Stock Market Commentary
A new COVID-19 variant created a new normal for financial markets. The following stock charts provide snapshots of how the market reacted to this new reality. Pandemic-sensitive stocks reacted sharply with a holiday-shortened trading session creating extra urgency for traders. Some of these quick trigger moves should reverse at least a bit in the coming week. While this is not a time to get bearish, I still expect recent tops to hold, breakdowns to provide sustained signals, and supports to endure on-going threat.
Stock Chart Reviews – Below the 50DMA
DoorDash (DASH)
Last week I noticed that a topping pattern emerged in DoorDash (DASH). DASH proceeded to slice right through its 50-day moving average (DMA) (the red line below). After a 3-month low, buyers finally stepped in just above support at the 200DMA (blue line below). DASH is a fade at 50DMA resistance or a short on a 200DMA breakdown.
KraneShares CSI China Internet ETF (KWEB)
At the beginning of the month, I contradicted the CNBC Fast Money crew and claimed that the KraneShares CSI China Internet ETF (KWEB) was likely starting an extended trading range instead of positioning for a breakout. So far, the trading action has unfolded as expected. Indeed, given on-going Chinese government restrictions and poor earnings results, KWEB’s risks favor a breakdown below the trading range.
Visa (V)
Fintech companies have suffered poor performance in November without an ostensible industry-wide catalyst. The poor trading behavior makes me wonder whether the stock market anticipates future setbacks in retail spending. If so, a new COVID-19 variant may confirm those fears.
The vortex caught credit card company Visa (V) as well. A 6.9% post-earnings loss at the end of October started the latest slide for Visa. A gap down in response to Amazon.com (AMZN) switching sides to Mastercard (MA) confirmed the weakness for Visa. Visa is now down 10% year-to-date.
Mastercard Incorporated (MA)
At one point in November, credit card company Mastercard (MA) held a 200DMA breakout. However, the weight of negative sentiment in fintech eventually took its toll on MA. Despite the deal with Amazon.com, MA sank sharply and left behind a false breakout. MA now looks as bearish as Visa with a similar year-to-date performance of -9%.
PayPal Holdings (PYPL)
Paypal (PYPL) rounds out this snapshot of poor performance for fintech companies. The slide in PYPL became quite noticeable after the acquisition rumors over Pinterest (PINS). Paypal’s denial gave the stock a brief 1-day respite. Selling resumed right through a 10.5% post-earnings loss. PYPL now trades at a 20% year-to-date loss and 52-week low. The stock is a fade on rallies until further notice (like a post-earnings closing high above the downtrending 20DMA, the dotted line below).
U.S. Global Jets ETF (JETS)
U.S. Global Jets ETF (JETS) suffered alongside so many other pandemic-sensitive stocks. JETS lost 7.2% on a breakdown below support that held since the July lows. Even with the rapid closure of international travel from southern African countries which appear to be the origin of the omicron COVID-19 variant, the JETS drop to $20 looked extreme. I bought shares there and held. The bounce from that low created a hammer. Confirmation of a likely bottom comes from a higher close. I have an upside target at former support around $22.
Best Buy (BBY)
Sometimes the market has no idea what is really happening. Best Buy (BBY) soared from the October lows as if November earnings held great news. Instead, earnings severely disappointed and instantly took BBY right back to the 50DMA and then 200DMA. BBY looks trapped once again in a trading range that began August, 2020. I bought shares and a call spread on a bet that BBY would meander its way at least back to the top of the trading range (around $125) after the dust settles.
Nordstrom (JWN)
Earnings for Nordstrom (JWN) punched the stock below its 2021 trading range. A 29.0% post-earnings plunge and additional pressure took JWN to a 52-week low. JWN is now a fade on rallies up to the previous trading range.
SPDR S&P Retail ETF (XRT)
The net result of post-earnings pressures and a new scare from a COVID-19 variant created a false breakout for the SPDR S&P Retail ETF (XRT). XRT returned to its 2021 trading range with a gap down and 2.4% loss. Buyers defended 50DMA support. I am an XRT bear on a 200DMA breakdown even with XRT trading above the October low.
Zoom Video Communications, Inc (ZM)
A 14.7% post-earnings loss seemed to confirm the end of pandemic tailwinds for Zoom Video Communications (ZM). The 17-month low put an exclamation mark at the end of 2021’s on-going downtrend. However, the realization from the COVID-19 new normal motivated traders to send ZM to a 13.2% gap up open. Sellers faded ZM from there and whittled ZM’s gains to 5.7%. I jumped into a weekly calendar spread at the $240 strike assuming that ZM received a catalyst for a tradable bottom.
