Can time really be a flat circle?
Yes, and in this market, time has circled back about 50 years, where the similarities to then and now are noticeable – and alarming.“One for can be forgiven for thinking they have woken up and it is the 1970s all over again,” said TheStreet’s Bret Jensen. “About the only things missing are the bell bottoms and the Eagles, CCR, Stones and Zeppelin dominating airtime on the radio.”
Jensen points to a full-scale invasion by Russia of one of its neighbors, just like five decades ago.
“The major cities continue to experience fast rising murder rates, we are nearing a full-blown oil crisis and there were over 100,000 overdose deaths in the country last year,” Jensen said. “I fully expect the next address from the Oval Office to the American people, the POTUS will be wearing a sweater and the term "malaise" will make it into the speech somehow.”
Additionally, the nation is experiencing the highest level of inflation it has seen in four decades.
“The Federal Reserve is between a rock and a hard place as it needs to start to lift interest rates to thwart inflation but right as the economy is starting to turn over,” Jensen added. “Paul Volcker unfortunately is nowhere to be found this time around.”
The third sign of a 70’s apocalypse is stagflation.
“As we speak, The Bloomberg Commodity Index, an index of raw materials, is set for the biggest weekly gain since 1974, around the time of the original OPEC crisis,” Jensen said. “The escalating situation in Ukraine is exacerbating price gains for many commodities including fertilizer, aluminum and coal, and the largest nuclear plant in Europe is now in Soviet, excuse me, Russian hands.”
Jenson’s been warning investors from the beginning of this crisis that investors were much too complacent around the events in the eastern part of Europe.
“Those fears are now coming home to roost,” he said. “I can't currently envision a scenario where the continent averts a recession which could be a major one depending on events. Rising gas prices and more impacts to an already challenged supply chain could also see the United States having at least a quarter of contraction at some point in 2022.”
While the world runs it back to five decades, the stock market runs on its own schedule – and usually ahead of an investor’s big trading idea. TheStreet’s market mavens are here to help, with a look at these “buy the dip” stocks this week.
Costco Wholesale $523.50. 5-day performance 1.55%.
Costco (COST) - Get Costco Wholesale Corporation Report stock has been sliding on earnings, but slivers of sunlight are piercing through on the big box retailer. TheStreet’s Bret Kenwell has a few ideas on how to trade it right now.
“Costco is looking to escape this week without too bad of a trading cycle,” Kenwell said. “Shares are currently down almost 4% after the retailer reported earnings.”
The earnings numbers were a problem for Costco, as investors expected more robust numbers.
However, the stock rallied for six straight sessions coming into the report, climbing more than 10% in the process. That’s despite market-wide volatility wreaking havoc on most individual stocks. The company beat on earnings and revenue expectations, but was cautious about supply chain headwinds pressuring margins going forward.
“Consequently, the stock is not cratering, just dipping,” Kenwell said. “The results were strong and the stock ran hard ahead of the news.
Costco did trade up after hitting a recent trough on Feb. 24. Shares exploded off the lows, which was significantly above the January low, unlike most other stocks.
Further, shares rallied hard for six straight sessions and temporarily pushed through the $534.24 level. That was a key level because it was the January gap-fill and the February high.
“It’s healthy for Costco stock to pull back after such a strong run, but bulls need to see some support come into play,” Kenwell said. “Specifically, I’d love to see the $515 to $520 area hold. Above $525 is even better.”
Should Costco ultimately hold strong, Kenwell notes, it keeps the $534 level in play, as well as this month’s high near $539. Above that would open the door to $550, then potentially all the way up to the $565 to $570 area.
“However, the downside is where bulls need to be focused too, because the stock can continue lower if support fails,” he said. “In that scenario, keep an eye on $504 — the 61.8% retracement from the recent high to the February low — then $500.”
“Below $500 would open the door to uptrend support (blue line), followed by the February low near $483 and the 200-day moving average,” Kenwell added.
Coinbase $163.77. 5-day performance (-) 6.27%.
Coinbase Global (COIN) , a cryptocurrency exchange, is trading at $164 per share, and is in a downward spiral.
In the last week, COIN’s share price slid by 6.27%. The stock is down 14.76% over the past month, and is down 34.32% over the past three months.
TheStreet’s Paul Ginesin has a theory about Coinbase, specifically, and on IPO stocks in general.
