Apple, Tesla May Offer New Year Plays Despite Fed


Simpler Trading Team

5 min read

The stock market shook off fears of tightening monetary policy and rebounded for the first positive day of 2023.

After a positive jobs report, traders on Wednesday anxiously awaited the release of meeting notes from the December central bank meeting.

Despite plans to continue the hawkish policy of raising benchmark interest rates to fight inflation, the stock market closed the day on a high note.

Options with Bruce Marshall
Futures with Neil Yeager

Central bank plans more interest rate hikes

Federal Reserve (Fed) plans to tighten the labor market aren’t making much impact following the release of the latest Job Openings and Labor Turnover Survey (JOLTS).

The November JOLTS numbers were released Wednesday and showed almost 10.5 million job openings. The total was down slightly over the previous month and well above economic forecasts.

The FOMC, or central bank, raised interest rates seven times last year, pushing the federal funds rate to a range of 4.25% to 4.5% with the purpose of inducing job losses and lowering inflation. Jobs continue to be abundant across the board and inflation remains high, well above 7%. JOLTS is one of the key data points the Fed watches when deciding how to move forward combating inflation.

Economists and investors last year hoped the Fed would moderate its plans to curtail inflation heading into this year. The negative impact of inflation has the Fed maintaining hawkish monetary policies.

The Fed reiterated its intentions on Wednesday by releasing the minutes from its December meeting.

“Recent indicators point to modest growth in spending and production,” the Fed pointed out in its statement. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

With little change in economic conditions, the Fed isn’t looking to pivot from plans in play.

“The Committee is highly attentive to inflation risks,” the statement read. “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4¼ to 4½ percent.”

And more interest rate hikes are on the way.

“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” according to the Fed statement.

Traders must keep Fed policies in mind when executing trading plans into the new year.

Mega cap tech stocks open for short plays

The stock market tussled with Fed commitment to higher interest rates, waning across the board for a bit before finishing the Wednesday session to the upside.

In the market today, the Dow closed at 33,269.77 points to gain a modest .40% (adding 133.40 points on the day). The Nasdaq rose to 10,458.76 points for a .69% boost while the S&P 500 was up .75% to 3,852.97 points.

In the middle of all the economic and Fed jostling, two pricey technology stocks that have “fallen from grace” may present buying opportunities to kick off the new year.

Apple, Inc. (AAPL) and Tesla, Inc. (TSLA) are two heavily valued technology stocks that weakened in 2022 and opened 2023 with negative momentum.

Apple was able to rebound slightly today compared to yesterday, closing up 1.03% to $126.36, and Tesla followed suit by rising 5.12% to $113.64. At the beginning of last year Apple was at $179.70 and Tesla was at $383.20. Apple has lost more than $1 trillion in valuation in 12 months and Tesla stock has dropped 50%.

Both of these mega cap stocks have a long way to regain past prominence as the overall technology sector remains weakened in a fragile economy.

Despite the longer downtrend in these two stocks, both are heavily weighted in the S&P 500 and Nasdaq.

Weakened stocks set up day trading opportunities

Traders may be wondering when to buy weakened stocks, like Apple and Tesla, and if price may fall further. Raghee Horner, Managing Director of Futures Trading at Simpler Trading, focused on Tesla as an example for trading the downtrend.

“The temptation is to think, ‘How much lower could Tesla go?’ Raghee said. “We don’t want to play that game in a downtrend. We want to remember that we can short Tesla or day trade it.”

There is a time for “buying the dip” with weakened stocks but the market must dictate that moment through changes in the downtrend structure.

Until then, Raghee watches for potential intraday trades using shorter time frames on technical analysis charts, like the 5-minute chart. This strategy can reveal opportunities with weakened stocks for traders not comfortable with shorting low price points and when there are no higher price points to open up long puts on the daily chart.

As for Apple, also still in a downtrend, Raghee looks for day trading plays in this stock and avoids trying to pick bottoms. She’ll again follow the 5-minute chart for day trades, and is not looking to get long in Apple anytime soon.