The market keeps changing all the time. The talking points change and as a trader, you should always assess how the market is, what’s working and what’s not, and how you should fine-tune your strategy. Here are some case studies to help you understand changing landscape.
It’s not the news but how the market reacts to the news that counts
The U.S. economy added more jobs than expected in January. The economy added 467,000 jobs last month – a number that’s much higher than expected but here’s what the S&P500 is doing right now. It’s down 0.4%
When the markets are bad, even a small negative opinion can cause a brutal market correction
MP Materials, a play on rare earth metals, declined 14.5% yesterday for no obvious business reason. Here’s the Price Action
One Company came out with a research report on why one should be short MP Materials. We are in a bearish market environment where everyone is panicky and looking for reasons to sell. No wonder the stock crashed this much. It’s sad looking at the history of the stock and how it built a base at 30 levels and then climbed to 50 and in no time, it seems to have given it all.
Growth stocks can decline 90% from highs
I have been through various market cycles and even though every market cycle is different, there are two lessons that have always worked: 1. You never know so cut losses early; and 2. Never buy the dip after a vertical move. Just see Teladoc Health TDOC as an example. Here’s the Price Action
Teladoc Health TDOC stock became sell on rally after it peaked at 300. The stock is now down 74% from highs. Here’s the problem – the stock is still expensive trading P/S of 6 and making losses. The times have changed and investors don’t have an appetite for such stocks in the current market environment. Can stock rally? I don’t know but I will give it a pass.
A New type of market where Gains disappear in no time
Visa was a down and out stock earlier this year. There was resistance at 236 and the stock had sold off from that level to 190. But then the stock stunned everyone with a strong earnings report and the stock made a Gap up move. In a normal market environment, I would have recommended this stock but see what happened, it stalled at the resistance and sold off in no time. Here’s the Price Action.
In this market, gains disappear in no time and resistances matter more than support.
Trading becomes a nightmare because you don’t know how long you should hold a trading position. There is hardly any gain and the stock just refuses to move past the resistance. Las Vegas Sands saw a gap up opening on Casino rules in Macau but since then it’s stuck 🙁
There is always a Bull market somewhere
In every market environment, there will be a stock that will surprise you with a move. CME has turned out to be that stock. It was quietly holding 220 levels and just see how it took off. Here’s the Price Action
I did recommend CME earlier this year and it was just a lucky trade. Having said that there is a sound business reason why this stock is rallying. CME is the world’s leading derivatives marketplace and the exchanges do well in volatile times because everyone rushes to hedge and Average daily volume ADV surges. In Jan, ADV was up 28%. CME is slated to announce earnings on Feb 09, 2022.
Focus on the Leadership Stocks
The real winner so far in 2022:
1. Oil and Gas companies
2. Shipping companiesThey are featuring in 52 week high list
— Deepak Singh (@smarket) February 4, 2022
Marine shipping stocks like ZIM and DAC have done well since I covered them. Even Oil and Gas stocks are making good moves.
Trade Sheet:
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
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