Sector Themes In Play In The Markets For 2022

Years like 2021 saw a solid broad-based performance in many stock market sectors. Relatively simple approaches such as Indexing and Sector Rotation did well. But with macro changes in play and many uncertainties for 2022, we may very well see broad indexes underperforming while individual sectors dominated by a few stocks really shine.

Dips will continue to be bought unless something significant changes. But let’s not forget that we’re long overdue for a substantial correction. Significant risk catalysts are:

  • Fed actions.
  • International conflicts (i.e., Russia and China).
  • Pandemic developments that are not currently known.

There’s always the risk of the unknown – the literal definition of a “Black Swan” event. We shouldn’t get too complacent, knowing that we may need to get defensive to protect capital suddenly. When it’s time to be defensive, let’s not forget that CASH IS A POSITION!

Sector theme DRIVERS FOR 2022

Many uncertainties about Covid and the lingering effects on the economy remain. Inflation has roared back to 30-year highs. Strong employment numbers and consumer spending are fueling significant growth in corporate earnings. We also have a shift in bias at the Fed on interest rates and quantitative easing. These are the “knowns” and are theoretically priced in.

For these reasons and more, we should expect more of a “Stockpicker’s Market” in 2022. Certain sectors will do well and weather corrections better than the broader markets.

Even short-term traders can gain an edge by paying attention to what sectors are strongest. Traders tend to benefit most from playing the strongest stocks in the strongest sectors for bullish trades and choosing the weakest stocks in weaker sectors for bearish trades. That “tailwind” can make a significant difference in results.

Let’s look at some sector themes and individual names to keep an eye on in 2022.

ECONOMIC NORMALIZATION

A long-anticipated return to a “normal” economy will continue to be a theme — we just don’t know if that will be Post-Covid or Co-Covid. Or when. Air travel, theme parks, hotels, cruise lines, etc., have all suffered in the persistent Pandemic. What does seem to be changing is the idea of a “new normal” where virus variants may be with us for years to come. We will adjust socially and economically to that for the foreseeable future. DAL, UAL, LUV, AAL are airlines to watch, and the JETS ETF may be a good way to play a general recovery in this sector.

5G INTERNET

The much-hyped rollout of 5G network technology had its share of setbacks and technology disappointments. But 2022 should see the 5G deployment start to take off as technical issues are worked out, and the promise of widespread coverage with transformational performance becomes real. In the background supplying the 5G infrastructure are AMD, QCOM, ADI, MRVL, AMT, XLNX, and KEYS. Along with infrastructure and testing companies, shares of major carriers T, TMUS, and VZ languished for much of the second half of 2021 and looked poised for recovery in the coming year.

ARTIFICIAL INTELLIGENCE

In all its various forms (including autonomous vehicles), AI will remain a developing trend. Big players in the space to watch include MSFT, AMAT, GOOGL, NVDA, AAPL, and QCOM.

EVs and AUTONOMOUS VEHICLES

Electric Vehicles (EVs) are nearing an inflection point where widespread adoption is poised to take off. Technology and cost competitiveness has improved where some EVs will reach price parity with their traditional internal combustion counterparts.

While there are many smaller players in the EV space, automotive stalwarts F, GM, and TM are investing very heavily. TSLA has been grabbing the headlines, but many others want to stake out their territory in the space, including whole tiers of manufacturers and infrastructure enablers like WKHS, XPEV, NKLA, and CHPT.

MATERIALS and MINING

Gold, silver, and related miners underperformed for much of 2021 and now look poised for a recovery year as inflation, and monetary concerns grow. GLD, SLV, GDX, GDXJ, SIL, SILJ look good as both longer and mid-term plays. Metals and miners may get hit initially with a significant downturn in stocks but could ultimately demonstrate their safe-haven potential.

Specific to the growth in EVs, battery technology, etc., copper, lithium, and related basic materials should see stronger demand ahead. FCX looks particularly interesting as a dual play on gold and copper. LIT may be a good ETF play on lithium battery technology.

SEMICONDUCTORS

The market for chips is primed for exponential growth. EV’s have about ten times the number of specialty semiconductors as conventional vehicles. AI, crypto, 5G, mobile devices, and ubiquitous computing should drive growth in the semiconductor sector for some time to come.

REAL ESTATE

Real Estate and Homebuilders should continue to do well while employment numbers remain strong and if interest rates don’t rise too quickly. The inventory shortage in most real estate markets will likely persist well into the new year.

Storage REITs like PSA, LSI, and CUBE have been big winners in the Covid economy and still have room to run.

