On March 18, 2020, AutoNation (AN) plunged 17.88%.

As we reflect on the COVID-19 crisis, that was the final day of a brutal weeks-long slump for the new and used auto retailer.

Shares had traded at $48.44 on Feb. 24, just four weeks prior. But on this day, shares slumped to $22.55.

If you think back to that date, the crisis had reached its worst point for the markets. Investors had no idea what to do. So Americans yanked their life savings out of banks and started putting them under the mattress.

Minneapolis Federal Reserve Bank President Neel Kashkari recounted on “60 Minutes” that month that one man walked into a regional bank and asked to withdraw $600,000 in cash.

At the time, the world was in a panic. Stocks across the board plunged as investors worried about the state of the U.S. economy, the prospects of widespread shutdowns, and limited market potential. Following the Fed’s massive capital injection, markets started to rebound and didn’t slow down.

The automotive sector — largely left for dead — experienced a resurgence.

And when COVID-19 supply chain challenges fueled shortages in automotive parts in 2021, AutoNation became one of the sector’s top-performing stocks.

Today, I want to recount what is happening in this sector and why it’s important to follow technical tools to identify buying opportunities in the wake of a crisis.

AutoNation’s Recovery

Back in March 2020, AutoNation faced grim prospects. The company operated more than 300 auto dealerships across the country. Despite having a solid reputation for managing costs and driving revenue growth, analysts raised severe concerns about the company’s short-term and mid-term finances.

In 2020, the company generated about one-third of its revenue from used vehicles. However, prices of used cars collapsed at the onset of the COVID-19 pandemic.

Rental car companies — spooked by the prospect of slumping business and personal travel — began auctioning off vehicles in a fire sale. Investors were also concerned that rising unemployment could fuel auto credit defaults or limit new auto purchases.

Given that AutoNation also generated a large stake of revenue from luxury vehicles (roughly 33%), the thesis went that Americans would stop buying expensive cars and cut back on their spending.

AutoNation engaged in a significant round of job cuts. It reduced advertising and moved to control costs. These cost efforts proved to be a catalyst for the company.

As 2020 dragged on and the Federal Reserve showered the economy with cash, concerns about consumer credit dissipated. And Americans, flush with cash savings, started to buy cars once again. Tack on low interest rates, and the start of 2021 proved to be favorable for AutoNation.

Enter the Supply Chain Crunch

During the COVID-19 crisis, auto companies dramatically cut back on their production expectations for the end of 2020 and into 2021. As a result, auto manufacturers cut back on orders for headrests, plastics, vehicle components, and most of all, semiconductors.

The average new car has more than 100 semiconductors in it. And with demand from the auto industry expected to fall, chip manufacturers conditioned their plants to focus on chip production for the video gaming, cell phone, and computing spaces.

So, when 2021 started, investors started to realize that supply chain shortages were on tap. The global shortage of semiconductors hit the automotive industry especially hard. It was so dramatic that used cars sitting on the lot started to appreciate. With fewer replacement parts available for traditional maintenance, the cost of everything inside of a car started to increase.

As a result, so did the value of new cars, which experienced significant production delays. Meanwhile, COVID-19 served as an incredible catalyst for changes in population behaviors. More Americans were leaving the cities and moving to the suburbs, where automobiles are nearly always required.

And with interest rates still well below where they sat in 2019, automobile demand continues to rise. This combination of trends, aided by a rock-solid balance sheet, has made AutoNation one of the top-performing stocks in the automotive sector.

And analysts anticipate that the company will hit new all-time-high revenues and earnings in 2022. In addition, the ongoing supply chain shortages are allowing the company to raise prices in a time of high consumer demand.

When to Buy AutoNation

A vast number of unforeseen catalysts have driven AutoNation to recent highs of $125.01 per share. TradeSmith Finance currently rates the stock as a “buy.” It is in the Green Zone and has upward momentum signals.

But the right time to buy AutoNation was actually on Aug. 19, 2020. That’s when the stock officially flashed its buy signal. At the time, it was trading at roughly $56 per share, meaning it has more than doubled since entering our buy zone.

This is another reminder that the tools in TradeSmith Finance can help investors identify breakout stocks and breakout trends long before they reach the front page of Barron’s or the Wall Street Journal. Of course, robust and positive momentum captured by TradeSmith Finance might not give you the exact reason why the market is pouring into a stock. Still, it can capitalize on the wave of capital entering a position.

