It’s easier to explain why stocks, especially technology stocks, staged a huge rally today, Friday May 13, than to predict whether or not the BIG BOUNCE will continue on Monday.
But here’s my take and my recommendation for what to do on Monday.
Today’s action looks like it was fueled by the market’s plunge this week and last hitting some key technical targets. The 200-day moving average and a Fibonacci cluster all signaled that in the short-term stocks were oversold and we were due for a change in market direction.
And so the human and computer traders went to work.
The biggest gains, as you might expect in this scenario, went to the most oversold stocks–and it helped if the stock in question had a relatively low trading volume. (It’s a lot easier to move The Trade Desk (TTD) with an average daily volume of 6.5 million shares than Apple (AAPL) with an average daily volume of 95 million shares.)
Double digit gains for the day went to Block (SQ) up 11.01%, QuantumScape (QS) up 12.16%, Luminar Technologies (LAZR) up 16.40%, Enphase (ENPH) up 11.96%, LiCycle (LICY) Upp 12.68%, Plug Power (PLUG) up 10.68%, Twilio (TWLO) up 11.66%, SentinelOne (S) up 11.12%, Okta (OKTA), up 11.42%, Ring (RING) up 11.88%, CrowdStrike (CRWD) up 11.79%, and Farfetch (FTCH) up 15.78%.
As you can see, it’s not a short list (and that’s not all of it.)
And for Monday?
Opinion was divided at the close. Some on Wall Street were calling this the end of correction/bear/retreat. Others said this is just your normal (if extreme) oversold rally.
I’m in the second camp. None of the factors that have led stocks to fall and then fall some more have gone away. Inflation is still running above 8% at an annual rate. The Federal Reserve is still intent on rising interest rates at its June, July, September meetings and beyond. The grinding war in Ukraine continues to roil global energy markets and push oil prices higher. (U.S. benchmark West Texas Intermediate closed up 3.94% today to $110.31 a barrel.) The global economy still looks to be slowing–or at best struggling with low growth–under the impact of Pandemic shutdowns in China, severely dislocated global supply chains, and higher energy prices.
If I’ve missed anything, I’m almost certain it’s on the negative side of the ledger.
Which doesn’t guarantee that the market will sell off on Monday and resume its downward course. I do think it will be tough for investors who are looking at double-digit losses in many stocks to resist selling today’s biggest gainers on Monday. On the other hand, the market’s biggest tech stocks by market capitalization didn’t soar so much today that they HAVE to sell off on Monday. After a 3.19% gain in Apple on Friday, for example, Apple shares won’t face overwhelming selling pressure on Monday.
I’m inclined to play this bounce very conservatively–neither selling everything or doubling down in an effort to recoup losses. I’m going to take advantage of the double-digit Friday gains in some stocks today to sell on Monday the shares of some companies that look over exposed to the dangers of the macro environment. Or where I’m overweighted in a sector more than I’d like. Or where the risk of an individual stock seems higher than I’ll like to carry into the second half of 2022.
Right now, late on a Friday afternoon, I’d estimate that I’ll be selling 4 to 6 stocks out of my portfolios on Monday. (Which isn’t as much as it might seem since the portfolios hold more than 100 stocks. And which leaves me several more sell candidates if the bounce runs longer than Monday.) I’ll publish a refined list on Sunday night–and it will be in your mailbox by 8 p.m. on Sunday–in time for action, should you choose to take it, on Monday.
