Well folks, despite the imminent rate hike just around the corner, the market as ranked by the S&P 500 made a 78bp comeback yesterday - likely meaning that a 75bp hike by the Fed tomorrow is already priced in, so keep an eye on that depending how you’ve positioned your portfolio. Other than that, make sure to trade with a stop loss and mind your position sizes as trading without proper risk management is really just gambling.
”For the young Gs out here starting from the beginning, nobodies praying for you when you’re winning”
The S&P 500 lost its support level briefly last week and it was only yesterday’s green price move that is pushing it back into the trading range. Our house view is that a 75 bps hike will appreciate equities as it is in line with expectations and widely forecasted by the leading investment banks in the US - as we edge closer and closer to the announcement of this fateful hike in the US Treasury Curve (pictured below) has developed an even more pronounced partial inversion.
That said, generally, as these bonds decrease in value, interest rates in the housing market increase given the inverse relationship between these two asset classes; this is worth noting as the August housing data has been released this morning and while housing starts are up 1.575M from August and clocking in above expectations, building permits are down MoM to 1.517M, missing forecasts by 100, 000. Lastly, as we head into this second last trading session before the hike, markets are selling off from yesterday’s bounce to the tune of -53, -60 and -70 bps respectively for the Dow, S&P and NDAQ.
Short: SOFI Inc. (SOFI-NASDAQ) | Timeline: 3 days
SOFI is an American Neo Bank that operates through primarily online channels. The company offers a diverse range of products to their over 4M members including; student loans, banking, credit cards, insurance and more. SOFI has been active since August of 2011, however, they only began trading in January of last year.
Since being traded publicly the company has not been able to make a dime, with forecasts suggesting the company may only begin making a profit as of 2024. While this long runway would’ve passed throughout the startup mania of the last 10 years, we’re now in a totally different ballgame. This brings us to SOFI’s catalyst throughout the next few trading sessions, the FOMC meeting. As we get hit with either a 75 or 100bps hike many low/no earnings growth firms will be hit the hardest. Additionally, throughout 2022’s FOMC meetings, SOFI has traded in a pattern that typically leaves the company lower in the two trading sessions following the meeting.
On the technical side, SOFI is trading slightly below the 50-day MA of $6.56, while trading far below the 200-day MA of $9.05. Moreover, the company has a MACD of -0.14. From our point of view, we would institute a 5% stop loss on this idea.
Short: Qualys, Inc. (QLYS-NASDAQ) | Timeline: 2 days
Qualys, Inc. (QLYS), which provides cloud-based information technology, security, and compliance solutions internationally just recently reported some killer earnings, resulting in the stock ripping 20%+ in the following 4 days after the announcement. This extreme bull run triggered a massive insider sell, as Bruce K Posey, Chief Legal Officer, proceeded to sell 7,486 shares for $1,134,592 due to the share price now trading at a premium, signalled by a high P/E of 59.76.
Turning to the chart, QLYS hasn't experienced much price action through 2022 until its most recent earnings tear, creating some volatility around the stock. That being said, a broadening wedge has formed - a widely used chart pattern that allows traders to capitalize on the oscillations contained within a formation. As momentum in QLYS points downwards, signalled by the MACD, traders should capitalize on the oscillation towards its nearest support level.
Chart of the Day: TIP Dividend Adjusted Returns