Many people look back on trade opportunities with regret and wonder how they missed a company like AutoNation. However, TradeSmith Finance is forward-thinking and helps you identify the trend over time.

Yesterday, I talked about the curious things happening with the White House’s quest to increase electric vehicle production and mining of battery minerals like lithium to meet the goal.

The president recently set a mandate for half of all new vehicles sold in 2030 to be powered from non-carbon-based fuels. In addition, the White House has a task force that aims to increase private investment in lithium and other rare earth metals for production.

As I noted, the problem is that the Fish and Wildlife Service, also part of the Biden administration, is pushing to put a rare flower on the Endangered Species list. If that happens, it could shut down the production of a massive lithium mine because the flower grows on that land.

This is a classic case of environmentalism clashing with economic interest in the United States.

But long before the lithium wars began between environmentalists and miners, there existed a massive battle to limit U.S. oil and gas production.

If you think the lithium story is bad, wait until I show you what just happened over oil production here in the States.

Gasoline Prices on the Rise

As you likely know, gasoline prices continue to rise across the United States. On Aug. 12, the average price for a gallon of regular gas sat at $3.18, according to AAA. Compare this to a year ago, when the average price was $2.17.

The Biden administration is quite aware of the impact of rising gasoline prices. If prices continue to rise, it will increase the cost of other goods, weaken the U.S. economic recovery, and raise new concerns about supply in the market.

Naturally, the solution is to increase production here in the United States, right?

The plan is the opposite.

According to reports, the administration asked members of OPEC — a cartel of energy-producing nations like Saudi Arabia, Iran, and Iraq — and other oil nations like Russia to increase production and ship more crude to America.

If that makes your head spin, I understand.

But there is a bit of method to the madness.

You see, OPEC alone controls about 50% of the global oil output and nearly 80% of the proven reserves of crude oil. As a result, OPEC is the primary driver of Brent crude oil, the worldwide benchmark for prices.

If OPEC continues to suppress output, it will drive up the cost of domestic crude oil here in the United States. West Texas Intermediate crude – the benchmark at the NYMEX trading center in New York – reacts to the price movement of Brent crude.

But the entire situation creates a string of headaches for bureaucrats in Washington.

Public officials are trying to toe the line between environmental activists (who want the oil to stay in the ground, and lithium, too) and economic interests. The Biden administration said yesterday that it “wants Americans to have access to affordable and reliable energy, including at the pump.”

The key issue that the administration fails to remember is why OPEC exists in the first place.

OPEC Will Ignore Biden for Now

OPEC+ unites 23 oil-producing nations with one goal in mind: to limit production in a way that creates the best price possible for their balance sheets. They are colluding to ensure that no single country increases production to take advantage of higher price moves. Thus, they are effectively engaging in price-fixing.

And if you’re a small country that relies on oil production to fund social programs or finance existing debt, you want the largest producers like Russia and Saudi Arabia to cooperate.

If you have a choice between producing 500,000 barrels at $60…

Or 450,000 barrels at $70, which do you choose?

The answer is the second choice.

That generates more money for the nation’s coffers.

Even though you produce 50,000 fewer barrels as part of an agreement, you would generate much more money thanks to the higher price.

OPEC has already said that it will increase oil production in the near term, but it’s not going to increase production levels dramatically just to be nice to America.

Other nations are coming out of a massive coronavirus-induced slump as well. As a result, market analysts don’t believe there will be enough global oil production to meet rising demand across the United States and Europe, one of the reasons why some analysts are still sticking to $80 price targets on oil for later this year.

The Biden administration has not called on U.S. producers to increase output yet.  However, the administration has launched an investigation claiming that there may be anticompetitive forces driving up the cost of gasoline.

But once again, we see the difference between environmental activism and economic priorities.

The White House has already halted new oil and gas leases on federal lands, eliminated the Keystone Pipeline after nearly 12 years of debate, told federal agencies to eliminate subsidies for fossil fuels, reversed methane regulations, and demanded that the SEC create tools to mandate climate disclosures. These are all dramatic efforts to curb emissions in favor of environmentalist policies.

We know from the lithium situation we discussed yesterday that you can’t have it both ways. The call for more oil production comes just two days after the United Nations issued a dire warning on climate change.

