That air you heard coming out of the banking sector on Monday was partially due to a little-read report (until things get interesting) from the Fed.
It's called the Senior Loan Officer Opinion Survey on bank lending practices - or the "SLOOS Report." (For what It's worth I really like saying "sloos." You should try it.)
This quarterly report is an overview of supply and demand for loans to businesses and households. As you know, our economy tends to operate on credit, so the report has implications concerning where banks see the economy heading.
Well, the report for Q1 of 2023 reflected both a decline in loan demand as well as a tightening of lending from the banks.
(Here's the Fed's report in case you want to see the details...)
While this reflects poorly on the outlook for the banks, it also suggests that the consumer - and consumer-related stocks - are returning to their weak standing in the market... just as earnings season for the retail sector approaches.
Let's take a look at the sector, including an EV earnings name.
Retail ETF Shares Rejected at the Trader's Trendline (XRT)
The SPDR S&P Retail ETF (XRT) took a shot at trading above its 20-day moving average (a.k.a. the MA20, or "Trader's Trendline") and has failed for now.
The technical backdrop for the retail sector is flashing intermediate-term bearish signals, as both the 20- and 50-day moving averages (MA50) are trading in a downtrend direction. At the same time, the shares are targeting another attempt at breaking below the $60 price level, which could cause a little hedging activity to kick in.
The May 19 expiration $60 puts hold a large percentage of the XRT's put open interest, meaning the price should see some support. But in a twist, the $55 strike houses heavy call and put open interest. This makes the May 19 $55 strike a potential target for a pin. (You can read more about the "pinning" strategy here.)
The bottom line is that a break below $60 - a price that has given way in the last week - is likely to result in a hedge situation that could target $55 ahead of next Friday's expiration.
Drilling Down on the Retailers (BBY)
Seeing as how the XRT is struggling to break its intermediate-term bearish trend, let's drill down on the retailers a bit.
As of today, the majority of stocks that make up the XRT are trading below their bearish moving averages.
There are exceptions, like Carvana Co (CVNA) and Walmart Inc (WMT), but for the most part, this is a sector facing strong technical headwinds at the stock level.
One stock on the tipping point is electronic retailer Best Buy Co Inc (BBY).
BBY shares slipped into an intermediate bear trend, as it crossed below its MA50 in early March. Since then, the stock has shed almost 15% of its value and is now facing an even more technically challenged environment, as the MA50 is crossing below the 200-day moving average (MA200) to form a "death cross" pattern.
Historically, these patterns are an indication of more downside as the longer-term trend develops bearish tendencies. For BBY, the Death Cross happens while the stock is trying to hold support at the $72 level.
Making matters more difficult, my Volatility Squeeze indicator (A.K.A Bollinger Band Squeeze) is flashing signs that a volatility storm is brewing, as the bands are at their tightest reading in the last year.
All of this suggests BBY is a bearish candidate with a $60 price target.
EV Stocks in Focus
Lucid Group Inc (LCID) released its disappointing quarterly results after the close Monday. For the quarter, the company missed The Street's top- and bottom-line expectations by a wide margin, resulting in the stock trading more than 10% lower in pre-market action.
In addition, the company announced a mixed-shelf offering. This is a way for the company to raise capital, but it comes at the cost of lower share prices.
LCID shares rallied 8% over the five days leading into the earnings call, suggesting traders had high expectations for a beat. With those expectations dashed, the stock now targets the $6 level after being firmly rejected by its bearish MA50.
I'm eyeing a new trade on the July expiration options.
The post The Fed Deflated the Market - But Not These Trades appeared first on Penny Hawk.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.