Global Escalation Creates Market Headwinds

Feb 20, 2022 | Swing traders got hit hard this week in times of uncertainty

Weekly Newsletter- Week of 2.20.2022

Global Tensions Point to More Peril for Stocks

For the second straight week, U.S. stock indexes closed lower on Friday after reporting the market recorded back-to-back losing weeks. Stocks closed heavy in the red on Friday as the potential Russia-Ukraine conflict continues to put investors on edge. This international conflict is just the latest catalyst keeping volatility high in the market. The VIX Volatility Index which measures uncertainty in the market ended a few points higher this week after spiking for nearly 13% earlier in the week.

Tensions Suppress Markets

The ongoing tensions between Russia and Ukraine continue to be key drivers for market action. The Wall Street Journal reported on Friday that U.S. officials expect some kind of attack from Russia “within a few days”. While President Biden is expected to move even more U.S. troops closer to Ukrainian borders. Other officials have called the rising tensions a “moment of peril”. The current conflict between Russia and Ukraine has been testing investors and their own appetite for risk, as an international incident between the two countries seems increasingly likely. Investors have been weighing the impacts of prolonged tensions as Wall Street went into a selloff to close the week. On Friday, Russia prepared to carry out more drills near Ukrainian borders while the U.S. continues to call for a diplomatic solution. Wall Street will continue to act cautiously and nervously until we see a major de-escalation of the rising tensions.

Expiring Options

Friday was a particularly brutal day for stocks as trillions of dollars in options, stock futures, indexes, and ETFs were all set to expire. Option expiration dates generally occur on the third Friday of every month. These expiring contracts can lead to a heavy influx of additional trading volume which inflates volatility and contributes to the wild swings in pricing action.

What We're Watching This Week

As we stated, market volatility will continue to stay inflated until we see something major happen between Russia and Ukraine as anxiety among investors increases. But that's not the only major story to watch in the stock market this week. Earnings season has been winding down, but we’ve still got some key players in the Retail Sector set to report this week. Home Depot and Macy’s are some of the top stocks to watch this week. We’ll also get more earnings from the Energy Sector including players like Occidental Petroleum and Coterra Energy. Additionally, the tense situation in Moscow will continue to contribute to the rise in oil prices. Concerns are rising over the possibility of regulatory sanctions from the U.S. to limit Russian oil on the markets. Oil reports will be another key market driver this week.

What’s it Mean: The global tension between Russia and Ukraine should continue to be one of the biggest market drivers in the short term as investors assess the impact of a prolonged conflict. These tense situations have only acted as further catalysts to the wild rise in oil prices. With numerous companies in the Energy Sector reporting on earnings this week, a positive outlook from the industry could help turnaround market sentiment and slow some of the recent selling.

This Week’s Picks

EDR (Endeavor)

August 14, 2022

Entry Price:

24.50

Stop Price:

23.35

Target Price:

26.46

Time Frame:

3 Week Hold

EDR has been in a channel pattern over the last few weeks. As it approaches the bottom band, after a some mid-week volatility, look to make enter the trade off the rebound. As noted in KMX, keep a trailing stop loss and close the position quickly should the market turn.

KMX (Carmax)

August 14, 2022

Entry Price:

101.85

Stop Price:

96.45

Target Price:

109.15

Time Frame:

4 Week Hold

KMX, along with most of the market, has been rebounding off June lows. We've seen strong momentum and a crossover of our long-term MAs. Watch for a market pull-back and keep a trailing stop loss. We're riding strong tailwinds, so get in and out quickly

Is Amazon Closing Its Doors on Groceries?

Amazon has been increasing its exposure to grocery stores and the food industry for the last 15 years. This has been a costly endeavor, however, and one that has yet to yield a significant ROI despite costing Amazon millions and millions of dollars. As of December, Amazon and their partner brand Whole Foods accounted for nearly 2.5% of the grocery store market.

Where's the Strategy?

Despite becoming the most dominant player in the eCommerce space, Amazon has found it extremely challenging to break out within the food industry. Amazon has rolled out a dizzying array of services including Prime Now, Fresh, Go, and many other initiatives. Amazon is attempting to become a key player in the $750B U.S. grocery store market. In 2017, Amazon spent over $13B on Whole Foods. This massive price tag cost was more than Amazon had ever spent to acquire another company. This merger cost Amazon more than 10x what it had ever paid in any prior deal. Despite the massive cost of acquisition and Amazon’s ongoing investments, they remain a niche player in the industry while accounting for less than 3% of the market. Amazon's delivery services have failed to stand out in an increasingly crowded and competitive field.

