Stocks Soar, but Supply Issue is Looming

Mar 20, 2022 | What is the huge supply issue on the horizon?

Weekly Newsletter- Week of 3.20.2022

Stocks Soar for Their Best Week Since 2020

Stocks closed out the week hot, with all indexes showing green to close the week. Friday's rally helped stocks notch their best week in over a year. This week's big gains have come as the war in Ukraine rages on and right as the Fed begins to institute their much-discussed rate hikes. The DOW notched higher every trading session this week, making the index a 5-day winner. Meanwhile, the S&P 500 and the tech-heavy Nasdaq continued the good times, notching 5-day gains of over 6% and 8% respectively. This especially strong week for the markets helped all major averages record their best week since November of 2020.

Growing Uncertainty Can't Slow Down Stocks

Even the VIX Volatility Index (used to measure overall volatility and market sentiment) dropped nearly 25% this week! A sign that overall market sentiment may be improving, despite some of the ongoing uncertainties in the world. Investors continue to digest news and updates regarding Russia’s invasion of Ukraine and its far-reaching economic impacts. Additionally, investors were also forced to make sense of the Federal Reserve’s rate increases and don’t look now, but a new Covid variant identified in Europe is once again causing cases to rise.

Regarding the ongoing war, the initial invasion sent panic throughout all markets which led to heavy selling. But this week may have represented a turning point, at least when it comes to the war's effect on the Stock Market. It’s beginning to appear that some of the wider economic impacts of the ongoing war may not be as detrimental as originally thought. Meanwhile, President Biden has been in ongoing discussions with Chinese President Xi Jinping, regarding China’s role in the war. This comes at a time when Russia made a large request for military and economic aid from China. For now, both the United States and China have continued to openly promote peace and immediate resolution.

Russia Avoids Massive Debut Default

Another positive move for stocks came in the form of a $117M bond payment made by Russia this week. This helped avoid what could have been one of the biggest and most historic foreign debt defaults in history. Investors took this news positively as stocks continued their gains following the report.

What It Means: Stocks took home their biggest gains in over a year this week. But these gains were netted as even more uncertainty was thrown into the markets this week. 2022 will be defined by high volatility. Investors may be feeling even more bullish if only one or two factors were working against the stock market today. But unfortunately, we continue to see a growing list of significant factors that could easily move stocks in either direction.

Weekly Swing Trades

PNRG (Prime Energy)

October 2, 2022

Entry Price:

80.62

Stop Price:

76.85

Target Price:

88.04

Time Frame:

1 Week Hold

Expecting a short-term bump after a recent OPEC+ announcement regarding the a supply constraint to oil. The constraint would result in ~1M less barrels of oil per day, which should cause a price jump. Low RSI and bouncing off our 250 day moving average, both hallmarks of a good swing trade.

DV (Doubleverify)

October 2, 2022

Entry Price:

27.75

Stop Price:

26.75

Target Price:

29.00

Time Frame:

3 Week Hold

Using our moving averages heavily on this swing trade, look for continued strength as we try to notch out a 6-8% gain. Specifically, we are taking advantage of of a recent cross over in the 50 day moving average. Last week closed down, so wait for confirmation of a reversal.

Let's add Neon to the List Items in a Shortage

With two of Ukraine's biggest neon producers being forced to halt production, the semiconductor and chip industry may be battling supply shortages for even longer than originally anticipated! Ukraine is a major supplier of neon and accounts for a large portion of the globe's total neon output. It’s estimated that Ukraine exports nearly 50% of the world’s neon and nearly all of the United States import of neon, comes from, you guessed it, Ukraine.

Neon in Chips

Neon is a rare gas that serves as a vital component for creating semiconductors. Neon, along with other rare chip components such as Xenon and Crypton have seen their prices skyrocket as available supply is already proving to insufficiently meet rising demand levels. It’s been reported that around 75% of the world’s neon supply is consumed by semiconductor manufacturing efforts. Neon levels must reach a purity level of 99.99% before being considered ‘usable’ for semiconductors. This has many concerned that if another source of neon were to be secured, it could still take anywhere from 6 months to a full calendar year before production was
certified for sale.

Impact on the Chipmakers

While chipmakers have been forced to adjust their supply issues since the pandemic started, a prolonged disruption caused by Ukraine's halt could have lasting impacts that nobody could have prepared for. Many of the industry's biggest players have identified short-term reserve levels of neon that they had stored away. But prolonged disruptions in Ukraine could have significant impacts on their individual businesses as well. Additionally, China is another key supplier in the global output of neon. Though Chinese prices have been through the roof as of late due to Covid-19 related closures. Should another outbreak of Covid cases arise, or if the war in Ukraine is prolonged, the tech and automobile industry may once again be struggling to complete manufacturing for many of their parts.

What It Means: We’ve reported extensively on the impacts of the chip shortage and even wrote a thought piece on the topic several months ago highlighting the far-reaching impacts of a prolonged supply shortage for semiconductors. Still very relevant today and that piece can be found here. The biggest problem with a semiconductor shortage is that chips are used to power so many devices that we rely on daily. We already saw the impacts of the last chip shortage. Besides making it impossible to buy a new PlayStation, new cars couldn’t be built (among many other things) and thus, the price of a used car went through the roof. Chips power just about all key technology nowadays and it’s vital to understand the impacts of a chip shortage as both a consumer and as an investor.

Ukraine Legalizes Cryptocurrency

The crypto sector is now legal after the Ukrainian President signed the currency into law last Wednesday. The National Bank of Ukraine and the National Commission of Securities and Stock Market will oversee regulatory duties. The legalization comes at a time when cryptocurrency donations have been pouring into the Ukrainian government to help fend-off Russia during wartimes. Crypto donations to Ukraine have now surpassed $55M. The crypto donations received by Ukraine have been used to pay for a variety of items including bulletproof vests, thermal imaging devices, war supplies, and much more. Presidential approval for crypto has been viewed as a huge win for the sector while launching a legal market for virtual assets in Ukraine.

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Weekly Watchlists

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Weekly Review

Market Performance- Week of 09.25.2022

Recent Winners

SBUX (Starbucks)

SBUX (Starbucks)

Entry Price:

85.00

September 11, 2022

Price at High:

89.90

Return for Members:

5.76%

Timeline:

2 Month Hold

Strong momentum over the last few weeks. Watch for a mean reversion, but if moving averages stay consistent look for an early play to open the week.

PNRG (Prime Energy Resources)

PNRG (Prime Energy Resources)

Entry Price:

83.20

September 4, 2022

Price at High:

100.00

Return for Members:

20.19%

Timeline:

3 Week Hold

PNRG had a drawdown to historical levels of support (around the 100 day moving average). Looking to make an entry in the coming days as we also have macro tailwinds with the energy crisis in Europe.

PYPL (Paypal)

PYPL (Paypal)

Entry Price:

87.00

August 28, 2022

Price at High:

103.00

Return for Members:

18.39%

Timeline:

4 Week Hold

Playing off the dip in June, we're starting to see momentum as the 50MA is crossing over the long-term averages. Look to for momentum to continue and an early entry on Monday.

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