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I'm Treading Carefully Entering 2022 as Many Momentum Stocks Remain Bearish

Cannabis is about the only space where I'm long, and that isn't for technical reasons.
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Nearly every trader I speak with believes stocks, or at least the S&P 500, will rally to start the New Year. Popular opinion seems to be that the index will surge by 2% or 3% in January and then fizzle in February and into March. I won't argue with this prediction because, according to the folks at Yardeni Research, the S&P 500 tends to gain more than 1% in January, lose a fraction in February and gain around 0.5% in March. However, it's worth noting that many high-growth momentum names remain in bear trends.

Take a look at Unity Software (U) .

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While Unity is one of my go-to names for metaverse speculation, the stock is still beneath its short and intermediate time frame moving average. Trading anything long while it's beneath its 10-day and the 21-day exponential moving average (EMA) is risky at best. And as long as price is beneath the 50-day simple moving average (SMA), it's best to assume that sellers will re-enter the auction after multi-day rallies.

I've got plenty of charts that look just like Unity.

Look at CrowdStrike Holdings (CRWD) , Snap (SNAP) , DigitalOcean Holdings (DOCN) or Teladoc Health (TDOC) . The patterns are all similar enough to be labeled the same. Heck, save yourself a few clicks and just look at the ARK Innovation ETF (ARKK) . And while I believe each of these stocks could be great long term, they're bearish in the short and intermediate term.

Aside from two long-term portfolios, one dedicated to dividend growth stocks and the other holding the AdvisorShares Pure US Cannabis ETF (MSOS) and more speculative cannabis multi-state operators (MSOs), I'm entering the year flat. And based on how the stocks I typically like to trade ended 2021, an empty blotter is where I want to be.

And just so there's no confusion, my long position in the cannabis space isn't based on technicals. Almost every MSO chart looks atrocious. But like many investors, I see the valuations, growth rates and addressable markets of the MSOs and can't help but roll the dice. 

At the time of publication, Byrne was long MSOS and individual MSOs.