Stock Market Commentary
Russia’s invasion of Ukraine has created massive human misery and a historic press of global economic sanctions. With war comes scarcity and the allocation of resources to destroying the resources of others. Financial markets are scrambling to adjust to the new global wartime economy. These charts are just a snapshot of some of the on-going direct impacts and the indirect impacts of increasing selling pressures throughout the stock market. There are numerous stocks stuck in bear market trading patterns as sellers tighten resistance looming over the trading action. At the same time, the global wartime economy is sending a select group of stocks soaring through uptrends.
Stock Chart Reviews – Below the 50-day moving average (DMA)
KraneShares Global Carbon Strategy (KRBN)
I may have stumbled upon KraneShares Global Carbon Strategy ETF (KRBN) right at an important top. Per plan, I bought a first tranche at the dip to support at the 50-day moving average (DMA) (the red line below). An eventual pop above the 20DMA (the dotted line below) made me think KRBN was on its way to continuing its uptrending behavior. It never occurred to me that the wartime economy in Europe might impact KRBN. According to ETF Trends:
“The EU Allowances (EUA) market has been particularly volatile, with some investors choosing to sit out any current price action on the sidelines, and technical levels being triggered and causing further sell-off.”
The European carbon market has a significant representation in KRBN.
With a major breakdown below the 200DMA (the blue line), I am in no rush to add to my holdings. One analyst in the article thinks nothing fundamental has changed in the European carbon market. However, I noted that Poland has raised persistent complaints about speculators driving up prices. So I prefer to wait to see how the dust settles. Moreover, the euro is selling off sharply against the U.S. dollar.
Snap, Inc (SNAP)
The post-earnings rebound looked promising for Snap, Inc (SNAP). Unfortunately, 50DMA resistance proved too stiff. SNAP sold off 4 days straight and delivered a stronger confirmation of resistance. The stock is now pushing into its post-earnings gap.
Carvana Co (CVNA)
I have duly noted growing signs of bear market trading action in the wake of post-earnings reactions. Carvana Co (CVNA) looked impressive after a 21.0% post-earnings jump seemed to confirm the bullish engulfing bottoming pattern from the previous day. Instead, the downtrending 20DMA started to exert its gravitational force. Sellers took over and sold CVNA 5 days straight into a fresh 20-month low. This is bear market trading in full relief: a large rally from a positive catalyst followed by a sharp reversal. Think of relieved investors using the opportunity to drive off with the cash they can salvage while they still have a chance.
Foot Locker, Inc (FL)
Last December, I expressed relief that I avoided the temptation to bottom-fish in Foot Locker, Inc (FL). That wariness bore more fruit after February earnings. FL lost 29.8% in the wake of earnings and now trades at a near 19-month low.
GoodRx Holdings, Inc (GDRX)
I wish I had been more wary about GDRX. The 2022 sell-off in GoodRx Holdings, Inc (GDRX) gave me an opportunity to rebuild a position. I made the case for GoodRx in December, 2020. The stock has only been worth a trade since then. This time, my trade finally failed. A 38.9% post-earnings drop was not even on my radar as a potential risk. A $250M stock buyback failed to mollify investors, but the news makes me hold out hope. I might even add more shares on a post-earnings closing high. In the meantime, analysts rushed to downgrade GDRX primarily because of apparent competitive pressures.
Etsy, Inc (ETSY)
Breakouts above 50DMAs are hard to come by. Etsy, Inc (ETSY) joined the list of stocks stopping cold at their 50DMA resistance. A test of now uptrending 20DMA support seems likely now.
Renaissance IPO ETF (IPO)
I got a little trigger happy on Renaissance IPO ETF (IPO) on Thursday. I was looking for something on the speculative side to ride a potential rebound from Thursday’s selling. IPO is full of former high-flyers and collapsing growth stocks and can benefit greatly from relief rallies. However, there was nothing in the technicals that indicated a bottoming process. Now, IPO trades at a new 20+ month low, and I find myself thinking about where to draw a line in the sand for a stop. I should have had a stop in mind before making the trade!
MongoDB, Inc (MDB)
Cloud database company MongoDB, Inc (MDB) dropped heavily in the last two days of the week: first a 14.3% loss and then a 6.5% loss. The dust settled on a 9-month low for the week. The messy chart looks clearer with a double-top late last year and a lower top at 50DMA resistance last month.
Peloton Interactive, Inc (PTON)
Like CVNA, Peloton Interactive, Inc (PTON) displayed typical bear market trading. PTON viciously gapped up off its lows with a 20.9% gain. Earnings that evening produced a 25.3% gain the next day. PTON even confirmed a 50DMA breakout. Yet, all this impressive buying force was not enough. With buyers exhausted, sellers gradually picked away at the gains. Nearly non-stop selling closed PTON out at prices last seen just days after the bottom of the stock market collapse in March, 2020.
Block, Inc (SQ)
Like ETSY, fintech company Block, Inc (SQ) found stiff resistance at its 50DMA. SQ is now pushing into the gap created by the 26.1% post-earnings gain in late February. Bear market trading is flashing its teeth here.
Stock Chart Reviews – Above the 50DMA
Maxar Technologies Inc (MAXR)
Maxar Technologies (MAXR) quickly disappointed me after I followed an analyst upgrade that made the technicals look sound. Good news finally arrived with an impressive reversal from a 9.4% post-earnings loss. MAXR even pulled off a confirmed 200DMA breakout last week. Maxar’s earth intelligence and space infrastructure solutions should prove useful in the new global wartime economy. However, I am still wary that bear market trading could bring MAXR right back down to earth.