Fossil Group (FOSL)
The selling continues in Fossil Group (FOSL). FOSL has returned to its previous trading range in a post-earnings fade the looks similar in spirit to the trading action from January. Despite closing below 50 and 200DMA supports, FOSL is a better buy here with a stop below the trading range between $9.80 to $11.20.
The Walt Disney Company (DIS)
Disney (DIS) has had a another year full of milestones and blockbusters, but investors are once again playing hard to please. A post-earnings loss of 7.1% greased the skids for a trading range breakdown. Suddenly, DIS is at a 52-week low. This weakness is a great buying opportunity for longer-term investors even with Disney’s participation in the snapshots of the new normal with a 2.1% loss.
Caterpillar (CAT)
Caterpillar (CAT) lost 4.1% and closed below its 50DMA. I bought a put option on CAT as it looks vulnerable to an extended pullback on continued stock market weakness.
Stock Chart Reviews – Above the 50DMA
Apple (AAPL)
Apple (AAPL) confirmed its blow-off top with a 3.2% loss. I took profits on my put spread and flipped around with call options following the Apple Trading Model (ATM). If AAPL closes below support from the all-time high, I expect follow-through selling to eventually take AAPL back to 50DMA support.
Roblox (RBLX)
Gaming platform and “metaverse” software company Roblox (RBLX) looks like it topped out. A startling 42.2% post-earnings gain launched RBLX to a 53.0% gain for the month at the peak. However, sellers appeared in force to start last week’s trading. A 10.8% fade created a bearish engulfing pattern that signals the end of the upward momentum. RBLX is too strong to short, but the stock also looks to risky to buy in the immediate shadow of a topping pattern. Sellers faded RBLX from an initial 4.3% gain to a 1.3% loss.
Unity Software Inc (U)
Real-time 3D development platform Unity Software Inc (U) is another presumed player in the metaverse. The technicals still favor upside as the current pullback took Unity to a successful test of uptrending 20DMA support. A breakdown would position U for a test of 50DMA support. I am a buyer on a second higher closer.
Cross Country Healthcare, Inc. (CCRN)
As I figured, the stock market over-reacted to the Pfizer COVID-19 anti-viral news by selling Cross Country Healthcare, Inc. (CCRN). Buyers stepped in the next day and barely looked back. Last week, CCRN even made fresh closing all-time highs. There is an irony in the market reacting strongly and positively to the anti-viral news and then rushing for exits on news of a new COVID-19 variant. These counteracting forces are more snapshots of the new normal.
Dollar Tree, Inc (DLTR)
Dollar Tree (DLTR) really turned things around with the price hikes and an increase in its stock repurchase program. The August post-earnings plunge looked quite bearish. DLTR is up over 40% since closing above its 50DMA two months ago. DLTR became a buy on the dips once it broke out to an all-time high on November 15th with an analyst upgrade and news of an activist investor arriving on the scene. I am still waiting for that dip. Friday’s 3.8% pullback is a good start. Note DLTR gained 9.2% after reporting earnings last week.
Snowflake Inc (SNOW)
Snowflake Inc (SNOW) sits at an important juncture. The cloud software company failed at resistance from its all-time high set a year ago. A 9.2% pullback seemed to confirm a double top. However, SNOW subsequently and neatly rebounded from 50DMA support. I am a buyer here with a stop under the 50DMA and an upside target starting at $400.
Micron Technology, Inc (MU)
Micron Technology, Inc (MU) was in a downtrend since peaking in April. MU was also severely under-performing the VanEck Vectors Semiconductor ETF (SMH). After Evercore added MU to its top picks list, the stock gained 7.8% on a 200DMA breakout. Although Friday’s 3.3% loss took the stock back to the highs of that breakout day, MU is a buy on the dips now. However, given MU faded three straight days from the $88 level, I think upside is capped for a while. Accordingly, I like an 85/88 or 85/90 call spread as a first trade on MU.
Be careful out there!
Footnotes
Source for charts unless otherwise noted: TradingView.com
Grammar checked by Grammar Coach from Thesaurus.com
Full disclosure: long CCRN, long AAPL call, long CAT puts, long DIS, long ZM calendar call spread, long BBY call spread and shares, long JETS
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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.