Weekly Update: No Santa Claus Rally This Year
Good evening, and welcome to this week’s edition of Stealth Trades!
The “Santa Claus rally” that often propels stocks at the end of the year did not make an appearance in 2022.
The bull market downtrend we have been talking about for months remained intact and stocks failed to bounce last week.
The S&P 500 index is not below all of its moving averages going into Christmas day.
As expected, we are seeing much better progress on short trades than longs. In fact, we just closed out a short trade on WOLF in my Alpha Stocks service for a 20.3% gain in four weeks.
This bear market will end. A new bull will show up when investors least expect it, and there will be ample opportunities for big wins on the long side.
But that time is not today.
Aggressively buying stocks when the index is in a defined downtrend, trading below its moving averages, against a backdrop of raising interest rates and slowing economic growth is asking for trouble.
Be patient. Be selective. And don’t fight the overall trend.
Right now, that trend is short.
Here are a few stocks I am watching right now:
Cullen/Frost Bankers (CFR)
After climbing more than 40% from July to November, CFR is rolling over hard.
Big down days followed by 1-2 weeks of consolidation then another big down day – that has been the behavior for the last two months.
A quick look at the volume bars confirms who is in control.
Big drops occur on above-average volume contrasted by small rallies/consolidations on very low volume.
With shares now below the 200-day moving average, odds of a successful short play are even higher. And last week’s short-covering rally into the 200-day creates a low-risk entry point for a new short trade on CFR.
International Money Express (IMXI)
IMXI is unquestionably a short. Look at the massive selling on heavy volume that occurred in early November.
A relatively stable stock falling 30% in two weeks is a significant change in behavior, and it signals that institutions are dumping the stock in mass.
Shares have grinded higher over the last few weeks but made no significant progress.
IMXI is now trading against a previous support level which coincides with its 50 and 200-day moving averages. That is a lot of resistance to get through.
The low-risk play here is a short since you only need to risk 4-5% on the trade to see if it plays out as we expect.
Privia Health (PRVA)
PRVA is a broken leader under heavy selling pressure.
After a 147% rally from May to August, the stock put in a double top and began rolling over.
Shares fell 48% over the next two months.
PRVA is now putting in a shelf at its lows. Notice how the move above the 21-day moving average was immediately rejected.
If the stock breaks this short-term support level, I will consider selling short for another leg lower.