The Signal: Whiplash With a Twist

The Market Signal

Last week we discussed the head-on-a-swivel market that complicates active trading – something recurring investments or dollar cost averaging can help alleviate. This week looks to be no different - except for one thing: China. 

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Covid Redux

Two issues complicated the recent market formula: when energy prices rise  – stocks and crypto fall and vice versa. One issue was Covid and the other, war escalation. China implemented a Covid lockdown in Shenzhen, one of China’s larger cities, prompting economic growth worries, and sending oil and energy prices lower. Add to that reports that China was entertaining Russia requests for arms in Ukraine, and assets were on their back foot despite energy price declines. 

Of the more than 330 tech names with market caps above $2 billion, just 35 were positive Monday. The biggest losers were some high-flying solar names that benefited from oil’s previous rise above $110/barrel – itself a key inflection point Mobius Capital Partners’ founder said in early March would be supportive of alternative energy plays. But with oil prices moderating, the shine has dulled. 

Out of style “Covid stocks” like vaccine makers Moderna and Pfizer, recently flirting with share prices near year lows, led large cap names higher. Even tech stock darlings from peak Covid like Zoom, Docusign and Peloton (off the back of its new pricing strategy) saw shares stabilize. Noteworthy given their typically inverse reaction to rising rates – something that has picked up steam ahead of the Federal Reserve decision tomorrow. 

The Shenzhen lockdown put Apple in focus given its major supplier, Foxconn, has facilities in the region. Wall Street analysts though are comfortable that the impact to the iPhone maker will likely be de minimis assuming the lockdowns don’t persist. Chinese equities like Nio, Alibaba and Baidu took the lockdown news hard, as did the China ETF FXI.  However, beat-down stocks, including those in China reversed higher Tuesday amid new signs the Russia/Ukraine conflict wasn’t intensifying and further negotiations were being explored. 

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The Data Signal

Government Meddling

As most assets move in lockstep to oil and flashpoint headlines, there are some other key areas to watch. 

Much like the outcome for crypto in the Biden Administration’s executive order last week, the EU opted against harsh action on “proof of work” cryptocurrencies in its MiCa legislation. At stake, so to speak, was whether currencies would be required to meet an environmental standard, which would constrain many energy-intensive “proof of work” cryptos, leaving only “proof of stake” cryptos in play for most of the EU, a region responsible for 10% of global bitcoin hash power.

The Anchor

And finally, the Anchor Protocol, up 55% in the past 30 days. We’ve briefly discussed how Terra (LUNA) was among the best performing currencies over the past month (up 77%)  following its $1 billion capital raise to, in part, create a reserve for its stablecoin. LUNA was also frequently surfaced in Domain Money’s Signal** product for social sentiment during that span.  Around that time, the Luna Foundation injected $450 million to help support the Anchor Protocol’s 20% yield, a characteristic that has led to its massive popularity as a decentralized finance application that runs on Terra. 

However, that payout rate is below what is currently being earned by the application. A proposal was proffered to help solve this shortfall (by tiering payouts), but ultimately failed.   “It is clear that the protocol needs to be self-sustaining going forward,” Andrew Pesco, Head of investment management at Domain Money said. Most interesting in the debate is that “only in Defi do developers, investors and users have the ability to debate the evolution of a financial application,” he added. The proposal to create different payouts ultimately failed, but Andrew expects a similar proposal to be passed “soon.” 

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* Domain Money Advisors, LLC, an investment advisor registered with the U.S. Securities and Exchange Commission and an affiliate of Domain Money, is currently recommending the following assets contained in this edition of Domain Money’s The Signal as part of Managed Strategies: AAPL, PTON, DOCU, LUNA 

** These measurements were generated by Domain Money Social Sentiment Signal on 3/15/2022 and they fluctuate continuously in response to the various contributing data points and trends. Domain Money Signals are tools that aggregate information related to market sentiment and should not be relied on for investment decisions.  More detailed information about Domain Money Signal is available at https://help.domainmoney.com/en/?q=signal