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Market Outlook |Week of 5/9 – 5/13 |DOW Tanks for 6th straight week!

Previous Week’s Update: https://25koptionschallenge.com/market-outlook-week-of-4-25-4-29-down-worst-day-1000-point-drop/

I am keeping this week’s update deliberately short as there is no amount of technical analysis that will help gauge this market as we have that CPI print coming out next week which will dictate the direction of the markets.

As DOW continues to suffer massive 1000 point down days week after week, we just wrapped the 6th straight week where the markets have tanked. Believe it or not the markets are cheap (in terms of valuation compression) than where we were 5 years ago. But is it cheap enough? Nobody knows. As long as VIX stays elevated and markets continue to fall, all we can do is trade small at a highly reduced intensity so that we don’t blow up. Although it feels like there is no end in sight, markets will eventually turn around, and you need cash to take advantage of when that happens. I continue to trade on signs of a recovery and taking 1 contract trades. The QQQ, DIA trades I took last week were literally risking $55 per trade even though I am trading with a $100K+ account. I never stop trading as it is important to stay engaged with the market at all times but trading at a low enough volume and size keeps me from not blowing up my accounts.

Market Moving Events next week

Powell is behind us, FOMC behind us, major earnings are done. The only number that is going to be a huge market mover is that CPI print on Wednesday. If CPI shows signs of inflation coming under control, that could help put an end to this madness. But with markets this nervous and just wanting to sell-off at every opportunity, I it should be obvious what a bad CPI number will bring next week.  

Most of the big earnings events are behind us

 

Although earnings season is in full swing, all the big market moving earnings events are pretty much behind us. So, at least there is that sense of relief that no more ugly earnings surprises are around the corner. But look at the number of stocks that are no more qualified for our watchlist. These are stocks that have fallen so much that they are well below that $100 mark now.

  • UPST – Has fallen to $64 from a high of $401 on 10/11/21 
  • TTD – Has fallen to $48 from a high of $114 on 11/15/21
  • BYND – Has fallen to $35 from a high of $239 on 7/29/2019 
  • AFRM – Has fallen to $23 from a high of $176 on 11/08 

 Next week we have COIN and DIS reporting. But any trades are meaningless until the markets turn around.

Macro Analysis (VIX)

We had a baffling move last week with DOW going up 950 points in a day, immediately followed by a 1300 point drop the next day.  VIX shot up to 35 before slightly settling down but markets are still in deep trouble as everyday seems to be bringing new lows. Nasdaq seems to be heading towards 295-300 area like a magnet where we were on 3/1/2021. 

QQQ Observations (Covering QQQ this week as SPY, DIA are moving in sync)

I am again using a weekly chart of QQQ going back to 1/1/2020. This crash is extremely nasty and has showed no signs of a respite yet. There is no point going into charting and technical analysis too much right now as this is a new driven market. Bad earnings, we tank, bad CPI data next week (hope not), we tank further. The only thing to point out really is the next support is coming up at 295-300 area. Which would mean the markets would have given back 1.5 years of gain.

What to watch for in the coming week

CPI data on Wednesday (and PPI on Thursday), will either take us further into the depths of a bear market or turn this market around. No amount of technical analysis will help you in a news driven market. If the markets turn around, we will see it manifest as higher highs and higher lows.  

TNX (10 year treasury yields)

Back in early January, we were getting worried when TNX started breaking out of its trading range and was testing 18. TNX is usually inversely co-related with growth stocks. Look what happened after that! An absolute blood-bath! Total insanity. For growth sector to have any chance of a recovery, TNX needs to pull back. Keep watching it closely for clues on when this market is about to turn around.  

Key Takeways

  • All major market moving earnings events are behind us.
  • FOMC meeting and rate hike is behind us  
  • CPI and PPI numbers are critical next week. Any signs of a slowing inflation would be a positive for these markets. I not be adding any trades next week until I see CPI numbers. 

CHEAT-SHEET

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