The problem with all of this is that it continues to send uncertain signals to the stock market.

That’s especially true for domestic oil producers. Oil analyst Ellen Wald of the Atlantic Council recently told Axios that the climate agenda is making U.S. producers anxious about increasing production.

“There’s regulatory uncertainty, and there’s just this idea that they’re going to be met with resistance from the Biden administration. And so that’s keeping a lot of producers from producing, which keeps American production down,” she told the media outlet.

As Axios then noted, OPEC now has more leverage over U.S. gasoline prices.

We’re likely heading toward higher gas prices at the pump due to this ongoing battle between environmental and economic interests. We’ll look for unique ways to make money on this trend, but we have to be cautious.

With the administration constantly changing the discourse, the risks only increase for all parties.

I’ll be back on Monday to discuss another area of inflation. More importantly, we’ll look at one company bucking the trend and delivering investors huge profit potential.

On the edge of Death Valley, a major standoff over energy policy has ensued.

Environmentalists are staunchly opposed to the exploration of a rare commodity.

Proponents of the commodity’s production argue that extracting it from the ground will be essential to U.S. energy security and independence in the 21st century.

You might hear this debate and think: he’s talking about oil and natural gas, right?

Wrong. This commodity is the world’s lightest metal and the 25th most common element in the earth’s crust.

Yet, ironically, this metal could help achieve the very thing that these same environmentalists want.

A carbon-free future.

A few years ago, an Australian mining company targeted a vast Nevada treasure trove of lithium, a necessary component to batteries in electric vehicles (EVs).

Even though lithium is the critical component of battery technology for electric vehicles…

And even though the value of the U.S. lithium mine would be worth $1.265 billion and help the U.S. reduce its carbon footprint…

Environmentalists are pressing back.

They want to save a rare type of flower from extinction, an event they argue would happen if the Australian company constructs its new lithium mine.

The ongoing battle raises new questions about how and where the U.S. auto industry will access the necessary lithium to meet new mandates from the Biden administration.

Today, I want to explore a straightforward question. Is there enough lithium to go around?

The Battle Over Buckwheat

I wasn’t kidding when I said that a flower is at the center of debate in Nevada and its lithium mining future.

Roughly 40 years ago, people discovered a rare plant called Tiehm’s buckwheat. The fascination around the plant is that it has survived in this remote desert in extremely nutrient–deprived conditions.

As California and Washington state are phasing out gas–powered vehicles and Washington, D.C., is setting new mandates on the auto industry, this debate over a plant seems quite silly.

It’s only about five inches high, and it’s one of 80 different buckwheat species. It looks like a dandelion.

But environmentalists claim that this plant cannot grow anywhere else in the world. And they argue that mining lithium in Nevada would drive it to extinction.

According to the Center for Biological Diversity, a new lithium mine would affect the soil where this rare flower lives. The group argues that the mine would eliminate 60% of the plant’s habitat when phase one of the mine begins. It further contends that phase two of the mine would wipe out up to 90% of the plant’s habitat.

Conservationists are studying the plant to determine if it can be transplanted somewhere else to grow and thrive. However, research at the University of Nevada, Reno, suggests that the plant can only grow in this specific soil around the proposed mining site. 

Here’s the kicker.

The Biden administration, under the Fish and Wildlife Service, has proposed a petition that would classify the plant under the Endangered Species Act.

If this plant is declared an endangered species, it will wipe out one of the few places we know in the United States to produce lithium.

The action would also fly directly in the face of a massive federal order by the Biden administration in recent weeks that will require more lithium than ever to reduce carbon emissions from gas-powered engines.

The Biden Administration Presses EV

This week, the U.S. Senate passed a $1.2 trillion bill that would dramatically increase spending for roads, bridges, electric charging stations, and other infrastructure. President Biden has pressed for infrastructure programs since his inauguration.

But there was another action in Washington that shows the Biden administration’s goal of changing the future of vehicle travel. The Biden administration signed an executive order that required half of the vehicles produced in the United States to be carbon-free by 2030.

It’s a highly ambitious goal. And it puts an incredible reliance on the supply chains necessary to create electric vehicles, hydrogen-powered engines, or any other source that doesn’t require gasoline, natural gas, or diesel fuels.

The average electric vehicle requires about 22 pounds of lithium.

