Stock Market Commentary
I gave the summary for the week in my last “Market Breadth” post. I will just add here that the stock charts are full of images of a stock market running low on fuel. I tell just a small part of the narrative below.
Stock Chart Reviews – Below the 50-day moving average (DMA)
Apple Inc (AAPL)
It seems too obvious to point out that Apple Inc (AAPL) holds the next keys to market sentiment. AAPL is clearly running low on fuel as it closed just inches away from a test of its uptrending support at the 200-day moving average (DMA) (blue line below). The test last month went well with buyers automatically stepping in. Since the March, 2020 stock market crash, AAPL has consistently bounced away from (March, 2021 and October, 2021) or off of (May to June, 2021) its 200DMA.
KraneShares Global Carbon Strategy ETF (KRBN)
When I stumbled upon KraneShares Global Carbon Strategy ETF (KRBN), I clearly had no idea what I was getting myself into! The drama last week was awesome to behold. KRBN started the week by gapping down and losing 10.8%. The very next day KRBN rebounded and gapped up for a 12.2% gain. Normally, I would dare to nibble at that point. The chart pattern is akin to the rarely seen abandoned baby bottom. The name comes from the notion that sellers (and/or shorts) get left behind on an island represented by the candle with a gap down to the left and gap up to the right. KRBN is now above its 200DMA and back to the first price from the previous gap down. All I can do now is watch whether the financial side of this global carbon market can find a way to stabilize.
Primo Water Corporation (PRMW)
Primo Water Corporation (PRMW) came into view after a director loaded up on $300K worth of shares on March 3rd. I usually ignore director-level purchases and care more about executives. What really intrigued me is the impressive list of brands under Primo Water Corporation: “Primo, Alhambra, Crystal Rock, Mountain Valley, Deep Rock, Hinckley Springs, Crystal Springs, Kentwood Springs, Mount Olympus, Pureflo, Nursery, Sierra Springs, Sparkletts, Clear Mountain Natural Spring Water, Earth2O, Renü, Water Event Pure Water Solutions, Canadian Springs, Labrador Source, Decantae, Eden, Eden Springs, Chateaud’eau, and Mey Eden.” Trading at 1.2 times sales, PRMW is too tempting to pass up. Based on previous rallies in the years long trading range, PRMW looks like it is capable of fast and furious gains when the news turns good. PRMW even spots a 2.1% dividend yield.
Upwork Inc (UPWK)
I remain a fan of Upwork Inc (UPWK), but the stock’s on-going slide has not provided any reasonable entry points. February earnings failed to reignite interest and sellers took the stock down another 9.3%. Now, like so many (former) growth stocks, UPWK is running low on fuel as it closes on a complete reversal of all its pandemic-era gains. Trading at 6.4 times sales, I am itching to start building a new position. However, the downtrend tells me to stay cautious.
GoodRx Holdings, Inc (GDRX)
Perhaps investors forgot all about that $250M stock buyback for Good Rx Holdings, Inc (GDRX). GDRX sold off hard again last week. GDRX made a new all-time low and lost 7.4% on Friday. With competitors closing in and GDRX trading at 10.1 times sales, I assume sellers could continue pressuring GDRX even lower before things bottom out.
Etsy, Inc (ETSY)
Etsy, Inc (ETSY) is running low on fuel after perfectly failing at overhead 50DMA resistance (the red line below). Now ETSY has emptied its tank of post-earnings gains and looks poised to set a new closing low for the year.
Best Buy (BBY)
One after another I see examples of stocks unable to hold healthy post-earnings gains. So many are running low on fuel and quickly exhaust post-earnings exuberance. Given the patterns, I rushed to sell a call against my Best Buy (BBY) position despite a 12.0% pop above the 200DMA. I was hopeful BBY could somehow manage to stay aloft, but I had strong doubts. Sure enough, the 200DMA breakout was brief with BBY fading just below its 200DMA at the close. BBY lost the rest of its post-earnings gains from there. Friday’s 4.1% loss put an exclamation point on the fade and reversal.
FIGS, Inc (FIGS)
FIGS, Inc (FIGS) soared as high as 34.2% before settling for a 23.1% post-earnings gain. Despite this strength, the move was barely enough to get FIGS back to its downtrending 20DMA (the dotted line below). In a market full of stocks running low on fuel, the subsequent two days of selling are a bad sign for FIGS. At 7.1 times sales, FIGS has a more reasonable valuation. Still, with fuel running low, I see no need to rush out onto the tarmac to greet FIGS with more cash.
Bumble Inc (BMBL)
Women-oriented online dating site Bumble Inc (BMBL) is yet another stock running low on fuel. BMBL enjoyed a strong post-earnings surge back to the downtrending 20DMA. However, the sellers jumped aboard right at resistance. Friday’s 6.9% loss is already pushing BMBL back into its post-earnings gap up.
