Sanctions Continue to Drag Down Markets

Mar 06, 2022 | When will the Ukraine War end, and how should we play it?

Weekly Newsletter- Week of 3.06.2022

War Weighs on Markets

Stocks are down again this week, with the Dow taking losses for the fourth straight week. All major indexes continued to bleed red, with the technology-heavy Nasdaq really taking it on the chin while dropping nearly 3% in 5 days! Despite positive job data for the U.S. economy, the ongoing war in Ukraine continues to depress all sentiment, including in the stock market.

The Dow closed out the week under heavy selling pressure, as news regarding the war continues to worsen. At one point, the Dow was down over 500 points. On Friday, stocks pushed notably lower after reports of smoke near a major Ukrainian nuclear power plant began to break. Reports were coming out of Ukraine that Russia had seized the nuclear plant. The U.S. embassy in Kyiv called the attack a war crime. When it comes to stocks, it can be difficult to trade during times of great uncertainty and especially difficult during times of war. Though historically, we’ve learned that periods of war have ended up serving as tremendous buying opportunities over the long haul... but every war and every situation is different. It's hard to say when the selling may stop, but there are clearly strong businesses that are being sold off solely due to the ongoing war.

Gas Prices Soar as War Rages On

Even if you've been living under a rock, there's no chance you haven't been impacted when arriving at your local gas pump. As the war continues, gas prices have hit their highest price since 2014. Oil has become a real concern lately, as Russia is currently one of the world’s largest energy producers. The latest surge in gas prices comes while inflation continues to cause just about everything to cost a little bit more.

Oil Jumps

The U.S. benchmark for crude oil jumped 8% bringing oil to $103.41 per barrel, its highest price in nearly 20 years. The ongoing crisis in Ukraine prompted an emergency meeting for the International Energy Agency (responsible for maintaining international oil supplies) which resulted in 31 member countries agreeing to release 60 million barrels of oil– half of which are expected to come from the United

States' Petroleum Reserve

With numerous disruptions expected in the global energy markets due to sanctions being administered against Russia, these disruptions are expected to highlight the importance of U.S. domestic production. Europe for example remains highly tied to Russia, particularly within the Energy Sector. Europe stands to feel the greatest impacts, which will have lasting impacts on its Economic growth. Currently, the national average for a gallon of gas is now $3.61. This represents over a 25-cent jump in the last 30 days. Prices are well above $4 in many major cities within the U.S.

Sanctions

Over the last week, the United States and their allies have responded to Russia's invasion not by military force, but by attacking Russia’s economy. In recent days, a growing list of sanctions have been hurled against Russia for igniting war and international unrest. While other U.S. businesses continue their attempts to cut off Russia. Anyone from PayPal to the banks, to video game platforms, and countless others have cracked down their accessibility to Russian IP addresses. Some other key sanctions being utilized against Russia include obvious travel restrictions, boycotting distribution from Russian automotive factories, restrictions against Putin's closest allies and oligarchs, and much, much more.

What’s It Mean: Russia's invasion of Ukraine has far-reaching impacts, even if you don't think you're directly affected. You only need to look at your local gas pump to see how war is affecting your daily life. Nations around the globe will continue to impose sanctions against Russian goods, services, and their entire economy. When actively trading stocks in this environment, be sure to understand what industries will be most impacted by rising global tensions.

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

Ford Splits Up It's EV Business?

Ford made headlines this week after announcing it would be splitting its electric vehicle business from its traditional auto business last week. Investors were eager to understand the reasoning and rationale for the Ford split, one of the biggest moves ever made by the carmaker. Over the last few years, we’ve seen numerous EV startups join the public markets. Each new EV player has been attempting to replicate the Tesla model. And that includes justifying a sky-high valuation, despite little to no actual car sales.

Ford's Spin

During the announcement, Ford leadership noted that despite solid sales of the well-received Mustang Mach-E, Ford would like to keep its emerging EV business tied directly to the profitable mothership and under the Ford umbrella. Even with the 'split', Ford's EV business will still mostly be funded by investments made from Ford's existing cashflows. Ford has decided to keep their businesses aligned, but they will report separate results beginning next year. This will allow Wall Street to assess the EV business’ growth and value it independently. Additionally, Ford hopes the move will actually increase its overall valuation, especially compared to the significant discount Ford shares trade at compared to other pure EV plays. Pure ever players such as Rivian or Lucid Motors, trade at significantly larger multiples than the tried-and-true legacy player. Despite the move making financial sense for Ford, many investors are still interested in seeing Ford formally split their EV division entirely from the traditional Ford business. Ford anticipates 1/3 of its total sales will come from EVs by 2026.

What’s It Mean: Interest in Ford has been on the rise lately thanks to their new EV mustang and their electric truck, with the stock up over 40% in the last year. Despite Ford's decision to keep their EV line directly tied to the rest of the business, for now, Ford understands the future of the automobile industry very well may be in EVs. Right now, Ford is lowering risk upfront to help enhance the future of its EV line. And despite working as a single entity today, investors are already envisioning a world where Ford could separate its two businesses completely.

Crypto's New Use-Case

In last week's newsletter, we talked about how Ukraine was using cryptocurrency to help raise capital in its war against Russia. The ongoing war has actually helped bolster demand for Bitcoin as of late. Bitcoin shares have actually jumped nearly 25% since the start of the invasion, though shares are currently in a downtrend. Here’s how crypto has impacted the war so far:
1) Funding the Resistance
• As previously mentioned, last week’s newsletter highlighted how Ukraine had already raised over $35M in crypto assets to help fight over Russian invaders. After Ukraine’s deputy PM tweeted a link to his digital wallet, donations started pouring in from all over the world.

2) Avoiding the Sanctions

•    Russia has been using crypto to help ease the damage done by increased regulatory sanctions since crypto transactions are inherently harder to block. Russia’s access to resources from global banks has been mostly frozen out over the last couple of weeks. Russian currency is also in a heavy downtrend, but the warring nation can still buy or purchase war materials as needed, with Bitcoin.

3) Booted f rom Exchanges

• Ukraine officials recently asked crypto exchanges    to block Russian users from their platforms. Though, Coinbase, Kraken, and Binance have all refused to shutter out its Russian userbase.
What’s It Mean: War has been reshaping the crypto with a variety of new use cases. Going forward, crypto may have fundamentally changed how wars are fought and financed in the future by coordinating the rapid exchange of money securely. It's no doubt, the current conflict in Ukraine is only going to push lawmakers to speed up any planned crypto legislation as new use cases are realized daily.

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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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