Stock Chart Reviews – Snapshots of the Fresh Bearishness

Stock Market Commentary:

After much resistance to Fed hawkishness, the U.S. stock market gave way to fresh bearishness. The major indices dropped into new depths of the bear den. The stocks below are snapshots of the latest deterioration in the price action and decline in the technical health underlying the stock market. The ARK funds are a part of this fascinating chart study because they share a common pattern that delivers strong signals about the market’s risk attitudes. Fresh bearishness drives risk attitudes lower and lower.

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

ARK Innovation ETF (ARKK)

It was a big deal when the ARK Innovation Fund (ARKK) first lost all its pandemic-era gains. The moment coincided with Russia’s invasion of Ukraine, and the algorithms went into automatic contrarian mode. Buyers stepped in and sent ARKK rallying sharply alongside a host of beaten-up speculative names. The ARKK rally stopped cold at resistance at the 20-day moving average (DMA) (the dotted line below). The next breach of the pre-pandemic high sent ARKK down to a 23-month low. The oversold bounce from there created a temporary breakout above 50DMA (red line below) resistance. The latest breach is testing the March low. If past patterns persist, ARK will eventually go lower from here. Regardless, the next bounce faces stiffer resistance at the pre-pandemic high.

ARK Fintech Innovation ETF (ARKF)

The price patterns of the ARK innovation funds all look the same. The ARK Fintech Innovation ETF (ARKF) is practically a carbon copy of ARKK. As a result of the lack of a diversification effect, spreading bets across ARK makes little sense. ARKF finished the week taking a baby step ahead of ARKK with a breach of the March low. Accordingly, the pandemic lows are now in play as the next test.

ARK Next Generation Internet ETF (ARKW)

The ARK Next Generation Internet ETF (ARKW) looks like ARKK and ARKF. ARKW has slightly better performance relative to the pre-pandemic high. ARKW has spent little time below this important threshold. ARKW has also not yet retested its March low.

ARK Genomic Revolution ETF (ARKG)

Perhaps ARK Genomic Revolution ETF (ARKG) is the most speculative of the ARK group. While ARKK, ARKF, and ARKW spent much of 2021 trying to stabilize after the climactic tops in January, 2021, ARKG maintained a slight downtrend. However, unlike the other three funds, ARKG has found support at its pre-pandemic high. I doubt support will hold for long on this second go-round.

Unity Software (U)

Interactive and real-time 2D and 3D content creation platform company Unity Software (U) enjoyed a brief breakout above 50DMA resistance earlier this month. In true bear market fashion, sellers took over after a 9.8% surge. Now, Unity Software is staring down a test of its March lows on the heels of fresh bearishness.

Robinhood Markets, Inc (HOOD)

Robinhood Markets, Inc (HOOD) delivered classic bear market action in the form of news about the availability of after hours trading. Nevermind such a feature is unlikely to add much revenue or even profits, traders initially sent HOOD soaring 24.2%. Sellers took over from there. A 50DMA breakout turned into a fresh 50DMA breakdown and new all-time low.

Wix.com Ltd (WIX)

Bear market action for web publishing platform Wix.com Ltd (WIX) came from a brief 50DMA breakout earlier this month. The downtrend barely budged and WIX soon snapped back to the 50DMA. The stock reconfirmed its 50DMA breakdown and looks set to test its March lows.

Lowes Companies, Inc (LOW)

Home improvement retailer Lowes Companies, Inc (LOW) hit a double top in December, 2021. LOW never looked back after its 50DMA breakdown despite a brief breakout in March. The 20DMA looks like the more salient downtrend now. LOW closed the week at an 8-month low.

AGNC Investment Corp (AGNC)

I reluctantly took profits on mortgage-backed securities (MBS) company AGNC Investment Corp (AGNC) last July. AGNC was one of a select few stocks I stepped into and held from the March, 2020 collapse. Last summer, St. Louis Federal Reserve President spoke ahead of his peers in questioning the on-going purchases of MBSs with a record hot housing market. While it took quite some time for the Federal Reserve as a whole to get the point, I got the point right away. Now, AGNC trades at 2-year lows. While pandemic lows should be off the table, I see no end to the downside until the Fed’s process of policy normalization comes to an end.

J.B. Hunt Transport Services, Inc (JBHT)

Last October, J.B. Hunt Transport Services, Inc (JBHT) helped signal an end to the bear cycle at that time. JBHT did not make much progress until a March breakout to a fresh all-time high. A little over a month later, JBHT joined the bearish chorus in the stock market with swift selling into 50DMA and 200DMA breakdowns. JBHT is trying to stabilize right under that October breakout. I expect more downside if the stock market weakens further.

AMC Entertainment Holdings, Inc (AMC)

Bear market action showed up in AMC Entertainment Holdings, Inc (AMC) after a 44.9% surge failed to create a 200DMA breakout. The fade from 200DMA resistance opened the floodgates of profit-taking. Sellers rolled AMC back in just over a week. Now the stock is under its 50DMA again with the March lows in play. What caused all the excitement? Buyers jumped when the CEO announced he would “embark on more ‘transformational’ deals to capitalize on the interest of retail investors following its bet on a troubled gold and silver mine operator.” AMC’s periphery deals and businesses are flushing investor money down the toilet all in the name maintaining interest in the stock…and perhaps even distract from the reality that AMC’s core movie theater business is extremely over-valued even at these levels.