So let’s do a back-of-the-envelope calculation right now. Imagine that U.S. customers buy 7 million electric vehicles in 2030. These vehicles alone would require 154 million pounds (nearly 70,000 tonnes) of lithium to produce.

Interestingly enough, that same mine in Nevada that faces the challenges ahead has 146.5 million tonnes of lithium and other metals needed to create batteries and other components, roughly 2,000 years’ worth of lithium—if the Biden administration doesn’t increase its original target of 7 million vehicles.

The Biden administration is aware of this. So, it’s curious that the same administration would file a petition for this flower’s classification as an endangered species just weeks after it released a national blueprint for lithium-ion batteries.

The White House released a report on June 8 that said the U.S. has structural weakness in the supply chains of semiconductors, electric vehicle batteries, pharmaceuticals, and critical minerals.

The report itself lists several ways that the U.S. can achieve greater domestic  lithium production. That includes promoting more private investment in mining, recycling commodities, and training workers in the lithium supply chain.

Does it sound like the Biden administration will be fighting itself in court?

China Continues to Dominate the Lithium Battery Industry

The Biden administration is pushing the Department of Energy to prioritize new battery technology and research funding. This includes $200 million in the Department of Energy’s budget for 2022.

And while the Biden administration continues to throw money at the industry, it’s uncertain if its efforts will produce grand results. The U.S. solar manufacturing industry failed to achieve a wide market share. China’s industrial policies allowed its domestic producers to capture the bulk of the global market share in solar PV production.

The same thing is already happening in lithium battery technology. U.S. companies only produce around 10% of lithium-ion anodes needed for batteries. The nation has even less market share in the other critical components used in these batteries.

China, meanwhile, generates about 65% of the global supply of lithium-ion anodes and 40% of the critical cathodes and separation materials used in these batteries.

Where Will the U.S. Source Lithium?

The concerns about U.S. policies will require the nation to source lithium from other areas of the world. According to RK Equity, a New York lithium investment firm, the United States has only one active lithium mine today and will need at least 500,000 tonnes of lithium by 2030.

Nations like Argentina, Bolivia, and Chile have similar dry climates to Nevada and vast lithium-brine deposits used to source the commodity. Yet the world only produced 325,000 tonnes in 2020, RK Equity notes.

And while other minerals like zinc, potassium, and sodium may help introduce new battery technology, lithium will remain the dominant commodity for these EV batteries.

The key problem is that lithium prices could triple by the end of the decade, according to Rystad Energy. As a result, the company anticipates a “serious” commodity shortage in just six years (2027) unless we explore new mining in the future.

CNN reports that the world needs to mine 42 times more lithium than was produced in 2020 to meet climate targets from the Paris Agreement.

Rystad says that upward of 3.3 million vehicles could be delayed due to a shortage of lithium. That figure could increase to 9 million by 2028 and as high as 20 million by 2030.

It will be a tough challenge for U.S. companies to secure the needed lithium to mass-produce their batteries and meet these federal mandates. Court cases and battles over flowers won’t do the job.

So, we’ll need to look for the right companies and commodity funds to exploit this imbalance between expected supply and demand.

We’ll look for those opportunities very soon.

I’ve said before that we are in the middle of a new technological Cold War.

On one side sits the U.S. and its allies.

On the other is China and the countries it’s managed to bribe, buy, or cajole into doing its bidding.

Countries like Russia and Iran are part of the Cold War as well, but both nations are acting out of convenience.

We’ve seen no shots fired yet. But tensions are heating up.

Both sides have fought this battle on the digital front.

And this has put cybersecurity on the front lines of defense.

Russia and China sponsor more and more cyberattacks every year.

We’ve covered it extensively.

You may remember hacks like that of the Colonial Pipeline system back in May. Those hackers stole 100 gigabytes of data and shut off fuel supplies to the East Coast.

They also demanded a ransom of $4.4 million in bitcoin.

Colonial Pipeline paid, but the FBI was able to recover most of it.

There are allegations that these hackers were backed by Russia’s military intelligence service.

Last year, Russian hackers also gained access to the departments of Homeland Security, Defense, and several others.

They also hacked the British government and NATO’s headquarters.

These combined attacks are known collectively as the “SolarWinds hack.”

The Chinese are no slackers here either.

Chinese hackers breached Microsoft’s email servers in January. That’s just one month after the SolarWinds attack was made public.

