Stock Chart Reviews – Apple Wary As Big Cap Tech Fails Important Tests

Stock Market Commentary

A promising week of post-oversold trading ended in tensions over inflation, interest rates, and Ukraine. Overall, the stock market remains locked in churn. Yet, the view from individual stocks can provide cause for greater alarm. End of the week selling in big cap tech raised a red flag against my overall bullishness in this period. Flagship stocks like Apple (AAPL) and Amazon.com (AMZN) suffered heavy losses right at important tests of support and resistance respectively. I am particularly Apple wary because the stock is owned by so many and can impact overall investor sentiment. The resilience of small cap stocks keep me hopeful that the coming week will deliver a reversal of last week’s disappointments. If not, then sellers may quickly test support on the major indices at the bottom of their churn zones.

Stock Chart Reviews – Below the 50-day moving average (DMA)

Apple Inc (AAPL)

Apple (AAPL) spent the month trying to follow through on its breakout above its 50-day moving average (DMA) (the red line below). On Friday, AAPL gave up and instead broke down. I am Apple wary because this breakdown opens up the opportunity for sellers to press AAPL into a reversal of the oversold bounce. As a widely held big cap tech stock, AAPL’s fortunes can impact sentiment. AAPL’s important failure is a sign of validation for more market churn ahead. However, bears have a lot more to prove as a test of the 2022 lows would likely coincide with a test of 200DMA support (the blue line below).

Amazon.com (AMZN)

Amnazon.com (AMZN) followed through on its post-earnings surge, but the big cap tech stock ran smack into 50DMA resistance. Intrepid bears should have jumped on the confirmation from the gap down the next day. AMZN delivered for those bears with a 3.6% loss to end the week. Like my feeling “Apple wary”, AMZN’s failure of an important technical test maintains the narrative of market churn.

Meta Platforms, Inc (FB)

Meta Platforms, Inc (FB) failed an important test at 50DMA resistance with a gut-wrenching 26.4% post-earnings loss. FB’s next test is its pre-pandemic high. The first bounce attempt disintegrated into a second close below that important milestone. Churn for FB may just be a pivot around the pre-pandemic high.

Twitter Inc (TWTR)

Twitter Inc (TWTR) is another victim of the return to pre-pandemic highs. TWTR tried to hold the line in early January. Last week’s post-earnings trading confirmed stiff resistance at the pre-pandemic high.

Maxeon Solar Technologies, Inc (MAXN)

My hopeful observations of the November post-earnings bounce for Maxeon Solar Technologies, Inc (MAXN) disintegrated quickly. Sellers took over from there and compressed MAXN below its 20DMA (the dotted line below). Now trading around all-time lows, there is no telling when or how the bleeding will stop. I am only hanging on because of my stubborn long-term bullishness for quality solar companies.

Red Robin Gourmet Burgers, Inc (RRGB)

I last reviewed my favorite burger franchise Red Robin Gourmet Burgers, Inc (RRGB) back in September (7:04 mark of the video). The covered call did indeed burn off, but the inability of RRGB to make a firm stand on a test of the September lows motivated me to take my remaining profits on the small rally into November earnings. I have yet to see a convincing re-entry point. A 2022 high would solidly confirm a 50DMA breakout and bring me back in. Otherwise, I might try bottom-fishing on a test of the November, 2020 lows.

Twilio Inc (TWLO)

Twilio Inc (TWLO) put on a bearish display with an awful post-earnings fade. In the after-hours, TWLO was up 19.1%. It opened the next day up 14% right below 50DMA resistance. Sellers took over from there. The dust settled with a near flat close for the day. Sellers continued with a 7.3% pullback that solidly planted TWLO back into its own churn zone. TWLO is down 27.5% year-to-date.

Affirm Holdings, Inc (AFRM)

Affirm Holdings, Inc (AFRM) made one of those rare and embarrassing gaffes by prematurely releasing earnings results. The algos must have gone wild. AFRM suddenly soared about 10% right into 50DMA resistance and then collapsed. Perhaps the algos that trade off headlines saw something good and the algos that read more content saw the ugly. AFRM closed the day down 21.4%. That destructive earnings pricing did not end. After a brief pause at Friday’s open, sellers took AFFRM down another 20.7% to an all-time low. The hype over buy-now, pay-later is apparently evaporating almost as quickly as it ignited.