Jumia Technologies AG (JMIA)

This fresh bearishness struck close to home as I remain an avid long-term investor in Jumia Technologies AG (JMIA). JMIA jumped 24.7% on news of a partnership with UPS in Africa. This news sounded transformational. The move appeared to solidify a bottom in the stock. While that bottom remains intact, sellers reversed the UPS gains and took JMIA under its 50DMA. I knew better than to chase the stock higher, but I did add to my position on the pullback.

Netflix, Inc (NFLX)

This fresh bearishness contains a healthy heaping of irony. Netflix’s valuation frequently astounded me given the amount of money the company had to spend first to expand internationally and then to commit to a seemingly endless amount of content. In January, 2019, I even posted a related Saturday Night Live skit and wrote (emphasis new): “This fantastic Saturday Night Live (SNL) skit summarizes the longer-term bearish case on NFLX: too much spending on too much content for small/niche audiences.” NFLX traded at $298 at that time. The stock got close to $400 just ahead of the pandemic and then rode the pandemic tailwinds to a double-top just under $700 last November. NFLX closed last week at $215 as the bearish long-term case finally caught up.

Ironically, I finally nibbled on some NFLX shares after the PRIOR post-earnings blow-up. Even up 12%, I did not take profits. With the stock back to January, 2018 levels, I am considering nibbling some more soon. Absent some new catalyst that forces people to watch Netflix, I highly doubt NFLX will return to $700 in the next few years. However, the stock should offer periodically profitable rallies given the much more reasonable valuation: 19x forward and trailing earnings and 3x sales. The biggest wildcard will be just how long and how deep will subscriber losses run before stabilization arrives to save the day. Recent price increases will likely help convince marginal subscribers to bail on Netflix.

fuboTV Inc (FUBO)

Some stocks are clear and obvious shorts. I put fuboTV Inc (FUBO) in that category in early 2021. However, high short interest and a stubborn meme stock fan base made it hard to bet on the long-term direction for FUBO. Fast forward to Netflix’s implosion, and the case for endless consumption of streaming has been laid bare. While NFLX benefited from boundless optimism until lat November, the top for FUBO came in early 2021 with a final topping extending from June to November. The plunge from there has been near relentless. FUBO now trades near a 3-year low with no end quite in sight yet.

Meta Platforms, Inc (FB)

The bullish case for Meta Platforms, Inc (FB) finally ended with a post-earnings collapse in February. After seeing the downward momentum, I assumed the pre-pandemic high would become stiff resistance. FB made a valiant attempt to break out above this threshold, including a 50DMA breakout, last month. However, the relief rally ended there. Fresh bearishness slid FB along its downtrending 50DMA. The latest NFLX debacle helped plunge FB off that line. NFLX’s news put the big cap tech complex into question so much so that an analyst downgrade helped punch FB down 7.8%:

“…a negative note from Cleveland Research, whose checks indicate that current-quarter business has tanked. The firm has apparently cut its estimates well below street consensus, based on a slowdown in everything from its e-commerce efforts to a breakdown in its targeting to share loss to rivals. The first quarter looks weak, and April’s to-date business is slowing even more than that, the firm notes. Advertiser return on investment is weaker from inflation in CPM rates, a drop in conversion rates, and targeting changes – and nearly half of agencies are set to miss their ROI goal, Cleveland says.”

FB now trades at a near 2-year low.

Alphabet Inc (GOOG)

Alphabet Inc (GOOG) was one of the last big tech holdouts. GOOG was performing well enough to return to bullish positioning on a 200DMA breakout last month. The stock held its 2022 lows as support four times. Finally, the selling pressure of fresh bearishness became too much. Likely a rush to preserve profits took GOOG down enough the last two days to generate a significant breakdown to a 10-month low.

Sea Limited (SE)

Singapore-based Sea Limited (SE) specializes in “digital entertainment, e-commerce, and digital financial service businesses” in various Asian and Latin American markets according to Yahoo Finance. SE enjoyed an incredible run in the pandemic era. Its lows in March, 2020 were not even a major new low. SE gained 608% from the point of recovering its losses from the crash to the final all-time high last November. The sell-off since then has been even more dramatic. SE has lost 76.1% since its all-time high. With a more reasonable valuation of 4.7x sales, I put SE on my buy list for the next bullish cycle in the stock market…whenever that happens. I missed the opportunity last month.

Zoom Video Communications, Inc (ZM)

Little new to say about the on-going correction in Zoom Video Communications, Inc (ZM). I was reminded of the competitive pressure on Zoom after doing another video call on Toucan with my buddies from grad school. A cousin also recently introduced me to free, open source jitsi which is a great tool for the consumer market. Jitsi also seems to be making some inroads in the enterprise market. In other words, video communications technology is quickly becoming commoditized as one would expect with the incredible popularity of connecting face-to-face. For some reason, Cathie Wood continues to believe that Zoom is an innovative disruptor. Wood’s team has consistently bought ZM on the way down and added yet more last week. ARKK and ARKW are top ETF holders of ZM shares.