“Investors are often seduced into buying hot IPOs of companies with new business models that show signs of hyper-growth,” he said on Real Money. “However, when they come public, it's often hard to discern if the IPO coincides with the exact moment when growth is at its peak or if growth is enduring. Wall Street usually chooses the latter and extrapolates growth well into the future.”
A big part of the problem is with cryptocurrency demand and performance.
"Given Coinbase transactional revenue is highly sensitive to retail sentiment, we are especially concerned that retail interest in crypto assets may be lower in 2022 than 2021 on the back of lower price momentum in underlying crypto assets,” Needham & Co. stated in a recent research note. “We are lowering our 2022FY revenue estimates from $8.38Bn to $6.77Bn given increased headwinds around crypto asset price activity, increasing competition from crypto native exchanges in US markets, and increasing uncertainty related to rising interest rates, and growing geopolitical and economic concerns which could dampen crypto activity."
Shares of Coinbase are highly correlated with the price of bitcoin. Even so, Ginesin expects the stock to underperform the cryptocurrency this year due to much higher expenses. “Stock-based compensation alone is expected to hit $1.5 billion, almost 4% of Coinbase's market cap,” he said.
Granted, Coinbase is diversifying its revenue base with new products and it will benefit from a growing subscription and services revenue. Is that enough for buyers to bite? Not really, Ginesin said.
“With Coinbase's EPS expected to plummet this year to under $4, down from $14.50 in 2021, the company looks to have come public at an optimal time for sellers,” he said.
Meanwhile, after having made a sensational entry into the homes of households following its big publicity effort during the Super Bowl, the company finds itself in a delicate position with little wiggle room.
“The U.S., the European Union, the U.K. and their allies have imposed financial and economic sanctions on Russia, President Vladimir Putin and the oligarchs close to him because of the Russian invasion of Ukraine,” said TheStreet’s Luc Olinga.Faced with this financial strangulation, many experts say, the ultra-rich Russians and their families will transfer their assets to crypto to circumvent the sanctions.
“That's because the restrictions do not affect digital currencies, which are in essence beyond the reach of the authorities until and unless they are converted to dollars or other main fiat currencies,” Olinga added.
Bitcoin, the largest cryptocurrency by market value, was recently trading around $41,281, according to CoinGecko. Prices had fallen to around $35,000 during the first Russian strikes on Ukraine.
No surprise, then, that calls on crypto exchanges to block the accounts of Russian users have multiplied. They came from the Ukrainian authorities and from politicians like former Secretary of State Hillary Clinton, as Rob Lenihan from TheStreet wrote.
“But so far crypto exchanges are largely resisting, breaking with the traditional finance that they intend to disrupt, or even replace,” Olinga said. “They've responded in part, donating large sums to Ukrainians, but the pressure on them has not eased.
In an attempt to contain the discontent, Coinbase Chief Executive Brian Armstrong, now seen as the face of the crypto exchanges, is stepping up to defend the position of his platform and reiterate what his peers have been saying for a few days.
"We don't think there's a high risk of Russian oligarchs using crypto to avoid sanctions," Armstrong posted on his Twitter account. "Because it is an open ledger, trying to sneak lots of money through crypto would be more traceable than using U.S. dollars cash, art, gold, or other assets."
SoFi Technologies $10. 5-day performance (-)0.28%.
TheStreet’s trading ace Bruce Kamich thinks so.
“In our Feb. 11 review of SoFi Technologies (SOFI) we wrote that "It looks like SOFI has made a low for now,” Kamich said. “In the short-run prices could make a bounce to the $16 area, but ideally, I would like to see SOFI trade sideways and build a base that could support a sustained advance. Scalpers could buy SOFI at current levels for a bounce. Risk to $11.05."
However, SOFI declined to the $9 area before bouncing.
“SOFI trading volume has been heavy since the middle of January, suggesting some change in ownership from weak hands to stronger hands,” Kamich noted. The On-Balance-Volume (OBV) line is still in a decline from November telling us that sellers of SOFI were more aggressive than buyers.”
Additionally, the 12-day price momentum study shows higher lows from early December even as prices made lower lows. “This is a bullish divergence and tells us that the pace of the decline slowed from December,” he added. “Bullish divergences can at times foreshadow price rallies.”
Overall, SOFI charts still suggest a stronger rebound in the near-term but a short-term dip to $11 is possible before renewed gains (a sell-side firm downgraded the stock). “Traders could try to buy a dip to $11 risking just below $9.50,” Kamich said.
By Brian O'Connell (Thestreet.com)