Stock Market Commentary
The stock market indices enjoyed an impressive year. However, weak and declining market breadth produced numerous exceptions to the strong performance of indices and ETFs. A number of important and well-known individual stocks corrected, collapsed, and crashed in 2021. For some, the tailwinds of the pandemic ran out. For others, investors tired of paying sky-high valuations. Together, these signals make 2022 look like a year where the stock market will likely experience the crucible of real corrections on the way to its destination for the year.
Stock Chart Reviews – Below the 50-day moving average (DMA)
ARK Innovation ETF (ARKK)
I have to start a review of the year with Cathie Wood. Wood could have been the most discussed and debated money manager on the planet in 2021. After a stellar 2020 that continued with a ramp into February, Wood looked unstoppable. Unfortunately, the rest of the year was a struggle and put her aggressive theses on the defensive. Wood’s flagship ARK Innovation ETF (ARKK) suffered from its dependency on growth stocks with premium valuations. Wood also readily added large sums of money to losing positions. At the end of the year, ARKK recorded a 24% loss.
Assuming Wood’s these remain solid, ARKK looks like a dog ready to bite next year. Still, I am a buyer only on a 50DMA breakout or during market oversold conditions.
iShares Expanded Tech Software Sector ETF (IGV)
I started using the iShares Expanded Tech Software Sector ETF (IGV) as a small hedge against my bullishness. IGV contains a lot of premium valuation stocks but it managed a positive year thanks to big cap tech titans like Microsoft (MSFT) and Salesforce.com (CRM). IGV ended the year well off its all-time high and a 12% gain for the year.
Moderna, Inc (MRNA)
Vaccine protection was the big pandemic story of 2021. Moderna, Inc (MRNA) was the main trading face of the vaccination story. MRNA went parabolic in July and August and peaked at $490. MRNA next chopped from there but made its way lower over time. So far, the post-earnings plunge in November sits as a low for this downtrend. After the dust settled, MRNA increased 143% in 2021.
Beyond Meat, Inc (BYND)
The year 2021 was the year the hype died for Beyond Meat, Inc (BYND). The stream of headlines about food trials and partnerships that boosted BYND in 2020, largely failed to work in 2021. While fake meat offers the promise of sustainable dining, investors proved too ready to pay too much for BYND. I see a company that over time will get valued in-line with other food retailers like Hormel (HRL) at 2.4 times sales. BYND currently trades at 8.7 times sales and traded as high as 24 times sales in June.
Crocs, Inc (CROX)
I thought the Crocs fad faded years ago….and then I noticed CROX. CROX had an incredible run in 2021 even with a major peak in November. The stock gained 105% for the year and now sits precariously on top of 200DMA support. CROX finds itself in this positions thanks to announcing a $2.5B acquisition of casual footwear company HEYDUDE. Investors responded by taking CROX down 11.6%.
The first lower low of the year makes this test of support particularly critical for CROX. I could get interested in buying CROX above $134 which gets the stock pushing into the post-deal gap down.
Block, Inc (SQ)
Payments platform Square changed its name to Block (SQ) on December 1st. Investors took “exceptions” to the news with a continuation of the selling that began with a 4.1% post-earnings loss in November. SQ lost 6.6% in the wake of the news. After a brutal December, SQ ended the year with a 26% decline and a 14-month low. The lower SQ goes, the more interested I get.
Draft Kings (DKNG)
Fantasy sports platform Draft Kings (DKNG) was a darling in 2020 rising as much as 6x before settling for a 5x post-SPAC gain. The year 2021 was a giveback year with fantasy points hard to come by. Like so many 2020 darlings, DKNG peaked in March and was never the same again. DKNG ended the year with a 41% loss.
fuboTV Inc (FUBO)
Video streaming platform fuboTV Inc (FUBO) got caught in the middle of a major bull versus bear battle. At the beginning of the year I expressed my surprise at the market’s willingness to pay such a high price for a player in a very crowded field. As the year wore on, FUBO proved to be one of many exceptions to the stock market’s strength. The stock ended the year with a 45% loss. Bears continue to lean on FUBO to the tune of 14% of the float sold short.
Peloton Interactive, Inc (PTON)
The year 2021 was disastrous for Peloton Interactive, Inc (PTON). The 2020 pandemic tailwinds came to a near complete standstill for Peloton. In 2020, PTON gained nearly 5x. In 2021, PTON collapsed into a 76% loss and could easily erase the rest of its 2020 winnings. While the year went poorly, including safety issues that led to a product recall, PTON looked like it was going to stabilize until a 35.4% post-earnings collapse in November. That event served as the final confirmation that PTON pulled forward a lot of demand thanks to the pandemic. An analyst downgrade in mid-December helped seal the deal on a lost year.
