TFT #81: Reddit IPO, Apple Lawsuit, Germany's Marijuana Legalization, and More
Hello Reader,
In this issue, we cover latest developments surrounding the Reddit IPO, the ongoing Apple lawsuit, the potential ramifications of Germany's marijuana legalization, and more. Let’s get into it.
Fed’s Decision Spurs Market Surge and Speculation
This week, the U.S. stock market witnessed a surge to record highs, following the Federal Reserve's decision to maintain unchanged interest rates, signaling a commitment to its dovish policy stance. Notable highlights include the Fed’s revealing economic projections, Signet Jewelers' indications of a market slowdown, and the anticipation surrounding Reddit’s imminent IPO.
Despite persistent inflation concerns, the Fed’s median projections for economic growth and the Fed Funds rate in 2025 and 2026 saw an uptick, hinting at a potentially robust economy and a shift towards higher rates.
However, while investors initially welcomed the decision to hold rates steady, the Fed’s projection of three rate cuts in 2024 appeared contradictory, given prevailing inflation worries. This discord underscores the market's ongoing uncertainty regarding inflation and the economy’s trajectory.
The Fed’s cautious approach, balancing inflationary pressures with economic resilience, suggests a delicate path ahead for future rate adjustments. Market reactions reflect the nuanced interpretation of the Fed's signals, showcasing ongoing investor uncertainty amidst evolving economic conditions.
Reddit IPO Debut Surges Amid AI Optimism
Reddit Inc. ($RDDT) soared in its stock market debut, with shares climbing 48% above its initial public offering (IPO) price, reflecting investors' keen interest in the company's AI-focused strategy.
The San Francisco-based social media platform closed its first trading day at $50.44 per share, a substantial leap from its IPO price. Reddit's successful listing, raising $748 million, signals renewed vigor in the market for new stock offerings after a period of dormancy.
At the core of Reddit's appeal lies its strategic pivot towards AI-driven growth. Jennifer Wong, Reddit's Chief Operating Officer, emphasized the company's extensive archive of user-generated content spanning 19 years, curated by topic and moderated for relevance. This reservoir of human experience serves as a valuable asset for enhancing chat capabilities and ensuring information accuracy—an aspect that resonated strongly with investors amidst the AI-driven investment frenzy.
Reddit's journey to IPO has been a rollercoaster, reflecting market fluctuations. However, its triumphant listing underscores a resurgence in investor confidence and sets the stage for other tech companies eyeing public offerings.
The company's stellar performance on its debut day, coupled with its strategic direction focused on AI and data monetization, positions Reddit for sustained growth and profitability in the evolving digital landscape.
As with all IPOs, there's limited historical data available for analysis. Therefore, our insights are primarily derived from recent intraday price movements. Following its launch price range of $32-34, the stock surged above expectations, opening at $47. Subsequently, it peaked at $57.80 before retracting to $45, currently trading at $48.42, surpassing the opening price.
Should the support levels at $47 and $45 remain intact, the price may ascend to test resistance levels at $51, $54, and $57. A breakthrough beyond the IPO high could propel it further, encountering resistance at $62, $65, and $68. Conversely, a breach below $45 could indicate a potential 50% retracement, finding support at $43, $39, $36, $32, and $29.
Lululemon Plunges on Weak Guidance Amidst North American Growth Slowdown
Lululemon ($LULU), renowned for its yoga apparel, witnessed an 18% decline in shares following disappointing guidance and sluggish U.S. sales. Despite exceeding holiday earnings expectations, the North American market's growth stagnation raised concerns.
In Q4, Lululemon reported earnings per share of $5.29 and revenue of $3.21 billion, surpassing analyst estimates. However, North American sales only rose by 9%, compared to the previous year's 29% surge. CEO Calvin McDonald attributed the U.S. slowdown to shifting consumer behaviors, emphasizing a focus on international expansion.
While international sales soared, with China and other markets experiencing significant growth, U.S. demand struggles persisted due to product availability issues and subdued consumer interest.
For Q1 and FY25, Lululemon anticipates lower-than-expected revenue and earnings, reflecting ongoing challenges in North America. Despite efforts to diversify and expand product lines, intensified competition and changing consumer preferences pose hurdles for sustained growth.