SUMMARY

Many sectors still look bullish after gains in 2021. But there are “storm clouds” on the horizon, and we must not take future performance for granted.

Lastly, one of the simplest ways to assess how sectors are measuring up is to watch the charts for the S&P SPDR series sector ETFs and a few others. Here are some notable ones to watch:

https://www.thetechnicaltraders.com/wp-content/uploads/2021/12/Dec-31-article.png

These can give us a good starting place to look for leading stocks in winning sectors as the year unfolds.

Let’s remain vigilant for possible market corrections and may the wind be at our backs!

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TheTechnicalTraders.com

 

Tesla Price Prediction: A Blow-off Top Followed by Epic Collapse

  • Hertz Announced an initial order of 100,000 Tesla’s to be filled by year-end 2022.
  • Tesla skyrocketed from a $913-billion market cap (October 22, 2021) to $1.21 trillion.
  • The bullish response added $300 billion, implying a $3-million price tag per vehicle ordered (not sold).

Tesla Daily Chart

Tesla shares skyrocketed above $1000 on the Hertz announcement. Tesla is now worth more than all the auto manufacturers combined. More on that later.

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Tesla Market Cap

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https://ycharts.com/companies/TSLA/market_cap

Gross Profit

Let’s say Tesla makes a generous $20,000 profit per vehicle ($20,000 X 100,000). That indicates a gross profit of $2 billion, far shy of the $300-billion increase. What is going on here?

Ford Motor Company

By comparison, Ford Motor Company currently sports a $72-billion market cap, so Tesla adding $300 billion in market cap is like adding four (4) Ford Motor Companies.

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https://ycharts.com/companies/F/market_cap

Major Auto Companies by Market Cap

Below is a quick rundown of all major auto manufacturers by current market cap. Tesla is worth more than all and sells less than 1% of the vehicles.

With a market cap of $1.21 trillion, TSLA is trading at a 25% premium above all auto manufacturers on the planet!

Tesla looks, acts, and smells like a bubble. The question is…when will it pop?

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For regular updates, please visit here, or follow AG on Twitter at https://twitter.com/ag_thorson

Nikola’s Shares Dip Following Poor Quarterly Earnings

The shares electric car startup Nikola is down by over 10% today after the company reported losses in its latest quarterly earnings.

Nikola Reports Losses In Q2

Electric vehicle startup Nikola Corp. reported its second-quarter earnings earlier today, and it was lower than what analysts had estimated. The shares of the company are down massively since Nikola reported its earnings.

According to its report, Nikola reported a loss of 20 cents per share versus a loss of 29 cents a share. This latest development is a continuation of bad news for the company. A few days ago, a federal grand jury charged Nikola founder Trevor Milton with three counts of criminal fraud for lying about virtually all aspects of the business. He did this to boost the company’s stock sales.

However, Milton had pled not guilty to the charges, and the case is still ongoing. Nikola is looking to dissociate itself from Milton, stating that the founder resigned as the CEO in September last year, and he isn’t involved in the company’s operations and communications since then.

Despite the losses recorded in the second quarter of the year, Nikola maintained that it is committed to reaching previously announced milestones and timelines. It intends to deliver Nikola Tre battery-electric trucks before the end of the year from the company’s manufacturing facilities.

Nikola’s Shares Down By Over 10%

The shares of Nikola are currently down by over 10% so far today. It was trading just above the $12 at the start of the day but lost roughly 8% during the pre-market trading session. NKLA is down by an additional 5% as the US market opened.

NKLA stock chart. Source: FXEMPIRE

NKLA is now trading at $10.43 per share. Year-to-date, Nikola’s stock has posted a loss of over 25%. With the court case against its founder and the poor earnings, it is unclear if Nikola’s stock price would recover soon.

Nikola Slumps After Capital Raising Filing

Shares in electric truck maker Nikola Corporation (NKLA) tumbled 3.75% in extended-hours trade Monday after the company announced through an SEC filing that it plans to undertake a $100 million stock offering. According to the filing, Nikola intends to use the funds raised for general corporate purposes. The company said this may include completing its Arizona manufacturing facility and developing its commercial electric and fuel-cell commercial and hydrogen-station infrastructure.

Despite the company reporting a fourth-quarter loss that came in narrower than many analysts had expected (17 cent EPS loss vs. 24 cent loss), management disappointed investors by not providing further progress about how it’s traveling on turning EV truck designs into sales. The quarter was also marred by fellow automaker General Motors Company (GM) unwinding an equity stake in the company and exiting a partnership to build Nikola’s flagship Badger pickup truck.