SPDR S&P Metals & Mining ETF (XME)
For a second time, I got too eager to take profits in SPDR S&P Metals & Mining ETF (XME). A fade on Tuesday made me think a blow-off top was in the works. Rather than wait for confirmation, I locked in my profits. Buyers have eagerly stepped in ever since. With hindsight, I have a greater appreciation of the value of metals and mining in the global wartime economy. Russia and Ukraine control large chunks of global commodities. XME includes the stocks of steel companies which should prove strategically important in the global wartime economy.
SPDR Gold Trust (GLD)
It is time for me to trade around my core position in the SPDR Gold Trust (GLD). GLD made an impressive recovery from a bearish engulfing pattern from the prior week. With financial markets at the center of economic warfare, gold looks like a safe haven all over again. Contrast this with the recent tepid trading in cryptocurrencies despite strong use cases emerging in the global wartime economy like direct donations to the Ukrainian government.
iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT)
Several broad commodity indices exist. I recently got interested in the iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT). COMT is a way to get exposure to commodities futures. I missed the 200DMa breakout and recovery from a gap and crap soon after. My experience with KRBN has me more circumspect than usual about the persistent strength since December. COMT is running hot and parabolic, so I am definitely not touching it here. Soaring oil prices are helping to propel COMT to the stratosphere. I am looking for some kind of dip to buy in the global wartime economy.
(Note the large gap down in December came from a dividend payment).
iShares Global Clean Energy ETF (ICLN)
With the global wartime economy placing various pressures on carbon-based fuels, clean energy plays have received a fresh look. I have my eyes on the iShares Global Clean Energy ETF (ICLN). ICLN includes a smattering of speculative names as well as well-established companies. The ETF broke out on Monday with a 6.5% gain. Sellers took over from there all the way back to 50DMA support. I am waiting to buy on a bounce from this support level.
iShares U.S. Aerospace & Defense ETF (ITA)
The iShares U.S. Aerospace & Defense ETF (ITA) is dominated by two large holdings: defense contractor Raytheon Technologies Corporation (RTX) at 22.7% and Boeing (BA) at 17.2%. The aerospace components of ITA are acting like a drag. Otherwise, the prospects for the global wartime economy have given ITA a fresh boost with a breakout close to all-time highs.
Note MAXR is a tiny 0.7% holding in ITA.
Teucrium Corn Fund (CORN)
World food prices are at all-time highs. The Food and Agriculture Organization (FAO) of the United Nations reported record food prices for February. From the report:
“The FAO Food Price Index averaged 140.7 points in February, up 3.9 percent from January, 20.7 percent above its level a year earlier, and 3.1 points higher than reached in February 2011. The Index tracks monthly changes in the international prices of commonly-traded food commodities.”
The comparison to February, 2011 is an important confirmation that food prices are not relatively high because of base effects from any pandemic-related declines. Indeed food prices were higher than 2019 going into the pandemic and ended 2020 at the highs. The year-over-year price comparisons since then are quite dramatic. The global wartime economy promises to continue exacerbating these price imbalances.
Corn prices are participating in the soaring price levels with two parabolic moves in the Teucrium Corn Fund (CORN) since the global wartime economy erupted. I sold my second round of CORN on the immediate recovery from the first pullback from parabolic price levels. I doubt I will participate again anytime soon. Recall that I avoid parabolic price action whether short or long: the risk of loss is tremendous from poorly timing shorts and going long requires nimble timing to get out of the way of the near inevitable pullback.
Be careful out there!
Footnotes
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long KRBN, long GLD, long GDRX, long IPO
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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
I almost bought a small amount of KRBN too, when it was just < 50. Fortunately, it didn't get to my limit price, so I just got lucky there. I suspect it will eventually recover….
In the meantime, things have gotten worse in the market, as I suspected they would. I get the feeling we are close to a short term low. Sentiment is in the trash can, along with a lot of stocks that not long ago were market darlings (some of which you've highlighted). The VIX is now in the vicinity of the post-COVID aftershock highs. All of this seems to be setting the stage for at least a short term rally, unless the Russians do something really bad. And they might.
I think it's not unreasonable to make a case that longer term, there will be some substantial abatement in inflation, and if that's the case, commodity prices could start to undergo the same unwind that tech stocks have recently been through; i.e., the pendulum will swing the other way.
Putin seems to think that acquiring the Ukraine is more important than the Russian economy. Russian stocks have not just been halted, but have been smashed to nearly zero from what they were just about a month or two ago. Some of them look pretty interesting at these levels, assuming they can stay in business. Some will. I'll be watching them, along with European stocks which have been beaten up, and are starting to look very interesting as well.
"Be careful out there!" is particularly appropriate these days…..
Wowza. KRBN is really falling apart. That thing was a short on the 200DMA breakdown!
At this point, I consider Putin to be an unstable wildcard. He could definitely do something even worse, like a mass casualty event in Ukraine through massive and unrelenting bombings. He’s definitely acting like he’s so freaked out about NATO that he won’t stop for anything. He must have socked away a lot of his wealth in gold and/or Chinese yuan before the invasion.
The market is setting up for one of those historic buying opportunities. But AT50 is not even oversold yet. Moreover, it could take 2-3 oversold washouts before the runway gets cleared. The unwind of commodity prices, especially oil, could be quite spectacular whenever that starts!