This gave the Chinese hackers access to emails from at least 30,000 Microsoft customers. That number includes users from both government agencies and private companies.

To be clear, China’s hacks did not only include reading emails.

Instead, we’re talking about accessing classified information and even editing or writing files.

Both the SolarWinds and Microsoft attacks are also still ongoing.

Government agencies can’t even start the clean-up phase yet because the hackers are still in the system. This is part of an even more alarming threat to the average American citizen.

You and me — we’re targets as well.

According to Matthew Pottinger, a former deputy national security advisor, China has collected enough data to create a complete dossier on nearly every American.

Seriously.

He told this to Congress during a hearing before the Senate Intelligence Committee last Wednesday.

And there’s also the flood of ransomware attacks on hospitals. Those have cost the U.S. healthcare industry about $20.8 billion last year alone.

Not to mention the harm caused to patients who couldn’t be treated.

This Isn’t Slowing Down

Neither China nor Russia are going to stop anytime soon.

Their logic is simple.

Hacking American citizens, businesses, or agencies can produce huge rewards.

Hacking grants access to secrets and the potential to discover dirt on people they can potentially blackmail later.

Add on the money made from ransom, and it’s no wonder they pursue this practice.

As for the cost, well, it’s minimal. Especially when you compare it to starting a shooting war, which would be extremely destructive for all parties.

The digital war is likely to remain a constant source of aggression.

So the demand for digital defense against these attacks will only keep growing.

That’s why I’m keeping a close eye on one company this week.

ILOVEYOU?

McAfee Corp. (MCFE) reported its latest quarterly earnings yesterday.

And while I will spend a lot of time digging into the numbers, I want to talk to you about why I’m so intrigued by this stock for the long term.

McAfee has a storied history in the cybersecurity world.

In 2000, it was the leading company in defending against and cleaning up after the ILOVEYOU hack.

That simple email-based hack is considered one of the worst ever.

The attack hit 10% of the world’s computers and forced the Pentagon and the CIA to close down their email systems.

Though it was simple, the hack caused between $5.5 billion to $8.7 billion in damages.

On top of the $10 billion to $15 billion cost of cleaning up afterward.

McAfee spent nine years as part of Intel Corp.’s (INTC) security division.

It only went independent again in October 2020 in an IPO overshadowed by its founder John McAfee’s global legal problems (he is now deceased).

McAfee has struggled to break into the enterprise cybersecurity market, which is why Wall Street analysts expect an almost 40% drop in earnings compared to last year.

But I’ll be looking more at what McAfee says about its consumer division.

See, McAfee is one of the few cybersecurity companies with a consumer business as big as its enterprise one.

McAfee’s consumer revenues have been growing by double digits for years now.

Of course, COVID-19 has sent millions of people to work remotely from home. Many of them want to stay there. Combine that with hack after hack hitting the headlines, and consumers will keep wanting more cybersecurity.

McAfee is working hard on this trend.

For example, McAfee has special cybersecurity tools for remote students. I’ll be curious to see how that offering has affected the company’s bottom line during the pandemic.

Of course, nowadays, we often access the internet through our smartphones and tablets. So McAfee also offers cybersecurity products for both iOS and Android devices.

But its business side continues to make good cybersecurity products. These include IntruShield, which scans networks for any abnormal activity that might be the sign of an intruder.

As hacks like SolarWinds have shown, well-funded hackers will find a way into even the most up-to-date system. So having early warning systems in place is crucial.

If the company’s earnings show that it might be turning the corner in that market, too, this could be a company to watch. The stock had an IPO at $22 last year and recently broke the $30 level, a sign of improved momentum.

That said, TradeSmith Finance is still collecting data on the company, and we’ll be looking for a solid trend and signal soon. We will add McAfee to our watch list and step in and purchase it should TradeSmith Finance like what it sees soon.

We live in the digital age.

Most of us make money working on computers, whether in an office or, nowadays, at home.

So it’s easy to forget that the world runs not only on ones and zeroes or words in the ether.

It runs on stuff.

Actual, physical stuff.

Stuff that needs to be dug up, usually from over there, and shipped to here.

And I don’t mean just oil, although the black liquid supplies one-third of the world’s energy.

I mean things like copper, lumber, steel, lithium, and even water.

Without these commodities, much of what we take for granted would be impossible.