$AFRM "Announce Now, Pay Later"

— Market Rebellion (@MarketRebels) February 10, 2022

Confluent, Inc (CFLT)

Real-time data streaming software company Confluent, Inc (CFLT) was looking good going into earnings all things considered. A 21.9% post-earnings loss took CFLT back to its lows of the year. At 57 times sales, CFLT needs to report perfection in a stock market fleeing from expensive growth stocks. Headline earnings and quarterly guidance looked good against “consensus”, but CFLT will show red ink as far as the eyes can see.

The Goodyear Tire & Rubber Company (GT)

The Goodyear Tire & Rubber Company (GT) imploded 27.4% post-earnings. I cannot tell what happened from the Seeking Alpha earnings summary. Accordingly, I am wondering whether this breakdown is actually a buying opportunity. GT sells for just 0.3 times sales and 7.6 times forward earnings. Of course, GT could be cheap for a reason. Perhaps investors are getting ahead of a peak in auto sales, for example.

Editas Medicine, Inc (EDIT)

As a genome editing company, Editas Medicine, Inc (EDIT) represents the future of medicine. EDIT is even still a fractional holding in ARK Genomic Revolution ETF (ARKG). Unfortunately, with no profits and a high multiple on sales, the market has become impatient with this clinical stage company. Sellers have been near relentless since the November earnings report. EDIT now trades close to where it dropped during the stock market crash of March, 2020.

I was fortunate to have EDIT shares in play for the stock’s run-ups. My luck ran out with my latest trade betting on a hold at the lows of 2021. I will only add if EDIT convincingly holds support from the March, 2020 lows.

2U, Inc (TWOU)

I was going to ignore the catastrophe in 2U, Inc (TWOU), but I noticed three ARK funds have fractional holdings in TWOU. ARK investments sends out notes when a holding moves more than 15% up or down. Here is ARK’s note on TWOU:

“Shares of 2U, a digital education platform provider, fell 47% on Thursday despite the company reporting stronger than expected earnings that were tempered by lower than consensus guidance. Because of 2U’s acquisition of edX, its operational costs will be higher than expected.”

For a stock that plunged this much to all-time lows, I want to know whether ARK thinks the stock is a steal here. I have other investments in education stocks, and I decided to trim TWOU last year as the biggest loser of the bunch. The unfolding disasters in these kinds of stocks are stark reminders for listening to the trends. I am still learning to be more consistent about following the signs!

iShares 20+ Year Treasury Bond ETF (TLT)

Inflation fears are higher than last year. The Federal Reserve is actually tightening monetary policy instead of the market just fearing tightening a year ago. Yet, long-term interest rates are hardly higher than the 2021 highs. The 20-year Treasury hit 2.37% last Thursday. The high was 2.36% last year. The 10-year Treasury hit 2.03% last Thursday. The high was 1.74% last year. The 10-year was last this high at the end of July, 2019.

The current trend is up as expected. However, these levels tell me the market is reluctant to bet on a strong economy at the other end of monetary tightening (or whatever the Fed actually does). In the meantime, the 2-year, which is most sensitive to monetary policy, is racing higher. I have even heard talk of the potential for an inverted yield curve. An inverted yield curve is associated with a heightened risk of recession.

The iShares 20+ Year Treasury Bond ETF (TLT) actually rallied 1.4% on Friday (TLT goes higher when rates go lower). At this point in the economic cycle, an extended rally in TLT should be interpreted as bearish even if stocks enjoy the ride for a bit. I want to see rates at least hold where they are.

Stock Chart Reviews – Above the 50DMA

Skechers U.S.A., Inc (SKX)

It is hard to find stocks breaking out above their 200DMAs. Athletic shoe company Skechers U.S.A., Inc (SKX) happens to be one of those stocks. SKX is riding post-earnings momentum. However, a 2.0% pullback on Friday threatens to bring the revival to an end. Otherwise, SKX looks like a buy here.

United Parcel Service, Inc (UPS)

I thought the post-earnings breakout in United Parcel Service (UPS) was a sign of a healthy economy. That assumption was put to the test in last week’s selling. UPS came close to testing 50DMA support. I am looking for a convincing rebound to signal a buying opportunity.

Be careful out there!

Footnotes

Source for charts unless otherwise noted: TradingView.com

Full disclosure: long EDIT, long TWTR

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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.

Grammar checked by Grammar Coach from Thesaurus.com