Stock Market Commentary:
The stock market is delivering fertile ground for bear market green shoots. Market breadth in the form of AT50 (MMFI), the percentage of stocks trading above their respective 50-day moving averages (DMAs), closed at a one month high. Under the hood are individual stocks achieving convincing 50DMA breakouts and closing out primary downtrends. For the second time in less than a month, the S&P 500 (SPY) punched a ticket out of bear market territory. These early signs of recovery are encouraging yet still quite fragile. However, these fields are most fertile for bottom-picking instead of scrounging for bugs and grubs still cowering under the weight of bear market paws.
I call these charts below bear market green shoots in deference to the selling and risks that come with a bear market. Trading conditions can change and turn these positive signs upside-down. Unlike the green shoots that helped to convince me of a sustainable bottom following the pandemic-driven stock market crash in March, 2020, these green shoots are more like the beginning of sustainable interest in these stocks. The positive technicals and milestones mark the beginning of the end of bear market pressure absent NEW shocks to the system (and do not forget another round of earnings are coming up). In other words, only new lows will convince me to invalidate these constructive observations. In the meantime, I am adding to existing positions or starting new ones with an eye to longer-term investments.
Stock Chart Reviews – Below the 50-day moving average (DMA)
Scotts Miracle-Gro Co (SMG)
Lawn and garden care company Scotts Miracle-Gro Co (SMG) actually does not qualify for the technical formation of bear market green roots. However, I like the thematic match. SMG also provides a good reminder of the bear market that contrasts with the green shoots elsewhere. SMG is clearly still in a downtrend defined both by its 20DMA (the dotted line below) and its 50DMA. Still, I am more interested than ever in non-tech stock trades and investments and SMG fits the bill. SMG is a relatively cheap 1.0 times sales and 11 times forward and trailing earnings. In late June, SMG surprisingly cracked its pandemic low around $77. The selling seems quite extreme here. Moreover, SMG offers a 3.2% dividend yield.
Stock Chart Reviews – Above the 50DMA
Rivian Automotive Inc (RIVN)
Rivian Automotive Inc (RIVN) is an expensive, profitless company, the kind that loses favor in a high inflation, high rate environment like this one. However, at some point the motivated sellers exhaust themselves. May earnings provided a potential catalyst for washing out those sellers. RIVN lost 9.6% going into earnings and closed at an all-time low. The stock has not looked back since. An 18.0% post-earnings gain began an extended consolidation process that has now nudged RIVN over its 50DMA. That breakout coincided with Q2 production news. Today’s 6.6% gain confirmed that breakout. A new post-earnings closing high further confirms a change in sentiment. If I did not already have a position in LCID (see below), I would add to my RIVN here.
Lucid Group Inc (LCID)
I remain a Lucid Group Inc (LCID) fanboy. When I wrote about LCID after the crash in growth stocks gained steam in January, I acknowledged the stock is far too expensive in this environment. Thus, I decided to avoid adding to shares. After LCID tested and rebounded away from the critical crash point last September, I perked back up. LCID showed off bear market green shoots with a confirmed 50DMA breakout, two higher lows, and now a higher high. Today’s 8.7% pop just cleared the previous high. If LCID closes above the May high, I will definitely add to my shares…and hold on for dear life.
Moderna Inc. (MRNA)
I finally converted and committed to Moderna Inc (MRNA) back in February. MRNA has spent most of the time since then in a consolidation pattern. Recent buying pressure pushed MRNA above its 50DMA and then generated a convincing 50DMA breakout. These bear market green shoots are particularly encouraging with MRNA trading at a 4-month high.
Moderna’s platform is more important than ever. It is perhaps hard to remember and appreciate that the COVID-19 omicron variant’s arrival in November created a new normal that was part of the topping dynamic in the stock market. We now look back and mainly remember the Fed’s announcement about its belated intent to start normalizing monetary policy and leaning against inflation. Seven months later, it is clear the omicron variant prevents us from achieving herd immunity from COVID-19. Reinfections are a part of our new normal. It is hard to imagine a fully functioning economy under these circumstances. The latest two variants are the most infectious yet with even greater abilities to evade our defenses.
Roblox Corp (RBLX)
I made the case for video game platform Roblox Corp (RBLX) in May. This month’s bear market green shoots provide some validation of the case. RBLX brought its primary donwntrend to an end with a 50DMA breakout and a successful defense of 50DMA support at the end of June. Buyers have so far followed through since then. RBLX trades at a 3-month high.
Etsy Inc (ETSY)
Etsy Inc (ETSY) swung wildly in March ahead of a fresh downtrend. This week, ETSY closed above its downtrending 50DMA for just the second time since its devastating breakdown in December, 2021. Today’s 4.3% gain confirmed the 50DMA breakout. More importantly, the move confirmed the bottoming pattern created by the consolidation since May’s 16.8% post-earnings loss. ETSY even has a double bottom from the May and June lows that in turn aligns with the stock’s all-time high prior to the pandemic. This convergence of milestones creates encouraging bear market green shoots. I am a buyer here.
Teladoc Health Inc (TDOC)
Telemedicine company Teladoc Health Inc (TDOC) is like the car wreck I cannot stop watching. If not for Cathie Wood’s undying dedication to this company, I would have forever left it for dead. TDOC is now showing signs of life with bear market green shoots. TDOC started the week with an 11.4% surge and 50DMA breakout. Buyers followed through with an 8.8% gain and, most importantly, a post-earnings high. Suddenly, I want to join the buyers. TDOC is now so beaten up, an astonishing 85.7% off its all-time high, I will stay as determined as Cathie Wood on this one.
Be careful out there!
Footnotes
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long RIVN, long RBLX, long LCID, long MRNA
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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.