Shanghai Shuts Down

Apr 17, 2022 | How the latest news of out Shanghai will Impact Markets?

Weekly Newsletter- Week of 4.17.2022

China Forced to Implement Massive Covid Restrictions (Again)

Just as everyone was starting to feel hopeful that we could finally put Covid behind us, the latest wave of Covid spikes has once again forced a large-scale shutdown in Shanghai China. For context, Shanghai is one of China’s biggest cities and also one of its most important.

In terms of sheer size, Shanghai is home to over 25 million Chinese citizens. This makes Shangai larger than the state of Florida, but slightly smaller than Texas. After reporting a record 3,590 symptomatic cases and over 19,000 asymptotic
cases on April 15th alone, China was forced to once again implement lockdown procedures for the bustling city. Covid cases have been on the rise in China since February. But until now, China had only needed to implement targeted neighborhood-specific lockdowns to battle the virus.

Importance of Shanghai

Shanghai is an incredibly important city in China. Not just for its size and population, but Shanghai is also home to the world’s busiest seaport, making it a critical intersection for international imports and exports. The world’s third busiest cargo airport also resides in Shanghai. The city is also a vital location for the manufacturing and distribution of semiconductors, which as we all know are required in nearly all electronic devices these days.

Several key automakers also have a strong presence in the Chinese city as well. This could make the short-term outlook for the automobile industry extremely bearish with slowdowns to both semiconductor and automobile distribution likely. Certain automakers have already been discussing slowing down or even temporarily halting production on their vehicles. China is also home to numerous other key manufacturers, such as Apple. We’ve already seen how Covid can impact an economy, and these latest restrictions will certainly have a large impact on China’s 2022 economic growth. In fact, on Friday evening, China’s central bank cut the amount of cash that banks must hold as reserves in a move to cushion sharply slowing growth.

What it Means: Just as everyone around the world was ready to turn the corner on Covid, another wave in China has the key city of Shanghai moving backward with new lockdowns and restrictions. Shanghai is a vital city not just
to China, but for international distribution. We’ve already seen the impacts Covid can have on an economy and the latest shutdown has economists lowering projections for China’s 2022 growth. With so many companies operating and doing business in China, the latest Covid- related restrictions are sure to impact US stocks in the short term.

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

Elon Musk and the Hostile Takeover of Twitter

In last week’s newsletter, we reported that Elon Musk had recently taken a majority stake in the social media platform Twitter. After stockpiling shares over the last few months, Musk now owns 9% of Twitter, making him the largest single shareholder. Musk has been very outspoken about his love of Twitter over the last several years. He has frequently cited the importance of ‘free speech’ and the key role Twitter can play in this effort.

After becoming the majority shareholder, much was made over Elon Musk joining Twitter's Board of Directors. Since then, Musk has declined his invitation to join Twitter's board. Additionally, he has made several references to potentially implementing his own social media platform, should he and his followers feel it necessary. Since then, Musk has pivoted from his desire to be the top shareholder. Now, Musk is looking to acquire Twitter outright. He recently put in a bid to buy the company for $43B in his latest acquisition attempt.

Twitter Attempts to Fight Takeover

This week we learned that the Vanguard Group had secretly taken over an even larger piece of the Twitter pie. The Vanguard Group now owns over 10% of Twitter shares, making Elon Musk the second-largest shareholder. Further complicating any takeover attempts by Musk. In an attempt to stave off Musk’s latest acquisition attempt, this week Twitter implemented a limited duration shareholder rights plan, often referred to as a ‘poison pill’. This move is commonly done in an attempt to dilute the stake of the entity attempting the takeover.

Translation: The Twitter board has now implemented a new rule that if any person or group were to hold at least 15% of Twitter’s outstanding common stock without the board’s approval, the other shareholders would be allowed to purchase additional shares at a discount. This new plan ensures that if Musk gains an even larger stake in Twitter, the other shareholders will have the ability to fight back by acquiring more shares for themselves. This plan will expire in one year.

What it Means: Twitter may have been in love with all the public attention Musk has brought the platform over the years, but they clearly have no intention of being acquired by the billionaire mogul. With that said, it’s not impossible to see a world where Musk could own one of the largest and most impactful social media platforms on the planet. Investors are certainly interested to hear Musk’s plans for Twitter. Shares of the stock are up nearly 40% in the last month alone!

The NFL’s First Crypto Partnership

The Dallas Cowboys made history this week by striking the first partnership between the NFL and Blockchain.com. Thus, making Blockchain the team’s “exclusive digital partner”. Going forward, Blockchain will be able to take advantage of promotional and branding opportunities while also developing digital assets within AT&T stadium, the home of the Cowboys. The agreement also looks to implement a digital exchange, which would provide unique fan-centric benefits and awards. This may include player- hosted events, video games, and other promotions.

As one of the most valuable franchises in all of sports, the Cowboys are breaking new ground once again. This time they’re doing this through forward- looking strategies by incorporating crypto into their marketing campaigns.

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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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