Market Update for the Week Ahead
Welcome back to The Juice, your main source of what’s happening in the markets via momentum and options trades. Today we’ll go through some of the winners and losers from Friday’s action, as well as what might be brewing under the hood when we look further out into the trading horizon.
This transitory chop has created an incredible amount of uncertainty around where the market will head next. Dip buyers over the last several months have been rewarded with a 7-layer dip that just keeps dipping. The (dip-buying) strategy that has historically worked very well over the last decade has cut many investors’ portfolios by half just over the last 3 months. We all thought the end of 2021 was bad, but what many traders and investors don’t realize is that the Nasdaq and S&P 500 just suffered the worst week since March 2020. All in a 4-day trading week as well, incredible. So what are we seeing with the current trends as well as in the options market? Let’s break it down.
What happened last week?
If the latter part of 2021 was all about growth stocks getting hammered, then 2022 has so far been all about… growth stocks getting hammered, but now big-tech are tagging along on the ride to earth’s core. The indices have been held up by FAAMG until now, which includes names like Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA), that are finally breaking down and trading below many trend lines and moving averages.
Here’s the AAPL chart.
Throughout November and December, some of the worst periods for growth stocks, Apple and the mega-cap gang held strongly above the 50 EMA (orange line). It wasn’t until last week it finally gave in and broke out to the downside.
Let’s also take a peak at the NVDA chart who, along with Tesla, has been a staple name carrying the S&P higher through 2021 with convincing returns.
You’ll notice a similar pattern to Apple’s chart where it broke to the downside on the 50 EMA and also the 200 day moving average just last week. Moving averages aren’t necessarily the best indicator, but they usually do a good job at identifying where we’re at in the trend. The 5 and 10-day moving averages can identify short-term trends, while 50 and 200 day are usually a bit more broad and identify the long-term trend. Currently many names, not solely these mega-caps, are below the 5, 10, 50, and 200 day moving averages and are in bear territory. In fact, I would go as far as saying that growth stocks are in “crash” territory as many names are down 50% or more from the highs.
Corrections are usually defined as when the market moves down 10-20% while crashes are much more violent. What we are seeing in growth stocks has contracted many valuations to pre-pandemic levels and those with an appetite for risk may be rewarded from buying this 8th layer on the dip.
Friday’s option market confirmed the uncertainty we’ve been seeing as put/call ratios were very mixed. Are player’s hedging for further downside? Don’t be tricked by this chart. The volume of premium traded in Tesla is still quite high. We are showing roughly $5 billion in options being traded for TSLA alone which is roughly around the average of $4-6 billion. The one that really stands out was the SPX doing $10B in volume (!!), which a mixed bag of calls and puts.
Whether or not this is indicative of what happens next in the market it doesn’t instill confidence for traders. Generally speaking in times of bull markets we usually see a lot of call volume hitting the “ask” day in and day out. Until we see a reversal in some of the trends or some favorable option flow hitting the tape this environment will remain as it is - volatile!
Looking to social sentiment for some of the trends, there are a few names making their way to the top.
On the short-squeeze side, one name stands more than the others and that’s BBIG. The stock more than doubled earlier in the week, but got caught up in the rest of the market weakness and subsequent journey to getting wrekt.
Here’s a look at the social volume chart:
BBIG has been a clear favorite in the short-squeeze “sector” and was picking up social steam (purple line) before this rocket move to the upside (green line). Interesting.
For meme stocks and the likes a lot of names were making headlines. Outside of Gamestop and Tesla these names included Netflix (NFLX), Peloton (PTON), and SoFi (SOFI). Here’s the lowdown.
Netflix was the talk of the town after the company reported a less than stellar earnings followed by a 25% move to the downside on the following trading day.
Shares of Peloton also hit new lows after the company announced they will be pausing manufacturing of their bike and tread products. This is in an effort to better meet (lowered) demand and cut costs.
Fantasty Stocks & Crypto Games
Lastly, don’t forget to stop by the vig.io cash games section and get ready to play a new round of Daily Fantasy Stocks (DFS) this week. Hundreds of dollars in prizes are being given out so get you watchlists ready and get to work. Pro Tip: Check out the social sentiment tab to keep an eye on some of the more volatile stocks moving in today’s market.
That’s all for this week’s VIG - The Juice, see you in the VIG Cash Games winner’s circle.