At least ZM has a more reasonable valuation of 7.5x sales.

Shopify Inc (SHOP)

Wood also bought yet more Shopify (SHOP), the popular e-commerce platform, last week. Admittedly, at a 2-year low SHOP looks tempting. However, its price/sales ratio is still in the double digits at 12.7. Thus, I am content to wait. If SHOP conquers its pre-pandemic high before going even lower, I may have to nibble earlier than planned.

VanEck Semiconductor ETF (SMH)

Semiconductors provided one of the more surprising sources of fresh bearishness. The VanEck Semiconductor ETF (SMH) broke down to an 11-month low. SMH had a brief return to bullishness last month with a 200DMA breakout. Now, SMH looks on track for erasing the rest of its 2021 gains by dropping to $215.

The Walt Disney Company (DIS)

I already own shares of The Walt Disney Company (DIS), and I want a lot more at current prices. The downtrend in DIS accelerated last week partially thanks to the NFLX debacle. This fresh bearishness took DIS to an 18-month low. I remain patient because DIS has yet to stabilize since it dropped out of 2021’s consolidation range. Moreover, DIS still has a forward P/E of 27, so it is not yet back to bargain territory on a valuation basis. For now, I just keep watching.

Corsair Gaming Inc (CRSR)

Corsair Gaming (CRSR) was a surprisingly hot IPO in late 2020. CRSR soaked up all the enthusiastic buyers in less than two months. Outside of a bizarre meme stock related surge in June, 2021, CRSR has fallen relatively consistently for over a year. Poor earnings guidance delivered fresh bearishness for CRSR. The stock sliced right through its 2022 lows and looks ready to return to the beginning right after the IPO.

Freeport-McMoRan, Inc (FCX)

Even commodities were not spared from the fresh bearishness. Copper producer Freeport McMoRan, Inc (FCX) fell 9.9% post-earnings. FCX confirmed the 50DMA breakdown with a 6.8% drop on Friday. With poor guidance and troubles at a Preuvian copper mine, I am in no rush to return to FCX. However a test of 2022 lows and/or a test of last Fall’s lows will likely get me off the sidelines. Physical commodities are the place to be in an inflationary environment. They should even do well after inflation cools and stable economic growth continues/resumes.

Alcoa Corporation (AA)

Alcoa Corporation (AA) also disappointed commodities investors. AA lost a whopping 16.9% post-earnings. AA’s 50DMA breakdown was next confirmed by a 6.7% follow-up plunge on Friday. I am not as eager to buy AA given the competition with Chinese aluminum producers. I could get interested at 200DMA support.

BHP Group Limited (BHP)

Diversified iron ore producer BHP Group Limited (BHP) is suddenly looking bearish. The two days of selling in commodities confirmed a failure at the triple top from 2021. Thus, I am not interested in rushing back to BHP. I might reconsider at the 200DMA. Below that, BHP could free fall to its lows from last Autumn…which would trigger immediate purchases from me.

Stock Chart Reviews – Above the 50DMA

lululemon atheltica inc (LULU)

Last week I thought lululemon atheltica inc (LULU) pulled off an amazing turnaround with a confirmed 200DMA breakout. However, fresh bearishness took LULU down as well. The dust settled on a confirmed 200DMA breakdown and a return to trading in the limbo land between the 50DMA and the 200DMA.

Teucrium Corn Fund ETV (CORN)

The pullback in commodities even hit Teucrium Corn Fund ETV (CORN). I cannot call this fresh bearishness as the strong uptrend remains intact. I missed the last breakout, but I am back to watching CORN closely for the next entry point. Note that Purdue University agricultural economists Michael Langemeier and James Minter advised corn farmers earlier this month that they had to consider making sales at these price levels. In other words, even farmers need to make sure to lock in some profits in a relentless bull market.

Caterpillar, Inc (CAT)

Caterpillar, Inc (CAT) was yet another surprise in this period of fresh bearishness. CAT was looking good with a breakout to a 10-month high before the selling struck. Profit-takers bumrushed to the tune of a 7.0% pullback on Friday. I could not find any news to explain the swift and sharp pullback.

Tesla, Inc (TSLA)

In a week of fresh bearishness, Tesla, Inc (TSLA) stood out as a firm holdout. Although TSLA faded after its initial post-earnings pop, the stock held is ground on Friday. TSLA also remains above both its 50DMA and 200DMA. Both trend lines are still enjoying uptrends. If TSLA breaks down again from here, look out for the rest of the market, especially the ARK funds. I suspect it will take oversold conditions in the stock market to convince sellers to get serious in TSLA again.

Be careful out there!

Footnotes

Source for charts unless otherwise noted: TradingView.com

Full disclosure: long DIS, long ARKK put spread, long ARKF put spread, long JMIA, long NFLX

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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