Wix.com (WIX)
Web publishing platform Wix.com (WIX) officially joined the exceptions of 2021 with a 17.0% post-earnings loss in August. With people returning to work and spending incrementally less time indoors, I presume less time is going into creating and maintaining websites. WIX lost 37% for the year. WIX now trades with a single digit price/sales ratio, so I expect the stock to at least stabilize sooner than later.
Zoom Video Communications (ZM)
Video conferencing company Zoom Video Communications (ZM) was unable to shift its business narrative in 2021. Accordingly, ZM was no exception to the selling that hit companies benefiting in 2020 from the pandemic. ZM peaked in February and lost 45% for the year. I expect the valuation compression to continue for ZM until/unless it finds something compelling to enhance the video conferencing business (price/sales is 14 at the time of writing). Indeed, competition is slowly but surely encroaching upon Zoom’s mindshare. One tool I think could be a future “Zoom killer” is Toucan. The social video platform was developed by an undergrad in my alma mater grad department.
AMC Entertainment Holdings, Inc (AMC)
While meme and Reddit stocks were all the rage in 2021, the second half of the year was relatively quiet. Movie theatre company AMC Entertainment Holdings, Inc (AMC) went parabolic for the last time from May to June. The stock slowly waned from there. Still, AMC pulled off an impressive 1183% gain for the year. Note that both parabolic surges in AMC provided case studies for the dangers of chasing parabolic price moves higher.
Gamestop Corporation (GME)
Gamestop Corporation (GME) brought meme and Reddit stocks into the public conscious in 2020. The resulting frenzy created an epic parabolic move that collapsed almost as fast as it surged…all in the space of the first two months of trading in 2021. Two subsequent rallies stopped short of challenging the all-time high. GME spent the second half of 2021 drifting around. GME still pulled off an impressive 688% gain for the year. I bought a put spread as a kind of hedge on my bullishness. If bearish claws come out in force in January, lofty stocks like GME could suffer mightily.
U.S. Global Jets ETF (JETS)
While U.S. Global Jets ETF (JETS) is not full of expensive growth stocks, the airline ETF still peaked in March. JETS drifted downward from there and joined the exceptions of a strong year for the general stock market.
JETS survived some very bad news related to the omicron variant of COVID-19. I like buying JETS on market sell-offs for a trade. JETS lost 6% in 2021.
Tesla, Inc (TSLA)
Tesla (TSLA) went into overdrive to make deliveries by year-end.
Apparently the work paid off in the form of a beat of expectations.
Maybe this success is helping fuel Musk’s excitement for the “roaring 20s”.
Oh yeah, TSLA gained 50% in 2021 even after a rough final two months. During that time, Musk dumped billions worth of shares to pay for his tax burdens.
Global X Millennial Consumer ETF (MILN)
I am taking more time studying thematic ETF. Global X Millennial Consumer ETF (MILN) caught my eye because it did not peak early in 2021 with the rest of the exceptions. MILN peaked in November along with a host of late-comers to the selling fest. Still, MILN gained a respectable 14% for the year. Apparently millennials are big fans of many of 2021’s winners, so MILN benefited from the lift of high-performing holdings like Apple (AAPL), Intuit (INTU), and Costco (COST).
Global X Social Media ETF (SOCL)
Millennial’s love of social media was not enough to keep the Global X Social Media ETF (SOCL) out of the bucket of 2021 performance exceptions. SOCL did the familiar dance of peaking in February and failing from there. SOCL turned in a 13% loss for the year. I am looking for SOCL to make a comeback at some point in 2022. I definitely like buying it during any oversold episodes in 2022.
Bitcoin (BTC/USD)
All the hype about Bitcoin (BTC/USD) $100K fizzled with a marginal new all-time high in November. Bitcoin joined other risk assets in a steady descent into the close of the year. The chart is pure poetry with the timing of the Coinase (COIN) IPO holding as a topping milestone. Bitcoin will need a definitive breakout to make me even start to think a fresh rally is possible. In the meantime, I continue to buy steep sell-offs and sell into the next rally.
Stock Chart Reviews – Above the 50DMA
Global X U.S. Infrastructure Development ETF (PAVE)
All the time I spent wringing my hands about Martin Marietta Materials, Inc. (MLM), I should have instead spent accumulating shares in the Global X U.S. Infrastructure Development ETF (PAVE). MLM is a healthy 2.91% of PAVE along with a full contingent of important infrastructure plays. PAVE will be one of my key acquisitions for 2022 (and beyond). I will particularly look to load up during any oversold periods.