So, why do we fail to invest in them for the long term?

This Is A Real Investment Story

Over the weekend, the Biden administration signed an executive order. The White House wants at least 50% of all vehicles sold in America to be carbon neutral by 2030.

Naturally, that would be a boon for renewable energy.

So, let’s take a look at the commodity likely to gain the most: lithium.

It’s a chief ingredient in batteries for smartphones, tablets, electric cars, and even medical devices. The average electric vehicle has about 22 pounds of lithium in it.

Then there’s the commodity critical to economic growth: copper.

The telephone and cable wires that we use to hook up to the internet are mostly made from copper. So are the parts that help cool our computers.

Steel and lumber make modern construction possible.

Without them, buildings would look a lot different.

And be smaller and less safe, too.

Steel or aluminum, of course, are also the main components of most cars and airplanes, for example.

Water hardly needs an explanation. Without it, life as we know it could not survive.

Not to mention it’s used as a solvent and ingredient in many industrial processes.

It’s necessary for everything from making chemicals to creating computer chips.

Water is also the main coolant in most nuclear power plants.

The thing about all these commodities is that they’re scarce. Some are more so than others.

But it’s hard to find usable stores of any of them. Metals like copper, iron, or aluminum are present in the ground in most places.

But it takes a concentrated deposit to make mining these metals worthwhile.

And these deposits are not distributed equally around the world. Take copper, for example.

Humans have been using it since 8,000 B.C.

But today, Chile has by far the largest copper reserves in the world. At 200 million metric tons, Chile sits on more than twice as much copper as the runner-up. That’s Peru, with just 92 million metric tons.

Chile also produces more than twice as much copper as any other country.

Meanwhile, Australia and China produce most of the world’s aluminum.

You’ll find lithium on every continent. But with a few exceptions, producing lithium only makes sense in a tiny part of the world. This remote parcel of land is one of the driest places on the planet. Called the “Lithium Triangle,” 75% of the world’s lithium supply is found here.

And only Argentina, Chile, and Bolivia have any access to it.

Water may be pretty abundant in many places, but clean water is much rarer.

Getting it where people need it is a huge challenge.

And because these commodities are exclusive to some places, they are also exclusive to some companies.

This means that the biggest and best-placed commodity companies are a great investment.

Especially if you invest when demand for commodities is on an upswing.

See, commodities like lumber, steel, copper, and others tend to see demand at the same time as each other. And this demand comes in waves.

It’s no secret what causes this demand. Remember, these commodities are essential to manufacturing and construction.

So when the global economy grows, demand for these commodities goes up, too. Conversely, when global demand slows down, demand for these commodities falls.

Demand for these commodities is a decent leading indicator of what the economy will do.

Demand for other commodities, such as water or oil, tends to go up or down on its own.

One thing is for sure: It may swing up or down, but over time, demand for most commodities trends upwards.

For example, global copper demand is projected to grow 31% by 2030. Yet prices only just broke above $10,000 per ton for the first time in 10 years.

But Bank of America thinks it will soon hit $20,000.

Lithium demand looks like it will grow almost sevenfold through 2030.

Water, steel, aluminum, and other commodities follow similar trends.

How to Invest

There are many ways that you can invest in commodities.

You can buy the producers of them. Mining companies like Rio Tinto (RIO) produce vast amounts of commodities and pay attractive dividends to shareholders.

You might also invest in infrastructure like shipping or pipelines that move these commodities from one place to the other.

But the purest way to invest in commodities is through exchange-traded funds, or ETFs. Commodity funds tend to mirror the price of a specific commodity’s futures contracts.

Finally, if you’re seeking broad exposure to a specific sector, you might want to own an ETF that has many different companies that benefit from higher prices or commodity demand.

For example, the Global X Lithium & Battery Tech ETF (NYSE: LIT) is a fund that has 38 different holdings. The companies in the fund include mining firms, battery makers, and automakers. You’ll find shares of Albemarle Corp. (ALB), Panasonic Corp (PCRFF), Tesla (TSLA), EnerSys (ENS), and more.

The ETF has been in the Green Zone (our buy zone) of TradeSmith Finance since July 1, and a strong uptrend in momentum continues to benefit shareholders.

Tomorrow, I want to dig into the earnings season around one of my favorite industries.

That would be cybersecurity. This industry is also a forever investment trend, given the importance of cybersecurity in our 21st-century digital economy.

