Well folks, onto Tuesday we are and despite some disappointing earnings misses yesterday, the S&P 500 tried to hold just below that 4000-point area of value throughout Monday’s session; only now in pre-market trading has the index started to slip with Dow, S&P 500 and Nasdaq futures slipping 30-50 bps each. Read on for our inspiration in this choppy market!
“To win takes a complete commitment of mind and body. When you can't make that commitment, they don't call you a champion anymore.” - Rocky Marciano
Market Talk & Pick #1 - L0ng: Volatility Index (VIX-TVC) | Timeline: 2-3 days
Despite some less than fantastic earnings data yesterday, the market has not been keen to lose this key price level - looking below the S&P 500 has sustained a new bullish price channel that has finally started to cross over the S&P’s 50-day moving average. This is a crucial point for this index as it is also hovering around that 4000-point resistance level, should it be able to cross above with the rest of this earnings season serving as a risk-on catalyst to equities it is likely that the market will continue this run long term.
However, given the flurry of economic housing data being published this week alongside the fact that we believe it will only serve to verify our dire housing assumptions and support a bearish case for the market. This, coupled with the fact that it is also our belief that the remaining Q2 earnings season should continue to be everything less than stellar as analysts have failed to reach any cogent market consensus creates a solid logic for any volatility investor this week. As such, we’re recommending longing the $VIX through the rest of the week as it’s hit quite the low despite the many material unknowns and shifts occurring in the market right now.
Short: Alphabet, Inc. (GOOGL-NASDAQ) | Timeline: 3 days
Alphabet’s earnings, reported post close today, are set to be a disappointment for the company after a dismal quarter for enterprise ad spending. Snap is acting as our canary in the coal mine for this trade, as the company bears many similarities to Alphabet in terms of reliance on digital advertising as a source of revenue. As of late May 2022 our canary, Snap, derives 99% of its income from ads, whereas Alphabet’s ads as a share of revenue sit slightly lower between 83% and 88%. As an insider example of this decrease, Youtubers have been reporting CPM drops of roughly two-thirds over the past year, with one finance channel claiming a video from 2021 with 1.4M views made roughly three times more than a video posted earlier this year with 1.9M. While YouTube is only a fraction of Alphabet’s portfolio, this decline in ad spend is indicative of a rough earnings report. It should be noted that Alphabet has made strides to diversify in recent years, however, it seems like these efforts will be too little, and too late to save the company for this quarter’s earnings report.
Short: Polaris Inc. (PII-NYSE) | Timeline: 1-2 days
Polaris Inc. which designs, engineers, manufactures, and markets power sports vehicles worldwide has reported substandard earnings this morning, giving shorts a stock to potentially capitalize on. The company announced a decrease in sales and earnings per share of 23% and 5% YoY, respectively, driven by continuing supply chain bottlenecks and commodity costs across the globe. Turning to the chart, Polaris bulls have attempted to push the stock over its 200-MA resistance after a death-cross occurred in the latter part of last year - and although the price did break through its key resistance, the MACD had been exhausted to 2.0, making it much riskier for bulls to continue to buy as this MACD has soared way too high considering this stock is in an established bearish trend cycle.
Chart of the Day - Oil and Gas to Tech Ratio Bottoming Out?
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