Weekly Market Review & Analysis For May 9, 2022

This week, the market's major indices fell over 2.0%, mainly being squeezed by worries about growth, higher volatility, and the downwards momentum. The Nasdaq Composite dropped 2.8%, The small-cap Russell 2000 lost 2.6%, the S&P 500 fell 2.4%, and Dow Jones Index lost 2.1%. 

The eleven S&P 500 market sectors fell, and five of them lost more than 3.0%, including information technology with -3.5%, consumer discretionary with -3.4%, financials with -3.6%, and real estate with -3.9%. The consumer staples sector made it through the week by posting the highest gain of 0.3% increase. 

The following market factors amplified the growing concerns:

  • Expectations for Fed to continue its tightening plan despite inflation data climbing higher.
  • Early reports indicated that COVID-19 again restricted Shanghai, but there was hope that these restrictions would ease this month's second half.
  • The IEA has lowered its global oil demand forecast, and Saudi Arabia cut oil prices for Asian buyers due to weak demand.
  • *Walt Disney (DIS) cautioned that Disney+ subscription growth could slow significantly during the second half of the calendar year.
  • A plethora of high-growth stocks market have continued to disappoint investors by announcing earnings or guidance, such as Unity Software (U), Coinbase Global (COIN), Fiverr (FVRR), Peloton (PTON), GoodRx (GDRX), Upstart (UPST), Palantir (PLTR) with Sofi Technologies (SOFI).
  • Uber (UBER) had plans to reduce its costs.

The fear of growth, the peak inflation expectations, and a general flight toward safety contributed to higher market demand for U.S. Treasuries. It resulted in yields dropping during a trading session that flattened the curve this week. The Two-year yield fell eight basis points to close at 2.59%, and the Ten-year yield dropped 18 basis points, bringing closure to  2.94%. Its U.S. Dollar Index advanced 0.9% to close at 104.57.  

Sentiment further was strained due to an S&P 500 temporarily breaking below the crucial 4,000 level; weakness in mega-caps, including Apple (AAPL), which briefly lost its status as the most valuable company based on market capitalization, and the increased volatility when investors sold off into the earlier rally attempts.

However, the only rally that was not sold was the one that occurred at the end of the week when it was noted that the S&P 500 almost entered bear market territory (being down 19.9% from its record peak). This signified that it was a big-time unpredictable bounce to happen - PPP anyone?. 

In addition, Fed Chair Powell, Cleveland Fed President Mester (FOMC voter), St. Louis Fed President Bullard (FOMC voter), and San Francisco Fed President Daly (non-voter) each stated that they would prefer rate increases of 50 basis points in place of the 75 basis points. U.S. Treasury Secretary Yellen has also said that she did not believe the enormous losses on stable coins would result in systemic problems in the financial system.

In a similar vein, it was reported that the Senate has confirmed Fed Chairman Powell for another term and approved Lisa Cook to the Fed Board, also effective August. 22 Lorie Logan was appointed as Dallas Fed President.

Market elsewhere

The equity market(s) in the world performed somewhat better during the week and with lower risk than the United States. The MSCI Europe Index was relatively unchanged and remained higher than its low on March 8 despite the geopolitical risks of Ukraine's Russian SMO, which is currently down around -3.3% since the beginning of the SMO.

The severe price drop in the silver and gold market was accelerated in the week's session. The price of gold traded at $1,811, down $72 from last Friday's closing price, while silver, at $21.07, dropped $1.26 for the same period. Comex volume in both contracts was high due to the selling. Silver is down 9.4% in the current year, in line with the sharp decrease in industrial metals. Gold is down less than 1%.

The high volume and the sharply declining market prices suggest we are amid a selling finale. The hedge funds that hold long-term gold futures are short the U.S. Dollar and, therefore, are vulnerable to a brewing financial crisis in Euro currency, British Sterling, and Japanese Yen, pushing the U.S. Dollar up on exchange rates. However, the hedge funds' positions no longer have any significance.

The Euro currency market has seen a significant decline over the week's trading session. Still, it witnessed an explosive movement on Friday, suggesting that the currency is trying to make a big bounce. The Euro initially fell throughout the week; however, it experienced a swift move on the Friday session that formed a bit of a preliminary BARC 1.038 (Support Level).

This is a very oversold market, and this shouldn't come as a shock. When you examine the chart here, you will see that the market bounced eventually once we broke down below the completed Inner Currency Dip 1.050. The Euro may make a run back towards the completed Inner Currency Dip as a new resistance level; however, the Next Inner Currency Dip 1.031 is inescapable.

Cryptocurrencies

Bitcoin has now closed in the red for six weeks in a row. The last time this happened was in 2014. Will there be a record-breaking seventh week? Furthermore, this week was disastrous for Terra (LUNA). The blockchain has even been shut down to prevent an attack.

Thursday night, the blockchain of Terra was shut down for two hours. But what happened exactly? Terraform Labs, the development group in the shadow of the unfortunate blockchain network, published an update Thursday affirming that the blockchain had been shot down. They demonstrated that the network had been suspended to reduce attack risk.

Terra relies on a POS (proof-of-stake) for agreement instead of electricity and hardware, and like POW (proof-of-work for bitcoin), owning tokens provides equal authority. However, the more Luna you own, the more control you have, and with these prices, it is easy to become very influential. With bitcoin, the amount of BTC you own does not give you more power in the market.

Since the price is now essentially close to zero, the cost of an attack on the network has fallen dramatically. The current value of the network is now merely a few hundred million dollars, when not too long ago was about $30 billion seven days ago.

Terraform Labs later shared a patch to disable further delegations before nodes restart the network. It added that the network would resume when 2/3 of the votes come online. Thursday night, the blockchain came back online. However, later that night, the team shared that the blockchain had stopped producing new blocks for the second time. No valid reason has been given yet.

Remember Rothschild's dictum: "I buy when there is blood on the streets."

This article was printed from TradingSig.com

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