Happy mid-week Coachmen, we hope that it won’t be filled with midday market madness. As much as we’d like to pretend it won’t, the notes from the FOMC meeting at the start of this month will be released at 2 pm today. While these notes are just the summary of the factors that led to the decision of a 50-point rate hike, oftentimes these notes can reveal how each of the FED board members envision the current economic trends. Additionally, from these minutes one can begin to understand how united, or divided the Federal Reserve board is. As for our trade ideas thus far, both Amazon and Zim have been following our predictions!
“No one is going to come help you. No one’s coming to save you”
- David Goggins
Going off the theme of our quote today, we must remind you that central bankers will be releasing more plans about rolling off the Fed's $9 trillion balance sheet — known as quantitative tightening in the next week or so. That being said, markets have continued to sell off, with tech being hit the hardest as SNAP and other social media companies have been dragged down by the news. This contagion has also spread to other high growth staples including Block Inc, and Uber, while also affecting tech giants Google and Amazon, making for a choppy market overall through the next few days.
Short: Shopify Inc (SHOP-NYSE) | Timeline: 2-5 days
While Shopify did manage to push their infamous P/E ratio to double-digit numbers during 2021, it has since ballooned to an eye-watering 224.8. Even after a >75% decline YTD, this ratio suggests that the stock still has a long way to fall. After a fantastic revenue growth during the first three quarters of 2021, Shopify has been suffering immensely over the past two quarters, posting back-to-back losses amounting to over $1.84Bn. These losses foreshadow a larger, more menacing trend set to affect every industry that requires disposable income to stay afloat. As we’ve often mentioned, consumers will curtail disposable spending before reducing essentials. Since the majority of Shopify’s paying clients are marketing these non-essential goods, subscription fees, and commissions are poised to fall. The technicals aren’t on Shopify’s side either, with momentum sitting at just under -455, MACD lower than -225, while the stock is trading far below its moving averages.
Short: Alibaba Group Holdings Ltd. (BABA-NYSE) | Timeline: 3-5 days
Alibaba Group Holding Limited (BABA), through its subsidiaries, provides technology infrastructure and marketing reach to merchants, brands, retailers, and other businesses to engage with their users and customers internationally. Alibaba is set to deliver Q1 2022 earnings in the pre-market on Thursday, and as they come against a backdrop of a contracting Chinese economy, supply chain woes and the recent zero-COVID lockdowns, Alibaba is a great short opportunity. Taking a look at the chart, Alibaba has experienced a sliding share price starting after a death cross at the beginning of 2021 - most likely due to governments beginning to lift Covid-19 restrictions as businesses return to in-person shopping, making Alibaba a less essential to one’s business. Moreover, price action has recently formed a descending triangle - a bearish continuation pattern giving consolidation at a price level while also under high sell pressure.
Chart of the Day: S&P 500 - Longest Consecutive Down Weeks (1928-2022)