Wrapping Up the Week – May 20, 2022

Market Extends Losing Streak

The DJIA had a bullish reversal in the final hour of trading Friday to end the week slightly in the black. The Nasdaq almost did the same but closed with a 0.3% loss.

Heavy selling led to the early death of yet another confirmed uptrend.

On Tuesday, the Nasdaq marked a follow-through. The 2.8% advance in higher, albeit below-average, volume did not stand out amid the heightened day-to-day volatility since the start of the year. Nonetheless, the session still qualified as a potential signal that the correction was over.

On Friday, the S&P 500 mirrored the Dow. It turned a 2.3% early afternoon loss to a fractional gain close. At the low of 3810, the large-cap index has now sunk 21% below its all-time peak of 4818.

We’re in a bear market.

Retailers such as Target (TGT) and Walmart (WMT) helped trigger the broad, wide sell-off. But megacaps Apple (AAPL), Google parent Alphabet (GOOGL) and especially Tesla (TSLA) were major losers as well. Apple stock slumped 6.5%. Google stock sank 6.15% . Tesla stock crashed nearly 14%.

As further evidence that 2022 has become the year of defensive stocks, the Dow Jones’ utility average gained almost 0.2%. The small-cap Russell 2000 fell 0.2%.

The 10-year Treasury yield skidded 15 basis points to 2.78%, after tumbling 19 basis points in the prior week. The retreat in Treasury yields reflects concerns about economic growth.

U.S. crude oil futures rose 2.5% to $110.28 a barrel last week.

What’s Climbing?

Concerns on inflation, slower economic growth, Russia’s war on Ukraine, China’s economy, just to name a few. Thus, cash in the portfolio continues to act as a healthy buffer.

Long-dated safe-haven bonds kept rallying. The yield on the key U.S. Treasury 10-year bond slid 6 basis points to 2.78%. That’s down from a May 9 peak of 3.16%.

Are there any names worth watching?

Chevron (CVX), Eli Lilly (LLY), World Wrestling Entertainment (WWE) and ZIM Integrated Shipping (ZIM). These names are near buy points with their relative strength lines at or near highs.

We are big fans of ZIM. ZIM stock was up and down for the week, finishing with a 1.65% gain to 64.70. Shares appear to be working on a handle in a cup base, but that needs another day. Container-based shipper ZIM Integrated reported EPS surged 190% as revenue more than doubled, both beating. ZIM also announced a $2.85 per-share dividend.

Bitcoin

Bitcoin has fallen more than 56% off its November peak of $67,707. Traders have come to learn that the history of Bitcoin has a strong history of boom and bust. But could it fall any further?

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gave up 1.6% last week. The Innovator IBD Breakout Opportunities ETF (BOUT) plunged 5%. The iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) both fell 1.8%.

SPDR S&P Metals & Mining ETF (XME) edged up 0.6% last week. The Global X U.S. Infrastructure Development ETF (PAVE) retreated 2.4%. U.S. Global Jets ETF (JETS) rose 0.6%. SPDR S&P Homebuilders ETF (XHB) slumped 3.6%.

The Energy Select SPDR ETF (XLE) gained 1.3%, with Chevron stock a major component. The Financial Select SPDR ETF (XLF) lost 1.8%.

The Health Care Select Sector SPDR Fund (XLV) advanced 0.9%, with LLY stock a notable holding. The SPDR S&P Retail ETF (XRT) crashed 9.45%, with WMT stock and TGT stock major holdings.

ARK Innovation ETF (ARKK) retreated 2.7% last week while the ARK Genomics ETF (ARKG) edged up 0.6%. Tesla stock remains the No. 1 holding across Ark Invest’s ETFs, though it is no longer the No. 1 position in ARKK. Ark Invest also owns some Xpeng and BYD stock.

Summary

Inflation is squeezing consumers and the Fed is rapidly raising rates as a result. Along with global supply-chain woes, the economic outlook looks difficult at best. The stock market is still adjusting to the possibility of a “hard landing”.

Individual investors need to adjust to the hard reality.

What should you do now?

This isn’t a time to be brave or clever. It’s a time to be smart and manage risk.

If you have some energy stocks with solid gains, I recommending keeping a minimal exposure. But even here you might want to consider taking profits. Investors also have decisions to make about big long-term winners, such as Tesla stock.

I still, however, recommend that investors stay on the sidelines. It’s possible that ZIM, Eli Lilly, Chevron or WWE stock will trigger buy signals in the near future, but any purchases would be extremely risky, while the upside could be limited.

It’s better to wait for a better market to develop. And that is far more than a strong open — or close — or even a big day or two.

Even when there’s another confirmed rally, add exposure slowly and be quick to exit, if stocks fall more than 10%. Always cut your losses to 10%.

Study past bear markets and corrections, including those from the late 1960s to early 1980s, when inflation was a major threat.

And keep working on watchlists. If you haven’t updated them this past week, get ready to do some major overhauls. Many stocks with strong relative strength lines have broken down. But look for the new relative winners out there.