Stock Chart Reviews: Snapshots of A Disappointing Start to the New Year

Stock Market Commentary

The stock market indices benefited from a strong 2021. year. However, under the surface, declining market breadth betrayed the bullish narrative for a wide swath of stocks. A disappointing start to the new year for the indices was even worse for those stocks already limping into the end of last year. The snapshots in this series of stock chart reviews is dominated by crushing blows to former high-flying, expensive growth stocks. Only a few cases look like brewing buying opportunities. Instead, the stark and sharp divergence in performance between expensive growth stocks and value stocks operating in the “physical economy” creates interesting hedging opportunities.

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

ARK Innovation ETF (ARKK)

Cathie Wood’s flagship ARK Innovation ETF (ARKK) carried its disappointing 2021 right into 2022. ARKK started the year with a 2.5% gain but closed the week with a painful 10.8% loss for the year-to-date. This ominous start created a near 15-month low. If ARKK slips below the intraday lows of September, 2020, little “natural” support exists until a complete reversal of the July, 2020 breakout around $73. I do not see a natural entry point for a buy. In the meantime, I took profits on a put spread and bought a February $74.22 put option as a new partial hedge against my lingering market bullishness.

iShares Expanded Tech Software Sector ETF (IGV)

The iShares Expanded Tech Software Sector ETF (IGV) stumbled hard out the gate for 2022. IGV lost 8.7% for the week after a 1.1% loss to start the year. IGV looks particularly vulnerable given that first day under-performance. The confirmed 200DMA breakdown is an important red flag because IGV closed below its 200DMA just three times since the April 2020 breakout – YES, THREE times!

I took profits on my IGV put spread but did not refresh my hedge against bullishness. I prefer fading IGV, and a rally back to 200DMA resistance would provide a good opportunity to short.

Bassett Furniture Industries, Incorporated (BSET)

I am on the lookout for beaten up stocks to play for an eventual turn-around. Furniture is a tough space, but America is finally back in household expansion mode. Bassett Furniture Industries, Incorporated (BSET) underperformed housing plays with a 16% loss in 2021. BSET’s descent slowed down to a bottoming pattern right where BSET hit its heights ahead of the pandemic. I bought shares with a stop below the November low. The yellow flag on BSET is the 2021 high which stopped just short of a major high in 2017.

Wayfair, Inc (W)

Wayfair (W) made buying furniture online popular. Somehow, Amazon.com (AMZN) was unable to steal Wayfair’s thunder. Like AMZN, W has spent most of its time since the summer of 2020 stuck in a trading range. The trading range finally broke down in early December. Wayfair started the first day of the year up 3.1% but two steep sell-offs from there took the stock to a 19-month low. A 2-day bounce to end the week minimized the losses. However, W is still down 5.2% for the year.

Etsy, Inc (ETSY)

Etsy, Inc (ETSY) is already down 15.1% for the year. ETSY started the first day of the year with under-performance on a 4.1% drop to 200DMA support. The subsequent losses confirmed a 200DMA breakdown. ETSY is a fade on rallies to resistance.

Block, Inc (SQ)

Block, Inc (SQ) started the year with a 12.1% loss. The fresh breakdown in the wake of near relentless selling puts SQ at a 16-month low. It is hard to even guess on a bottom for SQ until a fresh sign of stabilization appears.

Twilio Inc (TWLO)

Twilio Inc (TWLO) has mostly trended down since its peak just ahead of July earnings. A 17.6% post-earnings gap down in October confirmed the change in sentiment. The 20DMA has guided the stock downward and served as tight resistance for 2022. TWLO is down 12.6% for the year. The stock closed at a 15-month low. I do not see a “comfortable” spot for an entry, and I do not like shorting TWLO here with the prospect for a sudden surge upward. Accordingly, I am content to wait for a fresh 50DMA breakout.

Rapid7, Inc (RPD)

Cyber security company Rapid7, Inc (RPD) hit an all-time high after November earnings. Sentiment reversed from there. After a flat start to the year, RPD sold off 4 days in a row into a confirmed 200DMA breakdown. RPD is 28.1% off its all-time high, down 14.4% for the new year, and sits at a 6-month low. Technically, RPD is a short on any rally below its 200DMA. However, I am looking to accumulate a cyber security position this year, so I am more keen to look for a deeper sell-off for a discounted entry point.

Korn Ferry (KFY)

Staffing company Korn Ferry (KFY) is stuck in a wide trading range between its 50 and 200DMAs. On no news I could find, KFY nearly traversed the entire range in a single 7.3% decline (perhaps there was a catalyst in the jobs report?). I am now interested in buying KFY for a rebound. A 200DMA breakdown below the December low would be very bearish.

