Day Traders Diary

5/12/22

The major averages closed mixed with the Dow Jones falling for a sixth straight day. The Dow Jones Industrial Average dropped 103 points, or 0.33. The S&P 500 fell 5 points or 0.13% while the Nasdaq rose 6 points. The S&P 500 index fell 18.9% on an intraday basis getting closer to a bear market territory.

All the major averages closed the session on track for weekly losses.

Earlier in the session, the market tried to rebound as traders bought into beaten-down names. At one point, the Dow was up as much as 80 points at session highs, while the Nasdaq added 1.6%.

Those gains slipped as the markets once again struggled to pick a direction and the S&P 500 was on the brink of bear market territory. Of the major averages, the Nasdaq is the only one in bear market territory, having fallen more than 30% from its record high — as tech shares continue to get pummeled.

Some heavily shorted names led the brief rally from earlier in the day and continued to trade higher. Shares of Lucid popped 13.2% while GameStop and AMC jumped more than 30% and 20%, before pulling back gains. Rivian Automotive also soared about 18% after reporting its latest quarterly results and Carvana, which hit a two-year low earlier in the session, surged more nearly 25%.

While it was unclear what was driving gains from Lucid, GameStop and AMC, it could mean a short squeeze was taking place, where hedge funds that have profited from the steep losses in overvalued pandemic winners this year were finally closing out their short positions by buying back the shares.

Short selling is a tactic where funds sell shares that are borrowed from investment banks and so in order to close the trade they need to buy the stocks and return them. A short squeeze is a rally that results from that buying.

To be sure, this trading action could indicate some investors who have made hefty bets on the beaten-up meme stocks are upping the ante in the hopes of winning big, said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.

Apple lost 2.7%, pushing the shares into bear market territory — down 22% from a 52-week-high. It came as Saudi Aramco surpassed the tech giant as the world's most valuable company on Wednesday. Meanwhile, shares of Amazon and Meta Platforms closed up more than 1%.

Disney shares fell to a two-year low and closed about 0.9%. The media giant reported higher-than-expected streaming subscriber growth, but warned about the Covid impact on parks in Asia.

These moves came as traders pored over the latest U.S. inflation data. Fresh producer price index data, which measures prices at the wholesale level, rose 11% year over year.

On Wednesday, the U.S. government posted the latest consumer price index reading, which showed an 8.3% year-over-year jump in April. That's higher than what economists expected and close to a 40-year-high of 8.5%. The report caused investors to continue to sell risky assets like tech stocks.