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Profit -Taking Ends As New Lows Loom For Markets

Published 06/30/2022, 06:49 AM
Updated 03/27/2024, 08:10 AM

EU and US futures are in free fall with NASDAQ down -1.8%, S&P 500 -1.5%, Dax -2.7%, and FTSE MIB -2.7% at writing. The mini stock market rally is over. The Dax is very close to the annual low of 12,448, and 12,400 looks likely today.

The Conference Board consumer confidence index touched the lows of February 2021, contributing to the change of direction in recent days. The rise in raw materials, favored by the unexpected easing of some anti-contagion measures from Covid-19 in China, led to rapid evaporation of the rally at the end of the semester.

Both New York Fed President John Williams and San Francisco Fed President Mary Daly have mitigated the danger of an impending economic downturn. Both explained that the economy could withstand the vigorous monetary tightening undertaken by the central bank: there is a serious possibility of a slowdown, with a low risk of negative growth for a quarter, but nothing more.

There is no good news from the Macro data. The US GDP worsened, with -1.6% against forecasts of 1.5%. Japan's industrial production fell -by 7% YoY in May, worse than economists' forecasts. Furthermore, the growth of the Eurozone’s business activity slowed significantly - and well beyond forecasts - this month as consumers, worried about rising bills, chose to stay home and postpone purchases to save money, according to a survey published today.

Hot Stocks and Instruments

Stellantis (NYSE:STLA): The EU Council of Environment Ministers announced overnight that it had reached an agreement on the package of green 'Fit for 55' measures on climate, which entails, among other things, the 100% reduction of C02 emissions by 2035 for new cars and vans, and therefore the stop to the sale of petrol and diesel cars by that date.

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Carnival (NYSE:CCL): Carnival stock collapsed after Morgan Stanley (NYSE:Morgan Stanley) cut earnings estimates.

Crude oil: WTI oil is around $ 110 a barrel, moved very little. OPEC + meets today.

Aurora Cannabis (NASDAQ:ACB) and Canopy Growth (NASDAQ:CGC): The banking reform law that would have allowed legal cannabis operators to do business with US financial institutions has been removed from a bill.

Conclusion

As predicted in the latest articles, the recent gains were nothing more than a trap that, unfortunately, many investors have fallen into. We were faced with a fake rebound, simply due to an oversold technical condition, with mainly profit-taking causing this mini rebound.

My medium-term bearish base case remains intact. The next bearish leg will be driven by increasing recession risks and downward earnings revisions.

Today Opec + will give a view on a possible increase in production. In any case, many countries have shown that they do not respect their production commitments due to reduced investments in past years which do not allow them to hit production targets.

Due to Russian oil restrictions, the supply continues to be low, and the political situation in Libya is worsening, putting crude oil exports to the Gulf of Sirte at risk. This could shortly lead to a rally in oil prices to be exploited.

Regarding Stellantis, despite the recent drops, the stock continues to be one of my favorites. The company is ahead of the competition and will be ready when the definitive transition from combustion and electric engines arrives in 2035.

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The financial situation is solid, with low debt and cash on hand. The chip crisis will end in 2023, but I always remember that the market anticipates events on average 3-4 months in advance. So the rally will start shortly. The valuation, according to my model, is $30.

On Telecom (BIT:TLIT), I have already expressed myself in the past that I am happy to have my customers sell the stock at 0.50, saving them from a 50% collapse. The new CEO has just taken office, and indeed, this year will not be able to work miracles. With the prospects for dubious growth and the poor profitability of the company, the stock can quickly go to 0.15.

Regarding Carnival, the situation is delicate. The high fuel costs in the first place affect this sector significantly, and the company has not hit the target of 100% of functioning ships. Only 90% are currently in business. Meanwhile, the debt continues to rise. This stock will easily reach $7 soon.

Regarding the cannabis sector, the news is very negative in general for the whole sector. We are facing major bureaucratic obstacles to the legalization of cannabis and we are in the presence of a market in full oversupply that makes the future black for the sector.

Latest comments

These old articles should be removed!!
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