Through Monday’s close, Nikola stock has a market value of $6.69 billion and trades over 50% higher over the past year. However, since the company’s latest earnings report on Feb. 25, the shares have shed 13.5%.

Wall Street View

Earlier this month, JPMorgan analyst Paul Coster downgraded Nikola to ‘Neutral’ from ‘Overweight,’ and trimmed his price target to $30, down from $33. The analyst said he thinks much of the good news is already built into the stock but noted that it may rally again later this year as the first fuel cell electric vehicle prototype becomes a reality.

Other analysts covering the stock want to see more from the company before committing to upgrades. Currently, it receives one ‘Buy’ rating and six ‘Hold’ ratings. Twelve-month price targets range from a Street-high $47 to $17 low. Meanwhile, Monday’s $17.06 close sits 49% below the median target price of $25.50.

Technical Outlook and Trading Tactics

Over the past six months, Nikola shares have found support at the crucial $14 support level after steep declines. The recent bounce from this closely watched area also coincides with a cross of the moving average convergence divergence (MACD) indicator to generate a buy signal.

Active traders who enter here should book profits on a move up to key overhead resistance at $29. Consider placing a stop-loss order beneath this month’s swing low at $14.05.

For a look at today’s earnings schedule, check out our earnings calendar.

Nikola Shares Plunge Pre-Market on Founder Trevor Milton’s Resignation

Nikola Corporation’s shares slumped over 30% in pre-market trading on Monday after its founder Trevor Milton announced to voluntarily step aside as executive chairman and from the Board following allegations of fraud and nepotism.

The Board accepted his resignation, and Stephen Girsky, former Vice Chairman of General Motors Co. and a member of Nikola’s Board, has been appointed Chairman of the Board, effective immediately.

Short-seller Hindenburg Research said in a scathing report earlier this month that it had gathered enough evidence to show that Nikola and Milton made false claims about company’s proprietary technology to form partnerships with large automakers, Reuters reported.

The designer and manufacturer of zero-emission battery-electric and hydrogen-electric vehicles has rejected all the accusations and threatened to take legal action against Hindenburg.

“Nikola is truly in my blood and always will be, and the focus should be on the Company and its world-changing mission, not me,” said Milton, who owns about 20% of the stake in Nikola.

“So I made the difficult decision to approach the Board and volunteer to step aside as Executive Chairman. Founding Nikola and growing it into a company that will change transportation for the better and help protect our world’s climate has been an incredible honor.”

Nikola’s shares plunged more than 30% below $24 in pre-market trading on Monday; the stock is up over 300% so far this year.

Nikola stock forecast

Five analysts forecast the average price in 12 months at $55.75 with a high forecast of $79.00 and a low forecast of $45.00. The average price target represents a 63.06% increase from the last price of $34.19. All those five equity analysts, two rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

RBC raised their stock price forecast to $49 from $46 and Wedbush initiates coverage with neutral rating and $45 price target.

Other equity analysts also recently updated their stock outlook. Cowen issued an “outperform” rating and a $79 price target for the company. Royal Bank of Canada issued a “sector perform” rating and a $46 price target for the company. Deutsche Bank issued a “hold” rating and a $54.00 price target for the company. At Last, JP Morgan Chase & Co. raised Nikola from a “neutral” rating to an “overweight” rating and set a $45.00 price target.

Analyst views

“We believe that Nikola is well-positioned to address the growing need for low emissions and zero-emission vehicles in the Class 8 trucking market. The company’s focus on battery and hydrogen technology and use of strategic partners particularly for vehicle manufacturing should allow for a fairly smooth production ramp, in our view,” said Jeffrey Osborne, equity analyst at Cowen and Company.

“Longer term we see the company evolving into a more broad-based energy technology company as hydrogen fueling infrastructure is slowly built out,” Osborne added.

Upside and Downside Risks

Upside: 1) A faster ramp of production in Ulm, Germany at Iveco to achieve 1H21 production and Coolidge, AZ facility starts production faster in 2022. 2) Less dilution or debt needed due to finding a funding partner for hydrogen station rollout. 3) Faster gross margin profitability after the start of production. 4) Commercial launch of the Badger pickup through a partner, highlighted by analysts at Cowen.

Downside: 1) Ramp-up of production in Ulm, Germany is not successful. 2) Greater dilution is needed for funding needs of stations and lower output from Germany and Arizona. 3) Elongated period of negative gross margins in production.

Check out FX Empire’s earnings calendar