When still under Jeff Bezo’s watch, Amazon shareholders had little concerns over these costly endeavors as Amazon's share price has been pumped up over 400% in the last 5 years alone! But that has changed since last July when Amazon announced a leadership change. Under new CEO Andy Jassy, the stock has dropped about 13% since the change in leadership.

An Expensive Hobby?

Despite the heavy investment costs, Amazon has never prioritized its grocery business in the same way it has for its other key revenue drivers. Amazon’s bread and butter is its cloud business, eCommerce shopping, and growing streaming and entertainment, division. This has made its grocery line feel more and more like an expensive hobby. A hobby that continues to lose the tech giant money.

Before 2017, Amazon had already moved into brick-and-mortar retail stores, but Whole Foods was its first real exposure to dedicated grocery stores. Amazon views Whole Foods as a prime opportunity to showcase its cutting-edge technology coupled with in-person shopping. Immediately after acquiring Whole Foods, Amazon began adding “Prime Now”, its speedy delivery system as a way to reach new customers. Amazon quickly learned that the layout of Whole Food stores made it difficult to pick and process orders. Rather than relying on Whole Foods' current logistical system, Amazon began working towards a new grocery chain. This has once again become a costly endeavor.

What’s it Mean: Amazon is one of the largest companies in the world and it's not showing any signs of slowing down. Over the past several years they have focused on expanding into brand new service lines such as healthcare and grocery stores. Unfortunately for Amazon, their grocery line and subsequent food products have not done enough to differentiate themselves from the competition. As money managers have rotated out of tech in the last 6 months, we'll have to wonder if the negative effects on Amazon's bottom-line may force another pivot within Amazon’s food division.

Will the Denver Broncos be Sold for Crypto?

An eclectic group of cryptocurrency enthusiasts are attempting to buy the Denver Broncos football team for $4B in crypto assets. The group of investors is comprised of attorneys, accountants, and professional athletes. They’re raising capital through a decentralized autonomous organization or DAO. This group acts as a collective voice, but without one main regulating leader or decision- maker. Sounds a lot like decentralized finance (DeFi), wouldn’t you agree? Unlike how traditional investors raise capital, through this DAO, investors rely on crypto technology to track and validate participation within the group. This helps facilitate the inner workings of how to raise and distribute large amounts of cash. The group is looking to establish an infrastructure so fans from all walks of life can be part owners of the Denver Broncos. The Broncos are valued at just under $4B and they are expected to register the highest price tag in North American sports history.

What’s it Mean: The Denver Broncos are expected to sell for maybe the highest price tag in sports history. But what’s most noteworthy is the creative avenues investors are taking to place their bids on the franchise. If the Broncos were to be sold through a DAO, the group believes it could really accelerate DAO adoption for solving other real-world problems such as food scarcity or housing problems.

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Market Performance- Week of 08.14.2022

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Weekly Watchlists

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Weekly Review

Market Performance- Week of 08.14.2022

Recent Winners

CF (CF Industries)

CF (CF Industries)

Entry Price:

87.40

August 14, 2022

Price at High:

105.10

Return for Members:

16.84%

Timeline:

4 Week Hold

CF is a manufacturer of fertilizer and other farming products. Similar to our thesis on oil last week, we're expecting more global tensions to arise over the coming months. Although not directly related, CF should appreciate if adverse events occur. Technically speaking, we're seeing a bounce off the 180MA. However, there is negative momentum so be careful with entering too early.

MRNA (Moderna)

MRNA (Moderna)

Entry Price:

168.85

August 7, 2022

Price at High:

197.33

Return for Members:

16.86%

Timeline:

1 Week Hold

We're starting to see a reversal take place. Watching the 50 day moving average cross over the 100 day. Saw some weakness to close this week, so wait for upward momentum before jumping in.

X (US Steel)

X (US Steel)

Entry Price:

20.15

July 31, 2022

Price at High:

23.75

Return for Members:

17.86%

Timeline:

1 Week Hold

Stark momentum shift from the lows on this one. Tracking our moving averages on the 2-hour time chart. Looking for an early entry and quick trade.

Recent Watchlist Winners

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