Weekly Update: A Whole Lot of Nothing This Week
Good evening, and welcome to this week’s edition of Stealth Trades!
The stock market did a whole lot of nothing this week.
After a decent rally to start the week, stocks retraced following Wednesday’s Federal Reserve meeting when Powell raised rates by another 0.25%.
The tech-heavy Nasdaq continues to be the strongest and the Dow the weakest, but all three indexes were roughly flat on the week.
Bonds, on the other hand, are anything but stagnant.
The interest rate on 2-year government bonds fell from 5.05% to 3.7% in just two weeks.
This is the fastest rate drop in recent history.
As a general rule, lower interest rates are good for stocks and higher rates are bad. This is because investors demand a higher earnings yield from stocks compared to bonds to compensate them for the additional risk.
Today, however, the equation is not so simple.
Interest rates were raised aggressively over the last 15 months. In fact, it was the fastest rate hike in history.
The Federal Reserve took these actions to fight inflation. Of course, they are the ones who caused record inflation in the first place, but that’s another story.
So now it is a bit of a balancing act. Don’t raise rates enough, and inflation will continue to run rampant. Raise them too much, and you kill the economy.
It’s a catch-22. And Wall Street is trying to not only forecast interest rates going forward, but at the same time decide what is more important – economic growth or inflationary pressure.
This situation is a new one, and even professionals are finding it hard to navigate.
I believe that is why the stock market is moving so erratically. We continue to see aggressive moves higher on advancing volume followed by quick selloffs that are equally convincing.
This market has no direction. And it has been that way for the last 4 months.
I bought a few stocks this week thinking the market would push higher following the Fed meeting.
So far, it has not.
If we can get some traction, though, I’m confident I will make money.
I own the right stocks. These are the best of the best – big sales and earnings growth, high relative strength, good products/services, and clean charts.
We just need to see more participation.
The charts below show the percentage of stocks above their 50- and 200-day moving average.
As of today, only 20% of stocks trade above their 50-day average.
In other words, 80% of stocks are in short-term downtrends.
I’d like to see this number climbing. A move above 50% would be a clear signal that we are getting broad participation across the market.
Spotify (SPOT)
A nasty Stage 4 downtrend sent SPOT stock down by 80% over the last two years.
But the stock is now trending higher.
After reclaiming its 200-day moving average in January, SPOT has consolidated nicely in the $120-$130 range.
Relative strength is rising, and the stock is finding support at its 21-day EMA (blue line on chart).
The 200-day sloping up is another clue that we could be at the start of a new Stage 2 uptrend.
I took a position in this stock on Thursday. If it falls below $118, I will consider getting out.
Intapp (INTA)
I also bought shares of INTA this week.
This company provides cloud-based services for the financial services industry.
Business is booming. Sales grew by 25-30% in each of the last four quarters and the company is finally turning profitable.
The stock is up almost 200% over the last six months with no sign of slowing down.
It put in a small pivot near the $42 mark, then broke out to new highs yesterday on above-average volume.
INTA should hold above its 21-day EMA if the uptrend is to continue. So if it were to close the day below 39.50, I’d consider getting out.
Allegro MicroSystems (ALGM)
ALGM is the #1 semiconductor stock in the market. It ranks first among all 31 of its peers in both earnings and relative strength.
The stock put in a shallow base from mid-February to this week with two progressively shallower pullbacks.
It also made a textbook shakeout move on March 13 to run stops and consolidate shares further. Notice how that candle made a new low then rallied back to close the day in the upper half of the candle.
That is a textbook shakeout and usually a bullish sign.
This is a market-leading stock that has shown incredible resilience even in shaky market conditions. If the market is to rally here, ALGM should lead the way.
I have a position in ALGM with a stop loss near 43.50.
Best wishes for your trading,
Ross Givens