In our weekend digest, we summarize the best pieces published from the working week. These can be read in full by clicking on the link over the name/ticker.
Editor’s Picks – Navigating A Bear Market
The recent correlated sell-off in most markets has provided somewhat of nowhere to hide for investors. With bond yields rising (i.e prices falling), we’ve also seen equity markets move lower, along with previous metals. With traditional correlations breaking down, here are three trade ideas that we like for a market crash.
Investing over a long period requires several factors to be successful. Choosing the right stocks is first. Position sizing and risk management are also key. Opportunity is also another. Rarely does the market drop in price as much as it has done this year. But when will the bottom be in? We think that the simple investing style of “Buy Fear, Sell Greed” is in play now.
Stocks – The Sell Off Becomes A Flood
Since the start of the year, the NASDAQ 100 has shed almost 25% in value. Although most of the drivers have been fundamental in nature, certain technical levels have been triggered in the process, exacerbating the move lower. We review some of the levels to watch out for in coming weeks for future trading direction.
It appears the NASDAQ 100 could be due a bounce in the short-term, as it coincides with both long-term support area in the 12,000-12,300 range and also on the bottom of the channel on the daily charts. However, we don’t expect this to be the complete end of the downward move, so would look to sell rallies that reach 14,000-15,000.
Firstly, we think the market overreacted to the recent results. It’s been a theme in earnings misses so far this year, with sometimes only modest misses from companies seeing a large knee jerk move lower.
We’re not saying that the Coinbase Q1 results were a modest miss, the loss of $430m is significant. The fall in trading volume to $309bn is also down on both the previous quarter ($547bn) and on the same quarter last year ($335bn).
Yet there were still many positives to take from the report. For example, the assets on platform grew to $256bn, up from $223bn from the same quarter last year. Monthly transacting users hit 9.2m, again up significantly from the Q1 2021 figure of 6.1m.
FX & Commodities – Crypto Takes a Pounding
Let’s take a look at some areas of support below. The first area is $30,600, the bottom of the value area (value area is where 70% of volume has been traded). We could tie this into the psychological price of $30,000 too. The weekly candles have never closed below $30,000 since it first broke that price. Will we see large buyers step in again at this price?
If price falls below the value area, there are two zones which could see some support. Both are supports based on high volume nodes. These two prices are $27,000 and $23,000.
The final area is at $19,300. This is a very high volume node, the third highest area that price has traded. The only areas that have more volume are VPOC ($38,700) and the HVN at $47,500.
We prefer to short USD be CAD, and enter the trade via an order at 1.3000. We think CAD is a nice way to play this due to the resilience offered by elevated oil prices. We also think the central bank will look to mirror the Fed in rate hikes for this year, limiting any rate differential risk.
We are targeting a move back down towards 1.2700, with a position on leverage.
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