Stock Market Overview for Week of May 23, 2022

We’re closing out this week on the seventh consecutive red weekly bar on the SPY weekly chart. Words like bloodbath are being thrown around, and there’s definitely some pain out there. Specifically, small caps, which are a good barometer for risk-taking appetite among equity investors, are taking a beating.

SPY weekly chart

Looking to the daily chart of the S&P 500, this week’s price action has been pretty decisively bearish but still raises some questions about the integrity of the current downtrend pattern:

I crudely drew out the swing pattern in a red marker on the chart and marked the key low with a white arrow. The problem here is that following a pullback from the key low (white arrow), there’s potential failure near the lows, with the price beginning to turn around with the latest green bar.

If this market can’t make a new price low, it obviously puts a question mark on the current downtrend pattern and might be an indicator of weakening conviction from the bears.

Chart of the Week

It’s not a chart this week, but a snippet from a Bloomberg article:

The momentum funds are beginning to heavily rebalance into energy and out of tech, which would mark a turning point for both sectors. As we know, energy supply is constrained globally without a convincing turnaround point in the near future.

With the combination of rate hikes and inflation creating the potential for a stagflationary economic backdrop, many of the unprofitable and less viable tech companies could be left for dead as funds continue to rebalance their books.

Last Week’s News

It’s generally been a slow news week, with most traders focusing on the bear market forming more than individual company or economic news. However, a few things happened.

More drama in Elon Musk’s Twitter (TWTR) takeover. He’s angling for a lower acquisition price because of bot behavior on Twitter, claiming that the number of bots active on Twitter is far higher than Twitter disclosures suggest.
- The Twitter board is fighting this and claiming that Musk signed a contract which they intend to hold him to
- Twitter (TWTR) stock is currently at a ~40% discount to the deal price of $54.20
The US Senate is introducing a bill which might force conglomerates like Google and Meta (Facebook) to divest from their advertising businesses.
Big box retailers took a beating in earnings this week. Target dropped 25% on weak earnings and guidance, and many are harping on the fact that the company expects fuel costs to significantly increase. The same is true of Walmart (WMT), which took a 20% haircut following similarly disappointing earnings, guidance and increasing fuel costs.

Earnings Next Week

Earnings season is in its last innings with the vast majority of S&P 500 companies having reported already. So far, 76% of S&P 500 components have beat EPS expectations and 67% have beat revenue expectations.

We got a shakeup in the big box retailer space last week with the bloodbath in stocks like Target (TGT) and Walmart (WMT). A number of retailers like Best Buy are reporting this week, and the market is already speaking. Best Buy (BBY) is already down 13% on the week before they’re even scheduled to report.

Monday, May 23:

Zoom Video (ZM)

Tuesday, May 24:

Best Buy (BBY)
Intuit (INTU)
AutoZone (AZO)
Nordstrom (JWN)

Wednesday, May 25:

Nvidia (NVDA)
Dick’s Sporting Goods (DKS)
Williams Sonoma (WSM)

Thursday, May 26:

Alibaba (BABA)
Dollar General (DG)
Dollar Tree (DLTR)
Baidu (BIDU)
Macy’s (M)

Friday, May 27:

Big Lots (BIG)
Canopy Growth (CGC)

Economic Data Coming Next Week

While it’s a tainted victory for deflationists, they finally got some whimpering of a data point in their favor. YoY CPI came in for the month of April at 8.3% compared to the 8.5% in March. It’s pretty insignificant, yes, but it’s certainly worth noting that the trend has slowed down, at least for now.

This coming week is pretty soft for incoming economic data.

Tuesday, May 24: