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Retail markdowns...

Happy hump day folks! The first half of the week has continued to let the rally roll, with the market up another 46 bps by close - this extended to our picks, which were led by our short on Sea Limited, returning 14% yesterday. Read on for your daily dose of market inspiration!


“You can accomplish by kindness what you cannot by force.”

Publilius Syrus


Market Talk

As the market advanced again yesterday, the S&P 500 is now broaching another key resistance level as it closed the trading yesterday at a staggering 4305 points! In fact, the market just touched its 200-day MA, but experienced minor price rejection of the upper level as outlined by the wick on the most recent candle of the chart below. Furthermore, the RSI has been creeping into its higher bound and unless the market can breakout above today or tomorrow from this resistance level, will likely pull back into a price channel between the 200 day moving average and the 4000 point psychological level.


Short: Target Corporation (TGT-NYSE) | Timeline: 3 days

Target Corporation, which operates as a general merchandise retailer in the United States has reported its second consecutive significant earnings miss this morning as deep discounts to clear slow-moving inventory in apparel and electronics, high levels of inflation from vendors, and more cautious consumers led the company to miss earnings estimates by 50%. Turning to the chart, Target has had a rough 2022 so far, and with the most recent announcement, bears are bound to regain strength after what was once an optimistic Q2 for Target investors. As the stock has continued to retrace upwards, the MACD has entered extremely overbought territory, and a rising wedge has formed.


Long: ZIM Integrated Shipping Services Ltd (ZIM-NYSE) Timeline: 2 Days

ZIM Integrated Shipping Services Ltd, an Israeli-based company, reported earnings in the premarket this morning. While the company missed earnings targets, we believe that the drop in the premarket is over-exaggerated and as such there is room for a profitable trade. The largest loss for the company was the 7% drop in twenty-foot equivalent units(TEU), or containers shipped relative to last year. Although the company missed the targets set by the street, many of the company's core revenue-driving metrics have increased by double digits. These include EBITDA, which increased 57% YoY, revenues topped $3.43Bn representing a 44% increase, net income jumped to $1.34Bn representing a >50% increase from Q2 2021, and although their TEU freight declined in volume, the average freight rate increased by 54% YoY. This all culminated in what CEO Eli Glickman calls “our best ever first half-year results”. In terms of the technicals, after experiencing a death cross in mid-July, the company has recently rebounded above its 50-day MA and has been bouncing up off of the 50-day, with significant room to gap up to the 200-day which currently rests at just over $59.02. Momentum and the MACD are currently on the company’s side, currently sitting at .87, and .72 respectively after a near continuous climb upwards from mid-July onwards. While many bears will be spinning a story of woe to come, the company reaffirmed their guidance for 2022, while also announcing that it will increase its dividend to 20- 30% of net income, with the potential to raise the dividend up to 50% of net income, providing a potential cash bellwether as investors seek shelter from a volatile market.

As the chart above displays, there’s currently an excess supply of new homes on the market not seen since 2007. As these homes make up the bread and butter of TMHC’s business, we can expect diminishing returns going forward. Additionally, this morning the seasonally adjusted building permits and housing starts report was released with mixed results. Building permits came in at 1.67M, above forecasts of 1.63M, while housing starts were only 1.45M compared to a forecast of 1.52M. This signals that developers have plenty of access to land and the go-ahead to start construction, yet many are holding back as they wait to see how the remaining months of the year pan out before the main spring building season. In terms of the technicals, the company is currently trading in a band between its 50-day, and 200-day moving averages after experiencing a death cross in April of this year. TMHC has been rejected from the 200 MA level throughout the trading sessions of the past two weeks, we believe that it will not be able to break through this week especially as mixed economic data continues to trickle in. This thesis is further supported by the recent drop in the company’s momentum which currently rests at -0.24.


Chart of the Day - The Rally Builds

The S&P 500 has had its fourth straight week of gains, the longest such run since November.

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