This Week in Episodic Pivots: Feb 26, 2023
Three new trades this week... Earnings season has given us some great setups
Called it.
Two weeks ago, I posted the chart of the S&P 500 with a likely target for a breakdown. And as shown below, it reached that target on Friday.
I’ve taken the liberty of extending the recent uptrend line as well. This line happens to sit right at the 200-day moving average. This leads be to believe we’ll see a bounce in the market this week.
The bulls must hold these support levels if they want this bull market to continue. This also happens to be about the level where the previous downtrend line would be if it continued.
Often after a breakout above a downtrend line, the price will go back and touch that line… And price usually shoots higher afterwards.
That’s my take on the market right now. A lot of people got scared last week after the Producer’s Price Index (PPI) – a leading economic indicator – came in higher than expected. This means it’s likely we’ll start to see some of this inflation creep into consumer prices shortly.
Investors fear that will lead to the Federal Reserve raising interest rates higher than expected. And those fears were compounded by the release of the minutes from the Fed’s latest meeting. We found out a few members would have supported a 50 bps rate hike last meeting instead of just 25.
It looks like the market is beginning to price in what the Fed has been telling us all along – rates are going higher than expected. And likely to stay higher for longer.
Higher interest rates makes it more likely that something will break… And when it does the fall will be worse than ever. But this disaster is likely still months away.
I’ve talked previously about how the consumer is strong. A lot of people are making more money… And those who aren’t are borrowing more to make ends meet.
It’s these borrowing levels we need to watch closely. And debt, both consumer and corporate, continues rising to record levels. This market won’t break until borrowers start to crumble under their debt payments.
Continue Holding Stocks
Even with the volatility of last week, we only triggered one stop. And that was Didi Global ( $DIDIY ). It dropped precipitously on Friday and we should sell. Unless it opens above $4.20 on Monday morning, sell it. And we’ll take a nice 20%+ profit in this holding. Congrats to anyone playing along with that one.
The rest of the stocks we should continue holding. Our holdings are close to their stops… So if the market turns against us don’t hesitate to sell. But wait for the close to be below our support levels. Don’t panic sell during a trading session (unless the stock is down a lot for good reason).
And now we’ll add a couple more stocks to the portfolio.
Farfetch ( FTCH 0.00%↑ )
Farfetch is an online retailer of clothes and accessories. They sell trendy/expensive clothing online throughout the world.
The company just beat its earnings estimates last week. And this sent the stock up on high volume.
This strength is a good sign the company will be able to meet its revenue targets in 2023 and to become EBITDA profitable for the first time ever.
And the company has easier comparables this year. Russian sales rolled off a year ago and this will be the second year of the Chinese lockdowns. So while they are still fighting these headwinds, we’ll be able to see its growth without those impacting previous year numbers.
Farfetch should have a great year… And they have several new partnerships that will increase their offerings and likely their sales. In the first half of the year they will begin selling Reebok and Ferragamo goods. And in the 2nd half, Neiman Marcus will come to the platform.
In the chart below, we can see the high volume breakout. And it also looks like the MACD is going to turn around, thus confirming the move higher. We’ll use $4.75 as our original stop loss point.
Apollo Medical Holdings ( AMEH 0.00%↑ )
This clinic just released earnings which handily beat estimated. Sales came in at $294 million versus a $246 million consensus print. Massive outperformance.
Not much else needs to be said about that. I like healthcare services as a place for safety in case I’m wrong about the timing of the impending market crash. But AMEH doesn’t need a choppy market to go up.
Just take a look at this chart. Nice breakout on volume after earnings. And we have a tight stop of about 10% with the 50-day moving average.
Kratos Defense & Security Solutions ( KTOS 0.00%↑ )
Kratos is a long-time favorite of mine. I’ve followed it closely for a few years now.
The company is most known for its drones capable of delivering precision missile strikes. The company makes more than that, but that’s what it is known for. I’m honestly surprised this niche of a company remains independent. I could see a bigger defense company gobble Kratos up no problem.
But the company just announced earnings and a new Navy contract last week. This sent the stock higher on the highest volume its seen since last May.
We will be able to keep a tight stop on this one too. Use the 200-day MA as the initial stop loss and watch Kratos fly higher.
And that’s all for this week. Happy trading.
For any questions during the week please tag me in a post on Twitter @BarbellAlpha