Stock Market Commentary
Trading with on-going headline risk is difficult for bulls and bears. I find it useful to pick a narrative, pick an anchor, and stay as disciplined as possible. My foundation remains with the principles of trading contrary to extremes. Last week, the market tested the extremes of oversold trading conditions and survived surprisingly quickly. However, the drama (and tragedy) is far from over. At the time of writing, U.S. stock market futures are down over 2% on the latest war headlines (although currency markets are showing little of the strain outside of the Russian ruble which dropped as much as 30% under the weight of economic sanctions, see “Watch Currencies, Not Stocks, As Geo-Political Tensions Continue to Rise” for more details). The renewed weakness threatens to take the major indices right back to the bottom of the churn zones…and possibly worse. Since I reset some oversold trades on Friday, I will wait out the latest bout of volatility until/unless fresh oversold conditions occur. In the meantime, I will brace myself as I have committed to minimal hedging for now. The charts below are snapshots of survival that could change all over again…with some fresh buying opportunities ahead.
Stock Chart Reviews – Below the 50-day moving average (DMA)
Apple Inc (AAPL)
As the stock market hit oversold levels, Apple (AAPL) perfectly tested support at its 200-day moving average (DMA) (the blue line below). That rebound alone is the most encouraging thing to see from this latest oversold cycle. AAPL finished that day with a 1.6% gain. Despite already printing a 6.6% turnaround from the lows, buyers still had enough strength to tack on another 1.3% on Friday.
Snap, Inc (SNAP)
Snap, Inc (SNAP) dropped 23.6% in sympathy with Meta Platform’s (FB) post-earnings collapse. The very next day, SNAP recovered those losses and more with a 58.8% post-earnings gain. Amazingly, SNAP is still holding on to those gains despite the on-going turmoil in the stock market. Meanwhile, SNAP has hugged its downtrending 50DMA (the red line below). The stock is one 50DMA breakout away from ending the downtrend and next establishing a run-up to 200DMA resistance.
Carvana Co (CVNA)
Online used car dealer Carvana Co (CVNA) was down as much as 69.3% from the all-time high it set last August. Sellers have largely been in control ever since. However, CVNA ended the week with a massive 21.0% post-earnings gain. This kind of move can turn around sentiment enough to carve out a sustainable bottom. I am watching how the stock responds to a test of overhead 50DMA resistance and/or the year’s closing low. That low briefly broke below CVNA’s pre-pandemic high and set a 20-month low.
monday.com Ltd (MNDY)
I featured work management software company monday.com Ltd (MNDY) in my piece titled “Snapshots of A Disappointing Start to the New Year“. MNDY sold off more from there. A rebound sent MNDY back to those prices but 50DMA resistance proved too much. MNDY plunged its way into earnings for an all-time low. A 14.0% post-earnings response makes me a little more interested even if the stock market’s oversold conditions helped fuel buying interest. Still, MNDY trades at 21.6 times sales. Sky-high valuations are particularly unattractive in a high-risk trading environment.
Home Depot, Inc (HD)
Home Depot (HD) surprised me with an 8.9% post-earnings loss. Sellers confirmed the 200DMA breakdown the next day. HD’s rebound with the stock market’s oversold bounce looks tepid. The stock looks like it could easily return to last week’s intraday low.
John Bean Technologies (JBT)
Chicago-based John Bean Technologies Corporation (JBT) “provides technology solutions to [the] food and beverage industry and equipment and services to air transportation industries.” JBT fell 19.4% post-earnings last week and caught my attention. That plunge took JBT below is pre-pandemic high and wiped out the rest of its gains for 2021. I quickly scanned the earnings results for clues on what upset investors. I noticed at least three main issues: 1) revenue and EPS misses from earlier guidance, 2) lower EBITDA year-over-year, and 3) a reference to higher corporate costs from a digital investment strategy and higher labor costs. Yet, trading at 1.9 times sales and 24x forward earnings, I am eyeing JBT as a “comeback” buy after some kind of stabilization around recent lows.
Etsy, Inc (ETSY)
Etsy, Inc (ETSY) tumbled into earnings with a 17-month low. The stock market’s bounce from oversold conditions helped ETSY with a 10.0% pre-earnings surge. Buyers confirmed the change in control with a 16.2% post-earnings follow-on surge. While ETSY may churn from here, a sustainable bottom seems in place.
ETFMG Price CyberSecurity ETF (HACK)
As war tensions continue to escalate over Ukraine, cybersecurity looms larger and larger. With the stakes so high between nuclear superpowers, cyber weapons might become the destructive tool of choice to avoid massive loss of life. The ETFMG Price CyberSecurity ETF (HACK) tested a 14-month low during oversold trading conditions. I should have reflexively bought HACK right at that point. Instead, I am looking to buy into the next dip.
