Stock Market Commentary
Waning market breadth weighed on a broad swatch of stocks last week. I was compelled to let go of some of my worst losing stocks. I feature a few of them in this inaugural Stock Chart Reviews series. My pace of trades will likely slow for the rest of the year unless some new and significant trading catalyst emerges. In the meantime, I will be wary of rallies as long as my favorite indicators of market breadth look as bad as they do now. The charts below also include some clear winners. In general the 50-day moving average (DMA) separates the winners from the losers.
Stock Chart Reviews – Below the 50DMA
Carnival Corporation (CCL)
Stocks in companies benefiting from the economy emerging from pandemic-related restrictions, also known as “reopening” stocks, took a lot of hits last week. New COVID-19 pandemic concerns are surfacing yet again. Carnival Corporation (CCL) was one of many targets. CCL has suffered 10 straight losing days and closed the week at a 5-month low. The 200-day moving average (DMA) (the blue line below) played the role of spoiler from July to now. Resistance at the 200DMA held firm except for a false breakout ahead of September earnings. If the general angst about reopening stocks starts to wane, CCL is a clear bet to hold support at the July lows. Otherwise, CCL next has support at the January earnings price level.
Deere & Company (DE)
My trade in Deere & Company (DE) was very disappointing. The trade worked for two brief moments. In the first moment, I sat on the profit anticipating follow-through that never happened. The second moment was so brief, I did not notice it. The gap up and fade on Thursday followed by the gap down and 3.1% loss were the final 1-2 punch ahead of expiration.
Roku, Inc (ROKU)
I am seeing more and more stock charts like Roku, Inc (ROKU). ROKU printed the familiar peak in February but managed to challenge that high over the summer. The 50 and 200DMA breakdowns from there confirmed the double-top. October delivered confirmations of 50DMA resistance including a 7.7% post-earnings loss. An earnings downgrade generated the latest slide with an 11.3% loss and selling follow-through. In other words, ROKU is trapped in a bearish phase of trading. The stock is a fade on rallies.
Lyft, Inc (LYFT)
The waning enthusiasm for reopening stocks hit Lyft, Inc (LYFT). The latest failure at 200DMA resistance preceded 8 straight days of selling. LYFT looks poised to finish reversing all its post-earnings gains and next put pressure on the 2021 lows around $43.50. This is a shortable chart with momentum waning and pointing to an eventual breakdown of the 2021 trading range.
Shift Technologies, Inc (SFT)
I was very hopeful for Shift Technologies, Inc (SFT) when insider buying sent the stock hurtling upward. Unfortunately, that move marked a fresh top in SFT. I clung to hope as a trading range held for 11 months. Earnings this month catalyzed a breakdown. The new all-time lows put SFT on my fall clean-up list. Accordingly, I sold and took the loss.
Teledoc Health, Inc (TDOC)
The troubles continue to expand for stocks that benefited from the pandemic. Remote healthcare platform Teledoc Health, Inc (TDOC) printed the familiar peak in February and never looked back. In fact, the run-up to the peak reversed in less than 2 weeks. From there, TDOC has churned lower. Last week was particularly damaging with an 8.1% loss followed by a 5.6% drop. TDOC closed at a 20-month low which represented a complete reversal of all its pandemic-related gains. Needless to say, if TDOC cannot hold support here, the stock will be positioned for a fresh extended period of selling.
Twitter (TWTR)
I keep itching to get back into Twitter (TWTR). However, the stock has yet to create convincing support for a new entry point. TWTR tumbled 10.8% post-earnings and ushered in a new phase of selling. TWTR closed the week at a 10-month low and looks as weak as ever. I will next look for support to hold at the 2021 low. TWTR is down 10.6% year-to-date, so investors may eject the stock for tax loss harvesting in a fall clean-up.
Chegg, Inc (CHGG)
I sure hope stock repurchases have not yet begun for Chegg, Inc (CHGG). Since Chegg’s earnings bombshell, sellers have pounded the stock day after day. I sold a put after earnings as a first position based on my thesis for an eventual comeback. Clearly, that recovery is a long way off. I see no need to add to the position until CHGG forms a base and/or buyers can reverse the latest plunge downward.