Investors closely monitor Lululemon's performance amidst industry-wide uncertainties, particularly regarding discretionary spending and shifting consumer preferences. Despite short-term setbacks, Lululemon remains optimistic about long-term growth prospects, emphasizing continued investment in expansion and innovation.
(Disclaimer: LULU is one of the stocks/ETFs we are currently trading/investing)
Volkswagen Expands Partnership with Mobileye for Automated Driving Functions
Volkswagen is poised to introduce new automated driving features in its series production vehicles through an extended collaboration with Israeli automotive technology firm Mobileye ($MBLY). Mobileye will furnish technologies for both partially and highly automated driving, leveraging its SuperVision and Chauffeur platforms.
These cutting-edge systems will be integrated across Volkswagen's luxury brands, including Audi, Bentley, Lamborghini, and Porsche. The collaboration aims to swiftly integrate premium-oriented driving functions into Volkswagen's model lineup.
Among the advanced features are automated overtaking on multi-lane highways, automatic stopping at traffic signals and stop signs, and assistance in navigating intersections and roundabouts. Volkswagen's long-term strategy involves developing its proprietary in-house system, alongside continued partnerships with tech firms like Bosch, Qualcomm, and Horizon Robotics.
Mobileye's contribution extends to providing additional technology components for autonomous driving in Volkswagen Commercial Vehicles. The news has already propelled Mobileye's stock is up 14% this week, signaling investor optimism surrounding the expanded partnership amid broader market challenges.
Technically price is breaking out above $30. If this level continues to hold we could expect price to extend and test upper resistance levels at $32.24, $34.03, $35.92 and go as high as $37.91.
(Disclaimer: MBLY is one of the stocks/ETFs we are currently trading/investing)
Rush Street Interactive Considers Sale, Initiates Talks with DraftKings
Rush Street Interactive Inc. ($RSI) is contemplating strategic alternatives, potentially including a sale, as disclosed by individuals familiar with the matter. Sources reveal that representatives of the company have initiated discussions with prospective buyers, including DraftKings Inc ($DKNG).
A spokesperson for Rush Street declined to provide comments on the matter. Meanwhile, DraftKings stated its policy of refraining from commenting on specific discussions, citing its routine engagement with various entities.
Founded by billionaire Neil Bluhm, Rush Street, headquartered in Chicago, operates brands such as BetRivers and RushBet. It offers online betting services across 15 states and three other nations, reporting a revenue surge to $691 million last year.
Despite its revenue growth, Rush Street occupies a minor position in the competitive online betting landscape, dominated by giants like DraftKings and FanDuel. The company ranks sixth, holding less than 2% market share, per Eilers & Krejcik Gaming.
As Rush Street mulls its strategic direction, its shares experienced volatility, halting trading following news of the potential sale exploration, signaling significant investor interest and anticipation in the industry.
DOJ Sues Apple for Alleged Smartphone Market Monopoly
The U.S. Department of Justice, along with 16 state and district attorneys general, filed an antitrust lawsuit against Apple, accusing the tech giant of monopolizing or attempting to monopolize smartphone markets, in violation of the Sherman Act Section 2.
According to the complaint, Apple wields monopoly power in the smartphone and high-performance smartphone markets, employing its control over the iPhone to engage in various anticompetitive practices. These practices include blocking innovative super apps, suppressing mobile cloud-streaming services, excluding cross-platform messaging apps, diminishing the functionality of non-Apple smartwatches, and limiting third-party digital wallets.
In response, Apple issued a statement to CNBC, arguing that the lawsuit could set a dangerous precedent, hampering its ability to innovate and design technology. The company pledged to defend itself against the allegations.
The lawsuit, if successful, could result in significant changes to Apple's business practices, potentially impacting its "walled garden" model. However, the legal process is expected to be protracted, with years of litigation and potential appeals lying ahead. Apple faces the challenge of defending its business publicly, while also navigating distractions and legal complexities that may arise during the trial.
FedEx Surges on Surprising Earnings Growth Amidst Revenue Dip
FedEx ($FDX) witnessed a notable surge in its stock value after reporting unexpectedly strong earnings for the third quarter of fiscal 2024. Despite a slight decline in revenue, investors reacted positively to the significant earnings beat, driving shares up by 9%.
