Momentum is Slightly Negative

[Midday Momentum] Tuesday, May 31, 2022 [Momentum is Slightly Negative]( By Garrett {NAME} Improving Sectors: Energy Consumer Cyclical Communications Weakening Sectors: Healthcare Utilities Industrials Watchlist: ARKK, BYND, NKLA, CHPT, MRO, DVN, MPC, XOM, CVX Dear Reader, We saw strong selling to start this day, but market momentum went from Red to Green after the first hour of trading. Then we went negative again around 11:30. I'm hoping that this market holds up for another nine days as we enter the starting point of the Federal Reserve's quantitative tightening (QT) cycle. I have to stay ahead of the trend. So I'm looking at the contrarian case for shipping. One of the things I've preached over the last few months - in this bearish market - is to focus on stocks that are doing well. Shipping, the entire energy supply chain, and packaging are three industries with solid returns over the last month. But there's now a reason to worry about shipping. Inventories at the retail level are out of control right now. In other words, companies now have TOO MUCH inventory. During the recent quarter, The Gap Inc. (GPS) reported a 34% jump in inventories. Costco Wholesale Corp. (COST) saw a 26% jump in inventories during its May-ending quarter. Walmart Inc. (WMT)'s inventories shot 32% higher. And Target Corp. (TGT) year-over-year inventory levels soared by a staggering 43%. Citi said in a recent report that inventories are growing at a faster pace than sales growth. Not good. As companies bought lots of stuff to account for supply chain concerns and inflationary woes, consumer buying patterns shifted during the first few months of 2022. The result is higher storage and inventory management costs, which dramatically impact margins. To offset those inventory management costs, companies will have to sell things for cheaper just to clear the deck and start fresh. So, get ready for some sales. This affects more than just retailers' margins. It will affect their suppliers... it will affect the companies that sent the product and now must wait even longer for payment because of inventory delays... it impacts upstream materials markers. This situation creates The Bull Whip Effect. And it can get hideous. One of the hardest classes I had in business school was operations. No one did well on the supply chain simulations because there would always be a weird month where a sudden spike in demand would fuel you to try to increase your inventory. And if you did that, you'd end up with too much like three months later and have too much that you'd have to sell things at a discount. The people who are COOs today are all MBAs - and they all couldn't figure out what to do. Walmart has something north of $66 billion in inventory, So, how do we trade this situation? This will impact shipping companies - mainly container ships. About 25% of their shipping cargo comes from the top retailers in the nation that currently have too much inventory. It will also affect trucking demand... while potentially reducing any severe worries about port management in California in July. Demand will slow, and the outrageous costs of shipping container space and trucking rates should follow. That will impact margins rather quickly this summer. I'll discuss this issue today, and start to look at ways to trade this trend. Join me [today at 12:30pm right here](. MOMENTUM INDICATOR Broad Market: YellowS&P 500: GREEN Recap: The selloff this morning was concerning, but we pushed back into positive territory after the first hour. This feels like a slow and boring grind right now. So, stick with what's working. We have 129 companies at 52-week highs and all of them are in marine shipping and energy. Did you buy Diana Shipping Inc. (DSX) when it was at $5.60 like we did in the World's Biggest Trade. Because it's up another 6.2% today and the dividend is a mouth-watering 14.6%. Continue to focus on safe trades in the energy space and hot, hot, hot garbage like Ark Innovation ETF (ARKK) and Beyond Meat Inc. (BYND) as the shorts cover their shorts. THREE THINGS I'M WATCHING - Cathie Wood has received a reprieve with momentum turning positive. Wood has now piled into NVIDIA Corp. (NVDA) because it's innovative and will change the world "because of the Metaverse." Forget the fact that Intel's new processor will be faster in two years and ignore that this stock is trading above 16x sales. Just believe in it, okay? The only thing that matters is that momentum has turned positive in what could be a two-week dead cat bounce. I see an upside on ARKK to $53 by June 10. It's currently trading at just over $44 a share. Crazy, right? Remember, this: Cathie Wood was never good at her job. Fed Chair Jerome Powell is just as horrible at his. This market is driven by speculation about the Federal Reserve's monetary policy. 99.99999999% of it. No other factor comes close. - President Biden wants to forgive $10,000 in student loans for every person who makes less than $150,000. Married couples with earnings up to $300,000 could receive upwards of $20,000 in student loan forgiveness. Buying votes is expensive, but this somehow has angered all sides of the political spectrum. This impacts fewer people than one might expect, and the far-left wing believes that the forgiveness number must be at least $50,000. So why not $50 million instead? This is going to hurt Sofi Technologies Inc. (SOFI) and Navient (NAVI). So glad I just finished paying off my student loans. - We'll receive monthly U.S. auto sales and delivery numbers from Chinese automakers tomorrow. Pay attention to Ford Motor Company (F), General Motors Company (GM), Li Auto (LI), Nio Inc. (NIO), and XPeng Inc. (XPEV). Ford is even more in focus as its CEO plans to speak at a conference on the company's focus on electric vehicles. In addition, Bloomberg reports that Ford is now stealing reservations from would-be Tesla owners. Ford will be a hot trade tomorrow... up or down. HOT LONG SHOT Have you taken profits yet on ChargePoint Holdings Inc. (CHPT)? Our June 17 recommendation for the $16 calls is rocking. BUT... the company reports earnings today. I don't want to be exposed to that dumpster fire. And remember, the earnings is jolting the cost of the options. We're up more than 150% on these calls, so stop being greedy. Sell. Amazon.com (AMZN) will split its stock on Friday. All of the other tech darlings have split their stock in the last two years, and it fueled a rally thanks to buying. So, I want to speculate about that weird anomaly. The Consumer Discretionary Select Sector SPDR Fund (XLY) has a weight of Amazon stock around 20%. So, buy an out of the money call with low probability of finishing in the money and look for a rally next week. The $161 call for June 17, 2022 just sold for $1.72. Give it a go. WHAT YOU MISSED The Rangers won 6-2 last night. SIX to TWO. You should watch the game. It was magical. If you want to buy Chris Johnson a Tampa Bay Lightning hat, we'll start a GoFundMe account for him. He is not content with my sheer celebration. I'm going to Game 2 in New York and Game 3 in Tampa. If you don't care about hockey, you can always watch my conversation with Tim Melvin around TFS Financial Corp. (TSFL). The stock is currently trading at $14.81, but Tim has made a compelling case that this thrift conversion will bring the stock up to $40. Watch my previous episodes right here. It's free... and it's fun. Just like rooting against Pittsburgh sports franchises. See you at 12:30 pm for Midday Momentum [in the main room](. 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