DocuSign, Inc (DOCU)
In a market littered with ugly stock charts, digital signature company DocuSign, Inc (DOCU) still stands out. The chart speaks for itself: a relentless run-up from the March, 2020 crash, a blow-off top post-earnings in September, a grind for a year to a fleeting all-time high. Two post-earnings plunges later, and suddenly DOCU did not just reverse all its pandemic era gains. DOCU is on the verge of retesting its March, 2020 lows! With a still lofty valuation of 11.4 times sales, DOCU likely has little chance in this market of a recovery before this huge test.
Stock Chart Reviews – Above the 50DMA
Red Robin Gourmet (RRGB)
My watch over Red Robin Gourmet Burgers, Inc (RRGB) continues. I watched RRGB go from a promising 50DMA breakout to a pre-earnings 50DMA breakdown and plunge. A 14.1% post-earnings pop brings new life to the stock, but, of course, I am suspect. RRGB conveniently faded back to its 50DMA at the close. So trading next week should determine whether RRGB is still just another stock running low on fuel.
SPDR Gold Trust (GLD)
As planned, I am now trading around my core position in the SPDR Gold Trust (GLD). So far, so good. I was able to flip calls going into the parabolic run-up and blow-off top. I also took advantage of a drop in volatility to flip a calendar call spread on the other side of the blow-off top. Now I am waiting for a dip closer to the uptrending 20DMA to pull the trigger on a fresh tranche of call options.
Caterpillar Inc (CAT)
With the percentage of stocks trading above their respective 200DMAs sitting at a paltry 31.8%, a stock like Caterpillar Inc (CAT) is hard to find. CAT even confirmed its 200DMA breakout last week. While the 2022 high looms large as resistance, CAT is still in a bullish position for now. I am looking to give the stock a try on the long side this week…before the Fed even.
United States Oil Fund (USO)
I have been eyeing the United States Oil Fund (USO) since its gap and crap at the end of February. USO quickly recovered from that bearish pattern and proceeded to run straight up into a blow-off top. I wasted no time going after put options as soon as USO gapped down on the other side of the blow-off top. While I recognized the bearish signs of a blow-off top, I was still caught off guard by the strength of the follow-through selling. The options were relatively “cheap” when I bought them, so I assumed the market was anticipating at worst a time of stabilization. As a result, my combined calendar put spread at the $80 strike and a $75/$65 put spread were not aggressive enough.
With the weekly put expiring last Friday, I took assignment of the shares and reconfigured my trade. Now I am good with either a sharp resumption of the rally in oil or a continued sell-off from the blow-off top.
iShares Global Clean Energy ETF (ICLN)
The setup on the iShares Global Clean Energy ETF (ICLN) work out well, but I almost missed it. ICLN gapped up and jumped 2.5% off its test of 50DMA support. I rushed to buy up shares. ICLN proceeded to gap up again and gained 6.9%. Given this market running low on fuel, I did not hesitate to take profits on this sudden surge higher. Moreover, ICLN traded “close enough” to overhead 200DMA resistance. That trendline was my first profit target. I just did not expect such a rapid move. I have other clean energy plays on the books, so I was fine locking in this trade.
CF Industries Holdings, Inc (CF)
Chemical company CF Industries Holdings, Inc (CF) caught my interest in December after a breakout. I waited and waited for a dip to buy. That chance finally came on January’s test of 50DMA support. I loaded up on shares given the bullish case I made as a play on inflation (not to mention something non-tech related). I held my breath as Russia’s invasion of Ukraine turbocharged CF. The anticipated blow-off top happened last week, yet I failed to sell into the final rise into the blow-off move. Instead I sold on the subsequent gap down. Amazingly, CF recovered so well that at one point the stock made a new all-time closing high! All I can do now is watch for the next dip…
Be careful out there!
Footnotes
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long KRBN, long BBY shares and short a call option, long FIGS, long BMBL, long GLD long USO shares and a put and a put spread
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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
thoughts on XLE and XME. I am thinking those parabolic moves are juts begining, and when viewed in weekly chart does not seem all that uncharacteristic….,.,though could strongly go either way quickly..
You might as well wait for the market’s reaction to the Fed.
These could each go either way. If the market makes a bet that the Fed will send us into recession, then everything’s going down further. I like XME more than XLE (perhaps I am biased since I am generally bullish on XME and bearish short-term on oil).
Excluding the Fed-effect, I would look for a pullback to the 20DMA as a way to avoid “over-paying.” (Ironically, USO touched its 20DMA support so I have a major decision to make on my bearish opinion!)
Gotta love the magic of trendlines. Looks like XME is the 20DMA winner over XLE. Buyers pounced on XME at the 20DMA, while XLE did well just to hold support there.