KFY is another stock that has enjoyed long support from its 200DMA. KFY last closed below its 200DMA at the end of October, 2020.

Salesforce.com (CRM)

In a week featuring out-sized pullbacks, the 10.2% loss to start the new year for Saleforce.com (CRM) really surprised me. CRM is one of the big cap tech companies that has earned its premium with profits and relatively consistent performance. However, last month’s 11.7% post-earnings loss hobbled CRM. UBS downgraded CRM on Wednesday from buy to neutral and sent the stock gapping down into an 8.3% loss on the day. A $285 price target provided sellers no solace, but it keeps CRM on my buy list.

Zoom Video Communications (ZM)

Video conferencing company Zoom Video Communications (ZM) sold off last week, but its losses were not as dramatic as other expensive software companies. ZM “only” lost 6.7% for the week. Still, ZM closed at a fresh 19-month low. Without a new bullish catalyst, momentum still favors ZM making a complete reversal of its pandemic breakout above $108.

Cathie Wood staunchly defends ZM as a value stock because it is “only” trading at 33-35 times earnings as a “stay connected” play. However, it is not clear why investors were ever willing to pay triple digits times earnings and 115 times sales at ZM’s peak. In other words, valuation is in the eye of the beholder. With a monetary tightening cycle underway, no one can really say how much valuations will compress only that they will. A lot of fundamental analysts treat valuations as a science, but I see valuations created from a mix of art and sentiment with a sprinkle of science. Just think of all the methods you have heard to justify a stock’s price with various ratios, timeframes, and growth expectations.

Moreover, ZM does not have to win in the long-run. Easy video communications existed before Zoom. Zoom up-ended the likes of WebEx, GoToMeeting, and Skype. Now, companies from well-known big cap tech firms to hungry start-ups are flooding our attention with Zoom alternatives. (I earlier mentioned Toucan as my top pick disruptor). ZM’s valuation should compress regardless of the Fed.

Cloudflare, Inc (NET)

Cloud platform company Cloudflare, Inc (NET) started this year trading below its 200DMA for the first time ever. NET got close to 200DMA support back in May, 2021. The 50% drop from the all-time high in less than 2 months would be astounding except NET nearly doubled to get to that all-time high in less time. NET is another high-flyer that is a fade on rallies as long as it trades below its 200DMA.

monday.com Ltd (MNDY)

Work management software company monday.com Ltd (MNDY) came to market in June, 2021 at $155. The stock sprinted from the open for 7 days before consolidating a bit. Pre-earnings anticipation and post-earnings excitement delivered the bulk of the rest of MNDY’s peak gains in less than a month. The all-time high came ahead of monday.com’s last earnings report. Sellers nearly cut the stock in half from there including a 23.1% drop to start the year.

With the entire August, 2021 breakout reversed, I suspect buyers may find “value” here. Any buy must have a tight stop below the intraday low for 2022. The declining 20DMA constrains short-term gains from a speculative trade.

lululemon athletica inc. (LULU)

Athletic outfitter lululemon atheltica inc (LULU) was not spared the deep sell-off in premium valuation stocks to start the new year. LULU is down 9.3% for the year with a confirmed 200DMA breakdown. WIth a steeply declining 20DMA, LULU suddenly looks like a fade on rallies.

Tesla, Inc (TSLA)

Tesla (TSLA) had one of the wildest starts to the year in my universe of stocks. TSLA participated in the year’s beginning celebrations with an out-sized 13.5% one-day pop. I figured these levels would hold given the bullishness of the news on deliveries. Instead, in a confirmation of the bias to sell high-valuation growth names, TSLA gave up the entire gain and then some. TSLA ended the week with a confirmed 50DMA breakdown and 2.8% loss for the year.

I came into the week with a weekly $1200/1220 call spread in place. As the price action slipped away I found myself scrambling between various reconfigured call spreads and flipping a put spread. I go into the coming week with a fresh weekly $1130/$1140 call spread but low expectations. TSLA looks like it printed a top for now given the last rally fell short of the all-time high.

Alphabet Inc (GOOG)

Even mighty Alphabet Inc (GOOG) succumbed to the 2022 selling pressures. When GOOG lost 4.7% in the wake of the hawkish Fed minutes, I sat up and took notice. GOOG actually looks ready to test its 200DMA support for the first time since a successful challenge in September, 2020. Given a test coincides neatly with the September/October lows, I will be watching closely for a buying opportunity.