Intuit Inc (INTU)
Intuit Inc (INTU) gapped and crapped after its August earnings but proceeded to meander higher from there. INTU was not so fortunate after November’s post-earnings gap and crap. INTU now trades 29.6% off that post-earnings and all-time high. At least INTU “survived” earnings and seems ready to hold the lows.
OptimizeRx Corporation (OPRX)
OptimizeRx Corporation (OPRX) offers digital communication solutions in the health care industry. OPRX trades 61.5% off its all-time high but remains miles ahead of the single digit pricing from the March, 2020 stock market collapse. With valuation coming down, now 12.7 times sales and 59.9 times earnings, I have OPRX on my radar as an innovator in health care that looks like it has staying power. OPRX gained 5.2% post-earnings.
Block, Inc (SQ)
Block, Inc (SQ) pulled off a stunning turnaround with a 26.1% post-earnings surge. While overhead resistance from a declining 50DMA may keep a lid on SQ for now, the record buying volume may have earned SQ a sustainable bottom. Time for me to look to buy the dips.
Caterpillar, Inc (CAT)
Caterpillar (CAT) dropped into and stayed in bearish territory last week. CAT breached support from the second half of 2021. The stock finished erasing all of 2021’s gains at last week’s low.
Stock Chart Reviews – Above the 50DMA
SPDR S&P Metals & Mining ETF (XME)
I got the dip I hoped for in the SPDR S&P Metals & Mining ETF (XME) and bought in. I strongly resisted the urge to take opportunistic profits after Friday’s 5.7% surge to a fresh all-time high. Gulp.
SPDR Gold Trust (GLD)
The SPDR Gold Trust (GLD) gapped higher when the stock market gapped lower on Thursday. As buyers took over the trading action in stocks, commodities traders clearly dumped gold along the way. The reversal was sharp enough to create a bearish engulfing pattern right after GLD perfectly touched the 2021 high set in January. This move looks like a kind of blow-off top, so I doubt GLD has much more upside from here for a while. I continue to hold a core long-term GLD position. I have not traded around that position in a long time (maybe since 2020?).
Lantheus Holdings, Inc. (LNTH)
It is hard to find parabolic moves in this heavy market. In the previous week, I found international shipping company Grindrod Holdings, Inc (GRIN). Last week it was Lantheus Holdings, Inc (LNTH) which “develops, manufactures, and commercializes diagnostic and therapeutic agents and products that assist clinicians in the diagnosis and treatment of heart, cancer, and other diseases worldwide” (Yahoo Finance). LNTH surged 39.1% post-earnings and followed that performance with a 16.1% gain. I am of course not chasing this parabolic move, but I am watching to see how the stock stabilizes after this overheating comes to an end.
Alteryx, Inc (AYX)
In August, 2020, I said of Alteryx, Inc (AYX) “in a more ‘normal’ market, AYX would and should trade a LOT lower. Traders cut AYX in half since then. The stock made an attempt at carving out a sustainable bottom with an 11.8% post-earnings gain. Last week’s selling closed the gap, but buyers defended AYX from there. With a 50DMA breakout, AYX is a higher close from confirming a bottom. AYX also now trades at a more reasonable 7.7 times sales.
Teucrium Corn Fund (CORN)
Traders learn the dangers of parabolic moves over and over. The Teucrium Corn Fund (CORN) gapped almost to $26 on Thursday before profit-takers rushed in. I was one of them. I just bought the breakout the previous day and expected the steady rally to continue. Convinced of the dangers of parabolic moves, I did not want to hold CORN another hot minute. Moreover, the commodity corn raced right into the daily price maximum. When CORN fell 4.6% on Friday, I could not resist buying right back in. I expect CORN to go back to its more steady trading from here. I have been eyeing CORN since last August when I hatched the plan to buy a breakout. At the time I did not think my return to CORN would involve quick flips of the shares.
Be careful out there!
Footnotes
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long CORN, long GLD
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
A Bloomberg chart published on Feb. 23rd shows the NASDAQ has printed the most 52 week lows in more than 30 years. Almost double the highest previous number in that time span.
Like parabolic upward moves which can easily snap downward, this represents a coiled spring that can, and eventually will, snap upwards. No doubt about that.
But lots of doubt as to when that will be, and how sustainable it will be.
The VIX, intraday, got close to its 52 week high.
Sentiment surveys show many more bears than bulls.
The market, however, continues downward.
Classic.
The wildcards here are the Ukraine war and whether the FED will put the economy in a recession. Nobody knows how these will resolve, and the market doesn’t like it. It could be a very wild ride for a while. But at some point, there’s going to be a hell of a rally.
And that prospect for a hell of a rally is exactly why I will keep pulling the trigger on oversold conditions. However, note for now that overhead resistance is pressuring the market downward from the 20DMAs. I am about to write about that….