Apple Inc (AAPL)
Apple struggled to make headway in the first half of 2021. By June 30th, AAPL was nursing a 3% gain. A continuation of that summer rally and the November breakout generated the bulk of AAPL’s 34% gain for the year. AAPL even had to fight through two ominous fades in November to pull off its market-beating year. My weekly call strategy on AAPL benefited from restricting trades to AAPL’s time above its 50DMA.
Palo Alto Networks (PANW)
Every year seems like the year for cybersecurity. Yet, I have had mixed success trying to hold onto related ETFs and stocks. WIth hindsight, I see I should have just bought and held Palo Alto Networks (PANW)! At the March low, PANW looked like all the other performance exceptions of the year. A steady recovery and then an 18.6% post-earnings gain firmly planted PANW in the winner’s column. PANW gained 57% in 2021.
Caterpillar (CAT)
Caterpillar (CAT) was a surprising under-performer for the year. CAT is a 3.6% constituent of and one of the exceptions in the SPDR Select Sector Fund – Industrial (XLI). XLI ended the year with a 19% gain while CAT lagged with a 14% increase. The divergence started in May where CAT peaked and then sold off while XLI began a trading range for the rest of the year. I am not interested in trying to trade CAT in the middle of its current churn. Instead, I am looking for a 200DMA breakout (bullish) or a close below the October low (bearish).
SPDR Select Sector Fund – Consumer Staples (XLP)
I made my case for the SPDR Select Sector Fund – Consumer Staples (XLP) in mid-December. I bought shares shortly after. XLP finished 2021 at an all-time high and a 14% gain. I plan to accumulate XLP on dips in 2022.
iShares U.S. Home Construction ETF (ITB)
The iShares U.S. Home Construction ETF (ITB) planted a picture-perfect test of 50DMA support in mid-December and did not look back. The case for housing related plays still looks strong. Accordingly, I am sticking by the time-tested seasonal trade on home builders. ITB gained a market-beating 49% for the year.
Amrep Corporation (AXR)
Somehow, I am a latecomer to land development companies like Amrep Corporation (AXR). AXR is on my radar for dip buying in 2022 as the scramble for land for housing should continue for years to come. AXR out-performed ITB and gained 78% for the year even after a pullback into the end of December.
BHP Group Limited (BHP)
Despite all the inflation talk in 2022, several commodity-related plays joined the exceptions club. Diversified commodities player BHP Group Limited (BHP) bounced off its 2021 lows to salvage an 8% loss. I used the dip to buy shares that I expect to hold through most of 2022 as a slow recovery unfolds. China’s mastery of pushing the iron ore market around took BHP down. However, soaring imports in December signal a likely return to more normal consumption.
VanEck Semiconductor ETF (SMH)
Semiconductor chip shortages dominated the headlines in a year of numerous supply chain issues. The VanEck Semiconductor ETF (SMH) was a major beneficiary to the tune of a 41% gain for the year. I finally bought a core position in Advanced Micro Devices (AMD), but I plan to focus on accumulating SMH going forward.
Live Nation Entertainment, Inc (LYV)
The trade on the reopening economy unfolded in fits and starts in 2021. Some reopening plays fell off as the year wore on. Live Nation Entertainment, Inc (LYV) finally broke free in October. A 15.1% post-earnings gain to an all-time high in November seemed to confirm a return to normal for LYV. Unfortunately, tragedy struck at one of Live Nation’s major concerts in Houston and sellers descended upon LYV. Over the course of three December days, LYV charged higher and almost closed out 2021 at a new all-time high. LYV gained 63% for the year.
The Boston Beer Company, Inc (SAM)
In October, I laid out the case for buying a potential bottom in The Boston Beer Company (SAM). SAM eventually punched through my $500 stop. The stock suddenly came back to life in December and confirmed a 50DMA breakout. I like trying one more time here with SAM stabilizing just above $500 and 50DMA support.
Be careful out there!
Footnotes
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long IGV put spread, long MRNA call spread, long ITB, long GME put spread, long TSLA call spread, long BTCU/USD, long COIN call spread, long AAPL calls, long XLP, long BHP, long AMD
FOLLOW Dr. Duru’s commentary on financial markets via StockTwits, Twitter, and even Instagram!
*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.
Grammar checked by Grammar Coach from Thesaurus.com