Snowflake (SNOW)

Snowflake (SNOW) started the first day of the year with a 2.0% loss and finished the first week of the year down 11.5%. The critical test for SNOW is already here. Buyers successfully defended 200DMA support on Thursday. So SNOW is just a close above Thursday’s intraday high away from a speculative trade for a bounce back to at least 20DMA resistance.

iShares U.S. Home Construction ETF (ITB)

The iShares U.S. Home Construction ETF (ITB) was my biggest disappointment of the week. ITB could even unfold into my biggest disappointment for a while. The weight of Fed hawkishness and rising long-term rates proved too much for this ETF of home builders and other housing related stocks. ITB far out-stripped the S&P 500 (SPY) in 2021, but it is an early under-performer in 2022. ITB lost 4.5% on Friday alone after a 50DMA breakdown. It is also down 9.3% for the new year.

Intuitive Surgical, Inc (ISRG)

Could a triple top be in the works for robotic surgery company Intuitive Surgical (ISRG)? Peaks in September, November, and December make ISRG look tired and toppy. ISRG survived a test of 200DMA support last March. This test is even more critical with the combination of the potential triple top and the October to December lows sitting as support.

VanEck Semiconductor ETF (SMH)

The VanEck Semiconductor ETF (SMH) looked ready for a breakout after a 2.2% gain to start the first day of the year. Instead, the subsequent selling left the November/December top intact. The 50DMA breakdown is only a concern if SMH manages to close below the December low. That kind of failure would set up SMH for a critical test of converged support from its uptrending 200DMA and the $278 November breakout level.

Shopify (SHOP)

Shopify (SHOP) seemed to topple “out of nowhere.” Perhaps the under-performance on the first day of the year, along with a close below the 200DMA, was a small warning. SHOP plunged 10.4% the next day and is now down 16.9% for the year. Sellers took SHOP near an 8-month low and a confirmed 200DMA breakdown. The high trading volume makes me think this breakdown will last.

Stock Chart Reviews – Above the 50DMA

Ethan Allen Interiors Inc (ETD)

Ethan Allen Interiors Inc (ETD) was biding its time in the second half of 2021. I also sat in shares during most of this time. The payoff seems close at hand with a confirmed 200DMA breakout late last month. ETD also held on through the heaving selling in housing related plays.

Apple Inc (AAPL)

Apple (AAPL) was another surprise for me. The Apple Trading Model (ATM) delivered a fantastic gain with AAPL soaring 2.5% to a fresh all-time high on the first day of the year. Even with a $3 trillion valuation, I expected such a strong surge to stick. Instead, AAPL fell back with the rest of big cap tech. The stock closed below its uptrending 20DMA for the first time in 2 months. Like many strong stocks, AAPL faces its next critical test of support at the December lows.

SPDR Select Sector Fund – Financial (XLF)

Financials took the spotlight with an all-time high to close the week. The SPDR Select Sector Fund – Financial (XLF) managed to follow up the 1.2% start to the year with a 5.4% gain to end the week. With bank earnings coming up, I am leery about chasing XLF higher even with the high interest rate tailwind blowing. I am content to wait things out. Technically, I should have bought on the confirmed 50DMA breakout. However, XLF closed above its upper Bollinger Band (BB) and looked stretched. I also could have, should have bought the small reversal the next day.

Caterpillar (CAT)

Caterpillar (CAT) was a surprising under-performer last year, but the stock is a rare up stock for this year. With “value” stocks in the form of industrials gaining favor, CAT followed up Tuesday’s 5.4% surge with 3 more closes above the upper-BB. CAT even zipped by two prior peaks and closed at a 7-month high. CAT is a buy on the dips from here to 200DMA support.

Intel Corporation (INTC)

I thought the major fade for Intel Corporation (INTC) following the news of the Mobileye spin-off would mark a lasting peak. The close below the 50DMA seemed to seal the deal. Instead, slowly and then quickly, INTC made its way right back to 200DMA resistance. While the stock was soundly rejected, I am watching closely. I am an aggressive buyer on a 200DMA breakout even without a close above the intraday high from December. I am eager to get back to the between earnings trade for INTC given this fresh, apparent turn-around in sentiment.

BHP Group Limited (BHP)

The double bottom in commodities producer BHP Group Limited (BHP) continues to unfold well. BHP’s steady advance from December carried over into January. Buying interest accelerated on Friday with a 3.6% gain and close above the upper-BB. I was tempted to take profits on my shares but decided to wait to see whether the coming week delivers follow-through. Of course, the 200DMA looms overhead as formidable resistance.

Be careful out there!

Footnotes

Source for charts unless otherwise noted: TradingView.com

Full disclosure: long IGV put, long AAPL calls, long BHP, long BSET, long TSLA call spread, long ITB, long ETD

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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