When it comes to legalization, the highest amount of adults ever in the US support it- coming in at 70%. By rescheduling cannabis to a Schedule III substance, “280E tax measure” gets removed and cannabis companies save an absurd amount of money, which is why the market is keeping its eye on it. Representatives in the government think this is the year that the US accepts cannabis, but what’s to come, only they really know.
TikTok is one step closer to being banned with a 360 to 58 vote in favor of banning the app passing this week. The new bill says TikTok must divest from its parent company, but it’s getting an extra 90 days to do so. China released a statement back to the US stating that “This will inevitably come back to backfire on the United States itself.” Social media names traded higher on this news.
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#1) Earnings week is getting strong with a bunch of our favorite companies reporting, including Tesla (lots of recent negative sentiment), Snapchat (TikTok ban?), and Microsoft (the darling AI play alongside NVDA).
#2) On Monday, is the World Blockchain Summit coming right after the Bitcoin halving ends this weekend.
#3) On Tuesday, the PMI and New Home Sales reports will be released.
#4) On Wednesday, the Nasdaq will release official short interest number for names on its exchange.
#5) On Friday, the PCE Price Index and UMich Consumer Sentiment report will be released in the morning.
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S&P 500
The S&P 500 ($SPX index) is seeing brutal selling here after what has been a great Q1 and a lot of this is profit-taking before a pivotal earrings season. Can earnings keep up with the hype? I think $487 should provide strong support for the market as it’s the 61.8% retracement and provides the context for a full pullback. A close under that level, especially on the weekly chart, would typically be considered a long term top for the market.
My key breaks are $501.96 for bulls and $494 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
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INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
TSLA
Tesla went below $150 this week and is facing a lot of pressure on the market after the company is doing multiple price cuts and incentives to try and get more buyers in the name after EV stocks have tumbled. Elon cancelled his trip to India to focus on the company and it’s likely they need to have great earnings to induce a rebound.
AAPL
Apple is right at a huge demand zone and this is a company the market loves, so I expect it to start finding some buyers soon here. Good company in a weak backdrop, but I think the market also wants to see them start innovating here as well because the growth story for the company gets weaker by the day.
MMM
MMM is a name that is super strong and holding this bull flag very well here against a weaker backdrop in the markets. A break out of this along side a bottom in the overall indexes can lead to a powerful move here.
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Insider Activity
ULS and AINC are the two interesting names on our list this week with repeat buying.
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (www.x.com/realaditdayal)