Things are falling apart again

Just when you thought that the US market has turned the corner, everything is falling apart. It has become so scary that few have started predicting complete collapse as if that has not happened yet. S&P 500 is now down 18.5% YTD whereas NASDAQ is down 27% YTD. Sometimes, you wonder when will this misery end.

There’s a tremendous amount of negativity in the market at the moment. The fear is too visible. Even small rallies are getting sold into. Today, the S&P 500 index declined 0.4%;  Nasdaq lost 0.7% while the small-cap Russell 2000 gave up 0.9%.

What’s causing the downfall? Federal Reserve’s aggressive tightening message.

US 10-Year Bond Yield now stands at 3.35%. It means people are selling bonds, leading to lower bond prices and higher bond yields. The US economy is showing no signs of stress. Airline travel is back above pre-pandemic levels. TSA numbers show that, for the first time over the holiday weekend, the TSA screened more passengers than they did pre-pandemic. The TSA screened 8.76 million passengers this past weekend.

The job market continues to be healthy, and there is fear in the market about how long the economy can sustain higher rates. 

Why does the current level matter?

S&P 500 rallied from the current levels around late July and it is back to the same level. Also, it bounced from this level again. Considering so much nervousness, its likely that the level would hold.

Last Man Standing:

A. Solar Stocks

The Inflation Reduction Act seems to have helped Clean Energy stocks be it Enpahse Energy ENPH, First Solar FSLR, or Sunrun RUN. I did recommend FSLR at 99 and continue to hold even at 127. Will NOVA pick up momentum again?

Strong stocks surprise on the upside. I see leadership in STEM. The stock looks attractive at the current market price. It is a software company that helps optimize energy storage

B. Uranium Plays/Nuclear Energy

Nuclear energy accounts for just 10% of the world’s electricity production. The Inflation Reduction Act will incentivize Nucear energy producers like CEG. by offering billions of dollars of production credits. It will delay early retirement of many nuclear power plants. Russia Ukraine conflict will also act as incentive to keep such plants operational. This means increased demand for Uranium. Hence. Uranium miners are back in play. URA ETF has become the vehicle to play this theme.

C. Gap Up post Earnings Play

Uber stock made a big Gap up move above 27 and rallied to 33, now the stock is back to the support and has bounced. Is this stock a buy with stop loss below 26? Uber fundamentally is a turnaround story.  This year, analysts expect its revenue to grow 79% to $31.2 billion as it generates a positive adjusted EBITDA of $1.55 billion. Uber is also gaining market share from Lyft. Uber confirmed that by saying its U.S. mobility share was at or near a multiyear high in the second quarter. Fundamental turnarounds work out very well for stock price performances.

Wolfspeed, a U.S.-based semiconductor company, looks extremely attractive on the charts. Here’s why?

Enovix Corp ENVX, the company that designs and manufactures next generation 3D Silicon™ Lithium-ion batteries, came out with impressive earnings. The stock is at Gap support.

Another battery player, FREY is also at Gap support

Paypal is holding the Gap. Here’s how

Palo Alto Networks PANW has filled the Gap. Will it bounce?

D. Fundamental Plays/Winner of Circumstances

Natural gas prices have risen by 700% in Europe since the start of 2021 and the fundamental forces driving up the prices are for real. With Russia blocking Gas supplies to Europe, there will be pressure on the US to ship Gas supplies to Europe and this would benefit Gas producers in the US.

SWN Southwestern Energy, a Texas-based natural gas producer has all the right fundamentals – The stock that never moves :(. The stock is quietly consolidating and it’s just a matter of time before it surges.

E. Other stocks

Will Silvergate SI hold the current levels?

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