How Long Will 2024 Feel Like 2021? (May 20-May 24)
Happy weekend everyone and welcome back to the Rippy Global weekly outlook. The markets continued higher this week, accompanied by a Roaring (Kitty?) rally in the meme names as euphoria continues to drive our markets.
Let’s take a look at what next week has in store for us!
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Let’s start with my favorite topic, and apparently the market’s favorite topic for this week: short squeezes. Old meme names that likely none of us have touched since 2021, GameStop, AMC, BlackBerry and more had intense volume and soared higher after RoaringKitty started posting memes. I really cannot believe I typed that sentence, but it’s the truth. Most of the rally has been subdued by AMC diluting their shares since they need cash, and GameStop announcing an $45M ATM offering. AMC offered 23.3 million new shares to retire $163.9 million of bonds which helps out their debt but the market hated that dilution, and it effectively killed the rally they’d started. By basic estimates it reduced their debt load around 10%, but it’s likely not the end of AMC offerings, which is why no matter how hard the meme, it’s important to look into what the company is going to do. FFIE was the real, previously unheard of winner of the last few years with the stock up nearly 8000% in a week. On shares (!) which is the highest gain ever on an NYSE or NASDAQ listed name. These short squeezes erase gains really quick, since the main idea is for them to get over as soon as possible, so to find one, you find a name with high short interest and lots of losses, and then when momentum is there you enter, but you exit on the first sign of trouble. Unlike most of the market (staircase up, elevator down), short squeezes are elevator up, rocket ship down.
The markets rallied on better than expected inflation numbers this week, with CPI coming in cooler than expected and giving another green light to the market for people to buy, after what has been a better-than-expected earnings season. Walmart, a poster company for consumer spending, did well after earnings giving another reason to the markets for them to rally and the meme craze showing that euphoria has not left the markets after what has been a bit of a slump. Bank of America saw last week’s job reports as a great sign that the Fed’s plan is working and inflation remains hard to breach under 3%. The main thing concerning some on wall street was market breadth, with not a lot of stocks making highs under the hood, but the market is finally showing that as the Mag 7 drops, the other companies are showing strength.
Crypto, which had a nice start to the year, is finally seeing large declines in trading volumes from estimates at crypto firms to reports from brokerages like Robinhood. Inflows are beginning to slow as price consolidates here near the highs. One thing that was really interesting to me this week was that the CME is planning on launching crypto trading and this poses a negative risk for stocks like $COIN. The idea is to profit off of “basis trades”. These trades work by, for example, purchasing the underlying bitcoin and simultaneously selling the futures price of bitcoin on the exchange, pocketing the difference. The idea here is to profit off the difference in price due to time, where time is also your risk.
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#1) Earnings week is interesting with the celebrity of the stock market (NVDA) reporting this Wednesday, sandwiched by other smaller and international companies.
#2) On Tuesday, Microsoft is holding their developer event and the FTC (Federal Trade Commission) is holding a closed door meeting which typically impacts M&A stocks.
#3) On Wednesday, the Fed Minutes will release at 2:00 PM.
#4) On Friday, the University of Michigan consumer sentiment report will be released.
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S&P 500
The S&P 500 ($SPX index) has broken out once again to new highs in a very bullish inverse had and shoulders pattern. Testing and holding as volatility contracts (good sign, shows digestion of price).
My key breaks are $533.02 for bulls and $524.64 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 is still consolidating here after a large drop before their earnings, and a massive jump after them. I am not a fan of this consolidation, but it’s telling that the market is running and this is not. JD Power reported this week that only 24% of the market is “very likely” to purchase an EV this year, the lowest it’s been in three years. I really think the future of EV names is uncertain, especially with incentives to buy one possibly being threatened by a republican win this November. The opportunity cost for this name isn’t there for me yet, but on a technical level $180 would be the break higher.
AAPL
Apple is still going strong on the wave of the huge buyback they just announced, though a lot of the market is wondering what the company will actually do to improve their earnings. They just recently had an article about OpenAI integration in their Siri which can be massive, although it’s a bit troubling that they don’t have their own AI. Their plan will be released at this year’s WWDC conference in June.
NFLX
Netflix is in a cup and handle pattern and about to break to new highs here as they remain the strongest streaming service out of all of the rest. Big call flow in the $655 call options for the end of May which caught my eye.
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Insider Activity
RIG and CPNG are both names that saw huge buying recently. CPNG has been really strong and breaking out of a multi year base and this could just be another bullish catalyst for the name.
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (www.twitter.com/realaditdayal)