January 7, 2022

Good morning traders!

Welcome back to The Daily Setup. Markets were down bad yesterday. Here’s what’s on the docket today:

  • Eargo’s criminal investigation turns civil
  • Bed Bath and Beyond misses estimates but surges in stock price
  • Tech stocks continue to tumble

It’s Friday again, so let’s act busy for a bit and cut out early for happy hour.

As always, feel free to reach out at nicke@ragingbull.com if you have questions or suggestions on the newsletter. Have a good weekend.


How’d the markets look?

Market Outlook 👀

DOW 36,236.47 -0.49%
S&P 500 4,696.05 -0.09%
NASDAQ 15,080.87 -0.13%
BITCOIN $43,152.12 -0.35%


Eargo, Tech, and Bed, Bath, and Beyond


Let’s keep things civil

Hearing aid producer Eargo Inc turned up the volume yesterday thanks to an announcement that the DOJ’s criminal investigation has been closed and referred to its civil division. $EAR (of course it is) rose 85% in premarket trading before leveling off to a 59.65% gain on the day. Eargo’s stock tanked 68% in a single day back in September when the criminal investigation was initially announced, so this jump is just playing catch-up.

  • They’re still hurting… bad. Even with this rebound, Eargo’s stock hovers around a pitiful 10% from its February 2021 glory days of $76.52/share. And after news broke that the DOJ was getting their Sherlock Holmes on, the company laid off 25-30% of its workforce due to the resulting dropoff in demand for its products.
  • The exact details of the probe are unclear, but they concern roughly $44M of insurance money Eargo received from the federal government on behalf of its customers covered by the Federal Employee Health Benefits program. It seems that some of this money might have disappeared.

It ain’t over till it’s over. A probe in the DOJ’s Civil division is still a probe, albeit a less ominous one, which injects some inherent noise from a market standpoint. Granted, they can just turn their hearing aids down if they don’t want to hear it. Listening device jokes aside, Eargo’s fundamentals are still strong and before all this probe business, their growth prospects were too. If Eargo ever gets fully out of the woods in the legal department, then to my eyes and ears their potential is there.


Tech takes a tumble

It’s been a rough week for tech stocks. The past few days have seen the most intense market selloff since the 2008 financial crisis, with the Nasdaq incurring its worst daily and two-day drops in nearly a year. Though losses were widespread, the vast majority hit tech as hedge funds continued their December practice of shedding high-growth, high-value assets (i.e software, chip stocks).

  • The driving force behind this overdue correction is likely the Fed’s announcement that they’ll move up the rate hike timeline, potentially beginning as early as March.
  • But among this sea of red, there’s still some good news. Treasury yields rose for the fourth consecutive day Wednesday, causing the 10-year Treasury yield to briefly hit 1.751%, its highest point in two years.

Some sources believe that like all selloffs, this one creates an excellent buying opportunity. In this case, those sources would be playing the long game, because stocks are likely to fall when the rate hikes hit and would only recover after quelled inflation fears improve market sentiment. If I decide to go that route, the lowest-risk options are probably my mainstays with excellent recent growth records, like Apple and Microsoft.


Gonna go to Home Depot, maybe Bed Bath

Beyond if there’s time

Bed Bath & Beyond (BBBY) had itself a nice little Thursday. The company missed revenue and earnings estimates, reported that supply chain disruptions cost them $100M and they struggled to keep items on shelves and that the challenging environment would continue into 2022. So naturally, the stock was…checks notes, up 8% on the day. It appears that those crazy Reddit kids are up to their shenanigans again.

  • BBBY lost $2.78 per share vs. analysts’ expectations of a breakeven quarter, and sales of $1.88B fell well short of the estimated $1.95B.
  • The WallStBets crowd expressed enthusiasm for the company online and might have been working their magic in their Robinhood accounts as the stock was up 23% at one point during the day.
  • I would make a boxing analogy to describe the fight between fundamentals and meme-ability, but the current state of the sport is Youtubers fighting D-List celebrities and former athletes, which may in fact be an appropriate comparison after all.

The Reddit army may be closing in on its next short squeeze target, but BBBY has a lot of short-term and long-term headwinds and a shrinking cash position, so traders may have a ball with the big price swings. On the bright side though, yours truly used an expired 20% off coupon the other day on a wooden pizza paddle to go with my sweet new Ooni pizza oven.

It Doesn’t Cause Black Lung Though

Token Talk

Good news, the country must be out of serious problems because Congress is going to devote time and energy to studying the environmental impact of Bitcoin mining. Computers using electricity to solve math problems is apparently a threat to the Republic, so the Oversight and Investigations Committee in the House will hold hearings to really get to the bottom of things as only they can.

  • The witness list is still being determined and a date for the hearing has not been announced, but late January is expected.
  • Last month Senator Elizabeth Warren sent the CEO of a New York mining firm a letter expressing concerns about energy use, which was undoubtedly sternly worded. Senator Warren also expressed concern that the punch at the homecoming dance was spiked when she was in high school.

Bitcoin has had a rough few weeks and has been on a downward trend lately, hovering around $43K. Increasing regulatory attention is something that traders should pay attention to since Congress is definitely, absolutely, 100% concerned about the environmental impacts of Bitcoin mining and not the potential for competition with the U.S. Dollar.

Breakups 💔 Make Great Television

Rumor has it

The CW Network, which you probably have to look hard for to find in your channel listings, could be up for sale. Current owners AT&T (T) and ViacomCBS are exploring a sale of the jointly owned network and Nexstar Media (NXST) could be the buyer. AT&T has been dismantling its media empire to focus on core internet and phone businesses and The CW could be the next piece to go.

  • The CW is known mainly for its DC comic book properties such as Arrow and The Flash, which we’re told are watched by real human beings. Who knew?
  • Nexstar owns 199 TV stations across the country and operates its own networks such as Newsnation, Antenna TV, and Rewind TV.
  • Other parties may be interested in The CW, but talks with Nexstar are thought to be the farthest along.

This news comes on the heels of AT&T’s deal to combine WarnerMedia with Discovery so media looks to be a hot sector for M&As in 2022. If you hadn’t heard of Rewind TV, a solid few minutes of thorough investigative internet research tells us that it shows classic sitcoms from the 80s and 90s such as Family Ties, Who’s the Boss, and Growing Pains, all of which had absolute bangers for theme songs.

Link Roundup 📿

Other News

Other News Link Roundup

  • Memestocks get memerocked – GameStop, AMC, and others slump in the new year (link)

  • Tricky dick – Richard Clarida’s shady financial dealings are worse than he initially admitted (link)

  • 5G apocalypse delayed two weeks – Verizon and AT&T agree to postpone 5G rollout amidst fears that interference will cause flight delays, crashes (link)

  • Let’s run it back – Banks set to repeat 2021’s M&A boom (link)

  • Funemployed – jobless claims rose to 207k on week ended Jan 1 (link)

  • “I guess The Daily Setup isn’t selling yet” – The NY Times buys The Athletic (link)


How you should treat work today, via @sunday.scaries


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