Disbelief Rally

2022 has been a terrible year for the US stock market investors. The market has been hammered so much that now bounce is not enough to attract traders. There needs to be follow-through buying and gains need to hold before the confidence returns. Now, over the last week, the market did two things that seem to have attracted some new money: 1. It did not collapse on terrible inflation data; and 2. Every decline since then has been bought. Having said that, the real problem is the lack of sectoral leadership. Everything is bouncing from oversold conditions and such bounces are very hard to play because they can end any day and prices would just collapse. Trading in such an environment is always difficult. Hence, it would be prudent to focus on stocks that have an underlying story that can help stocks make a strong trending move.

Will there be a disbelief rally?

Lots of times markets rally and nobody believes it. It keeps on rallying till it convinces enough people to fool them again and trend down. Such periods can last for a few weeks to a few months. Let’s not confuse ourselves. The market is in a downtrend on a longer-term timeframe but considering it is so oversold that there can be a relief rally for a few weeks or a few months. It can be a stunning upmove [Hope 🙂 ].

Today the best stock to pick was Silvergate SI 

Silvergate reported diluted earnings per share of $1.13 on total revenue of nearly $80 million for the quarter

I love this company despite my concerns around Bitcoin. I never considered this company as a crypto play but the stock suffered due to negative sentiment around Bitcoin/crypto. Today the company came out with a brilliant earnings report despite the meltdown in crypto last quarter. Read the complete analysis

I recommended the stock during the day at the price of $77.

Two ETFs that seem to dominate the market right now are 1. Biotech LABU and 2. SOXL Semiconductor. Both are highly risky leveraged ETFs. There seem to be lots of interest in Biotech stocks.

The next stock I picked during the day: Novavax NVAX

The covid pandemic has not disappeared and Novavax is now in the market. The stock has a sectoral tailwind (see the gains it made in the last month) and today it won CDC backing for its vaccine. The stock needs to move past 60 to attain momentum. If you have not bought it, look to add near $56.

The stock to watch is Shopify SHOP (Hopefully Buy)

YouTube is making a big push toward e-commerce (Influencer driven sales) and is partnering with Shopify for fulfillment. 

Earnings date: July 27, 2022 [Event risk]. This is one reason I am hesitant to recommend this stock. I will be comfortable buying the stock post-earnings.

One Big Issue: Lots of stocks at Resistance

Let’s rewind and understand where we are. The US market was trying to stage some recovery back around late May and early June on assumptions that inflation has peaked. The market got a rude shock on June 10 when inflation for the month of May came in at 8.6%. There was a dramatic sell-off which lasted only for 7 days as the US Fed reacted to the data with a 75 bps hike. The commodity market sold off on recession concerns and the equities staged a recovery despite terrible inflation data on July 13. Now the US market is close to June 10 levels, the date from where it all started.

Lots of individual stocks have recovered and now trading close to resistance levels. Example: NVidia

AMD never disappoints. The stock was a buy at 73 and now is up 16%

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