Zillow Group (ZG)
Zillow Group (ZG) is another stock damaged by exceptionally bad earnings news. I started accumulating a position through short puts. Unfortunately, sellers have been relentless. ZG looks like it might sell-off for the rest of the year as investors concede defeat. I have switched my strategy to selling calls against shares and buying puts to participate in some of the downside momentum.
Stock Chart Reviews – Above the 50DMA
Home Depot (HD)
Enough ugliness – time for a clear winner. Home Depot (HD) is awake again thanks to a 5.7% post-earnings surge. Buyers have yet to stop. Needless to say, HD is still a buy on the dips kind of stock.
Lowe’s Companies (LOW)
Sympathy buying took Lowe’s Companies (LOW) higher 4.2% in the wake of Home Depot’s earnings. That move apparently exhausted buyers a bit given LOW only managed a 0.4% post-earnings gain. LOW crept onward to close the week at an all-time high. Like HD, LOW remains a buy on the dips.
iShares U.S. Home Construction ETF (ITB)
The seasonal trade in home builders continues to behave well despite waning market breadth. The iShares U.S. Home Construction ETF (ITB) closed the week at a marginal all-time. However, one small caveat emerged from a sharp fade from the intraday all-time high. That fade puts ITB at risk for a pullback that would end this 6-week streak along the upper Bollinger Band (BB).
DoorDash (DASH)
A topping pattern emerged in DoorDash (DASH). The food and goods delivery company flared out on Monday with a fade from an intraday high. The selling for the week climaxed with a bearish engulfing 5.9% loss. While 50DMA support remains intact, DASH looks ready to completely reverse its post-earnings gains.
QuantumScape Corporation (QS)
I planned to hold QuantumScape Corporation (QS) for a run to the February/March highs. Unfortunately, after brief follow-up buying, QS turned around and headed straight for converged support at the 20 and 200DMAs. With waning market breadth, I decided to lock in profits way ahead of schedule. I am a buyer again on a test of 50DMA support.
Fossil Group (FOSL)
Buyers completely abandoned Fossil Group (FOSL) after exhausting themselves on a post-earnings pop. Sellers never relented last week. The dust settled with a near complete reversal of the post-earnings pop. I am a buyer if FOSL stabilizes soon.
Caterpillar, Inc (CAT)
Caterpillar, Inc (CAT) joined the ranks of disappointing industrials. CAT failed perfectly at 200DMA resistance and headed nearly straight for 50DMA support. I am only a buyer on a bounce from this support. Weakness in CAT serves to confirm the importance of the waning market breadth.
SoFi Technologies, Inc (SOFI)
I had plans to hold SoFi Technologies, Inc (SOFI) over an extended period of time. A convincing failure at resistance from the summer highs pushed me to lock in profits way ahead of schedule. I am not inclined to buy back in too quickly. Accordingly, I will likely pass on tests of 50 or 200DMA support.
Maxeon Solar Technologies (MAXN)
I thought Maxeon Solar Technologies (MAXN) was finally ready for take-off after a strong 200DMA breakout. Instead, MAXN proceeded to weaken. A 12.9% post-earnings gap down and loss confirmed the end of the breakout. However, I gained a modicum of relief from a 13.1% gain on Friday. Buyers promptly filled the post-earnings gap down after the House of Representatives passed President Biden’s “Build Back Better” plan.
Be careful out there!
Footnotes
Source for charts unless otherwise noted: TradingView.com
Grammar checked by Grammar Coach from Thesaurus.com
Full disclosure: long ITB, long MAXN, long CHGG, long ZG shares and puts and short call
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*Charting notes: Stock prices are not adjusted for dividends. Candlestick charts use hollow bodies: open candles indicate a close higher than the open, filled candles indicate an open higher than the close.
Still can’t believe SFT took hit
Wear about LCID- is your strategy to hold it sell
I can’t believe it either. I was pretty convinced that SFT was a steal given the insider buying.
I am holding LCID. My current plan is to sell half to pay for the other half – in other words, ride house’s money. I decided to sell a call option against the half rather than sell shares directly. However, those calls keep expiring worthless so suddenly I have a different way of profiting off a churning position. I even sold a call option against the other half too. A $60 weekly call option expiring this Friday which I fully expect to expire worthless.
I don’t have a plan yet if I go through this week still with a full position in hand. Perhaps at some point, I will just sell half the shares directly.