Stock Market Commentary
It was a close call. The technical deterioration of the previous week put the Santa rally in peril. At the start of trading last week, the Grinch roasted Santa enough to ignite oversold trading conditions. Santa’s revenge came in the form of a sharp rebound out of the 1-day oversold period. Subsequently, buyers scrambled broadly across the stock market to scoop up “bargains.” The week ended with prospects suddenly looking a lot more promising for the annual Santa rally. The snapshots below provide a glimpse into the kinds of stocks that benefited from Santa’s revenge.
Stock Chart Reviews – Below the 50-day moving average (DMA)
iShares Expanded Tech Software Sector ETF (IGV)
As a reminder I am using a January put spread on the iShares Expanded Tech Software Sector ETF (IGV) as a small hedge against my bullishness. Accordingly, I am currently not so concerned with the immediate wiggles in the ETF. IGV started the week under its 200-day moving average (DMA) (the blue line below) and finished the week above its 200DMA on the heels of Santa’s revenge. I am duly noting that IGV held the December lows for support, so my expectations are quite limited to the downside in the short-term.
Moderna, Inc (MRNA)
I bought a January call spread on Moderna, Inc (MRNA) when it gapped down below its 200DMA. The position was a bet that MRNA’s manic behavior was ready to swing to the upside. Sure enough, MRNA ground its way higher to 50DMA resistance in short order. A 9.0% gap up open to start the week looked like major validation. However, sellers took over from there. After the dust settled, I was left with MRNA right back to the price where I bought the call spread. The position is negative thanks to time decay. I will take the loss if MRNA closes at a new low for December. Next support from that point comes at the post-earnings intraday low from November.
Foot Locker, Inc (FL)
When I last showcased Foot Locker, Inc (FL), I expressed relief that I continued to avoid buying into the decline. My relief increased after FL opened the week with a 4.9% loss. As a sign of the broad-based nature of the oversold rebound, even FL benefited from Santa’s revenge. FL closed the week with a full reversal of the opening loss. FL still has a LOT of work to do to look buyable.
Shift Technologies, Inc (SFT)
Shift Technologies, Inc (SFT) was one of the stocks I sold in late November to limit the impact of what was at that time a bearish setup in the market. My concerns were validated by a continued and relentless selling spree. I was so perplexed that I wrote a Seeking Alpha piece exploring the reasons for the persistent selling in SFT. Now I doubt the reasons matter. Someone (or ones), for some reason, was so eager to get out that they could barely sell fast enough. Now, that desperate rush for the exits finally took a pause long enough to let SFT rise for three consecutive days. The last time SFT had two straight days of gains was in early November.
I bought back into SFT assuming this milestone marks the overdue exhaustion of sellers. I am hoping to stay put in SFT, but it may turn into a trade on the January effect.
Stock Chart Reviews – Above the 50DMA
Cisco Systems, Inc (CSCO)
December has been all about out-performance for Cisco Systems, Inc (CSCO). Ironically, the rally started with a 5.5% post-earnings loss that was consistent with market weakness at the time. CSCO is now up 13.5% month-to-date with the extra push from Santa’s revenge. The stock is a buy on the dips.
CF Industries Holdings, Inc (CF)
CF Industries Holdings, Inc (CF) is a chemical company that “manufactures and sells hydrogen and nitrogen products for clean energy, fertilizer, emissions abatement, and other industrial applications worldwide” (from Yahoo Finance). The stock caught my attention from the breakout to all-time highs thanks to Santa’s revenge. CF industries Holdings is the kind of company that should do well in a growing economy experiencing inflationary pressures. I am a buyer on the next dip. I wish I had noticed the breakout when it happened!
Tesla, Inc (TSLA)
Santa’s revenge for Tesla, Inc (TSLA) should be called Musk’s revenge.
Musk is paying his massive tax bill by selling TSLA stock. The timing was unfortunate as it greased the skids for the price action as the stock market sunk into oversold conditions. When Musk announced in an interview that he was “almost done” with the stock sales, TSLA soared 7.5%. Surprisingly, Musk did NOT make a similar announcement on Twitter (or at least I did not see it). Given Musk’s gift for Twitter gab, I take the interview’s caveat that Musk may actually not be done selling. I think Musk will make a point of announcing the end on Twitter. The mystery did not matter to traders riding Santa’s revenge. TSLA soared another 5.8% to end the week with a 50DMA breakout.
I only caught a sliver of the rally with a calendar call spread that worked out perfectly at the close of Thursday’s trading. Unfortunately, I got too eager to take profits when TSLA first nudged in the red early in the morning. That lesson was a hard one!
M.D.C. Holdings, Inc. (MDC)
Manic trading hit hard in the home builders. M.D.C. Holdings, Inc (MDC). MDC started the week with a gap down, 50 and 200DMA breakdowns, and a 6.4% loss. Santa’s revenge took MDC to a GAIN for the week and above 50 and 200DMA support. I am assuming this episode washed out motivated sellers. MDC looks clear to soon break out above December’s highs.
iShares U.S. Home Construction ETF (ITB)
The iShares U.S. Home Construction ETF (ITB) summarizes the pressure and manic trading in housing-related stocks. The tap of 50DMA support on an oversold market day was pure poetry. The subsequent rebound on Santa’s revenge positions ITB to continue riding seasonal strength.
Whirlpool Corporation (WHR)
I am a buyer of Whirlpool Corporation (WHR). Santa’s revenge took WHR off 50DMA support and into a confirmed 200DMA breakout. While immediate upside should be capped by the December high, I think WHR has a chance to eventually challenge May’s all-time high.
Micron Technology (MU)
Chipmaker Micron Technology (MU) had the “fortune” of announcing earnings just ahead of Santa’s revenge. MU rode the fresh upside market momentum to a 10.5% post-earnings gain. My hopes for buying a dip were dashed when MU buyers followed up with a 4.5% surge on Friday. MU is now close to its high for the year. I may have to chase the stock if it breaks out without a pullback.
Carnival Corporation (CCL)
Carnival Corporation (CCL) also reported earnings just ahead of Santa’s revenge. However, traders ignored the pressures of Monday’s oversold trading conditions and anticipated good news with a 3.4% pre-earnings gain. The 8.7% post-earnings gain was enough to help end CCL’s week with a 50DMA breakout. Cruising will eventually recover but holding out for that day will require a lot of patience from here.
Dave & Buster Entertainment (PLAY)
Dave & Buster Entertainment (PLAY) was one of the few individual stocks I bought to trade on oversold conditions. I liked PLAY because the oversold low was above the 11-month low set in early December. PLAY now looks poised for a fresh 200DMA breakout. A close above the September high could launch PLAY on a sustained rally. I am content to wait on that proof so I took profits on my PLAY shares.
Be careful out there!
Footnotes
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long CCL, long IGV put spread, long MRNA call spread, long SFT, long MDC, long ITB
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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.
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