While Q3 revenue dipped by 1.9% compared to the previous year, this trend aligns with recent quarters and did not overly concern investors. FedEx managed to expand its operating margins for the third consecutive quarter, showcasing its efficiency amidst challenging market conditions.
The company attributed weaker-than-expected conditions in the U.S. and ongoing international softness to the revenue decline. To counteract this trend, FedEx has aggressively cut costs, resulting in margin expansion despite revenue decreases. Moreover, it noted signs of stabilization in shipment volumes compared to the previous year.
Despite postal volume headwinds and uncertainties surrounding the renegotiation of its contract with the US Postal Service, FedEx remains optimistic about its future outlook. A potential new multi-year agreement could streamline its network and better align it with demand.
Analysts view FedEx's performance as impressive, especially given the unexpected earnings growth despite revenue shortfall. This underscores the company's strategic cost-cutting measures and enhanced efficiency. Additionally, FedEx's commentary on volume stabilization contributed to the positive market response, with UPS also trading higher in response.
While challenges persist, including competition from Amazon and uncertainties in global trade, FedEx's resilience and strategic initiatives position it well for future growth. Investors are closely monitoring its performance amid evolving market dynamics and economic uncertainties.
(Disclaimer: FDX is one of the stocks/ETFs we are currently trading/investing)
NIKE Stumbles Amid Warning of Slow Start to Fiscal Year 2025 Amidst Revitalization Efforts
NIKE ($NKE) encountered turbulence following a cautious outlook for the beginning of FY25, despite a positive start with robust Q3 (Feb) results. While the athletic giant posted impressive earnings and revenue surpassing expectations, its forecasted sales dip in the first half of FY25 rattled investors, driving an 8% decline in its stock.
Intense competition, particularly from emerging brands like HOKA and On, poses challenges for NIKE. To adapt to evolving consumer preferences, NIKE is restructuring its product lineup, prioritizing innovation over traditional models like the Air Force 1. This strategic shift, though essential for long-term competitiveness, is expected to impact revenue growth in FY25's early stages.
While management anticipates a rebound in the latter half of FY25, with improved earnings and sales alongside expanding margins, concerns linger over the short-term implications of NIKE's revitalization strategy. Despite encouraging performance in key regions like North America and China, softer results in EMEA underscore the need for agility in responding to market dynamics.
NIKE's initiative to inject freshness into its offerings has garnered positive customer response, particularly in performance footwear categories. However, the urgency to accelerate innovation cycles highlights the company's recognition of the shifting landscape it operates in.
As NIKE navigates through these challenges, the industry's competitive landscape is evolving rapidly, with emerging players poised to capitalize on any market share vacuums created by NIKE's transitional phase. Investors remain cautious amidst uncertainties surrounding NIKE's immediate growth trajectory amidst intensified competition.
Germany's Cannabis Legalization Boosts Canopy Growth's Prospects
Canopy Growth ($CGC) celebrates a pivotal moment as Germany officially legalizes cannabis, removing its narcotic status effective April 1, 2024. This landmark decision not only signifies a significant cultural shift but also offers immense growth opportunities for Canopy Growth in the German cannabis market.
The legalization opens avenues for Canopy Growth to expand its commercial presence in Germany, leveraging its renowned brands like Storz & Bickel vaporizers and Canopy Medical's medical cannabis offerings. For Storz & Bickel, the legalization of recreational cannabis and the projected growth in the medical cannabis market present promising opportunities to expand its product range.
Jürgen Bickel, Managing Director of Storz & Bickel GmbH, expressed pride in providing safe and legal cannabis consumption options to consumers while anticipating substantial market growth.
Moreover, the reclassification of cannabis as a non-narcotic is expected to encourage more patients to explore medical cannabis treatments, benefiting Canopy Medical's offerings and increasing access, education, and awareness in the medical community.
Tara Rozalowsky, Chief Growth Officer & President, International, Canopy Growth, emphasized the company's commitment to delivering high-quality cannabis products and driving awareness through educational initiatives and collaborations with the German medical community.
As Germany embraces cannabis legalization, Canopy Growth stands poised to capitalize on emerging opportunities, further solidifying its position as a leading player in the global cannabis industry.
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