I’ll be back in the morning with a deeper dive into McAfee.

After years of allegedly no inflation, higher prices are making a roaring comeback.

In June, the price of used cars and trucks jumped by 45% to record highs, according to the Consumer Price Index.

Maybe you want to rent a car instead?

Well, expect to pay 87.7% more than last year.

A severe shortage of new vehicles has fueled these incredible price hikes.

Car manufacturers around the world have been pausing production.

The reason is the global lack of computer chips.

With fewer new cars rolling off the lot, demand has shifted to the used car market.

And those have gotten quite expensive as well. I recently received an insane offer from Vroom on a 2014 Honda Accord that I own:

A year ago, I wouldn’t have received anything close to this.

Of course, other prices are rising, too.

Hotels and motels are almost 17% pricier than last year.

Airfares are 17.3% more expensive, which is a massive annual increase for this business.

Unfortunately, staying at home isn’t much cheaper.

TV sets and the new gaming consoles from Microsoft and Sony are hard to come by because of the chip shortage.

If you do find them in stores, expect to pay a hefty premium.

Smartphone makers are feeling the squeeze, too. The stockpiles of chips Apple and Samsung built up last year are running out. So expect more expensive iPhones soon — if you can find them, that is.

We have COVID-19 to thank for the chip shortage behind these supply gaps. Chip factories in Vietnam, China, Taiwan, and elsewhere have had to pause production.

But there’s another reason why everything is getting more expensive. A reason that affects not only electronics but also chicken, furniture, seafood, and many other products.

I’m talking about global shipping, which is in complete chaos.

Take a look at this chart from Drewry.

No, that’s not the price chart of a meme stock.

It’s the price of global shipping by sea.

That’s right. Companies pay up to 10 times as much for shipping as they did in 2019.

And they have to wait months and months more to get that shipping delivered, too.

This is no small matter.

The United Nations says that 80% of global trade volume is by sea.

If you count it by dollar value, that number is 70%.

Take seafood, for example. When you buy it in grocery stores here in the U.S., it may well say that it was caught in America.

But most of it is then shipped to China for processing. Then it’s shipped back to America again and ends up in your grocery store.

The same is true for many other products.

Even cars assembled in America use parts from all over the globe. Many of those parts are made here, combined with other parts abroad, and then shipped back.

Our furniture is often assembled in Vietnam, no matter where the lumber comes from. The same goes for clothing, food, and toys.

You name it, it’s been inside a container on a shipping vessel at some point before you bought it.

This worked fine for decades, until COVID-19 threw a wrench in the works.

See, before the 2010s, shipping vessels could carry at most about 6,400 containers each.

After 2010, shipping companies decided to invest in larger ships to boost profits. Today, most shipping vessels have twice the capacity, at about 11,500 containers each.

Here’s the thing: These giant ships are only profitable if they sail at full capacity.

Enter COVID-19.

Turbocharging the Shipping Industry

In March 2020, factories and ports the world over were shutting down to stop the spread of the coronavirus.

Shipping companies noticed. They worried they’d have to run their vast vessels at less than 100% capacity, which means at a loss.

So the companies canceled sailings. They ordered their ships to stay where they were. In a matter of weeks, the companies cut capacity between Asia and North America by 20%.

Given all the factories that were closing at the same time, that was a smart move.

Except that just a few months later, Americans, Europeans, and many others got bored. COVID-19 meant no restaurants, no concerts, no travel.

So people decided to splurge on things instead. And as you saw, 80% of the things we trade today travel by sea. So all of a sudden, demand for shipping skyrocketed.

America’s two largest ports broke their cargo-handling records this year.

In response to this influx of orders, factories all over the world went back online. But to produce their goods, they needed raw material shipments.

The problem is, shipping vessels had anchored where they happened to be when the coronavirus hit. But, more likely than not, that wasn’t where they needed to be now.

And remember, shipping companies can make money on their ships only when they are full.

Take Vietnam’s furniture factories, for example.

They needed lumber, which they import mainly from China and Africa.

So they asked shipping companies to go there, load up on lumber, and ship it back to Vietnam. But the shipping companies had ships all over the place that would have to sail to China and Africa.

Sailing empty-handed, with nothing to sell there, was a losing proposition for the shipping companies.

So they either waited for more orders to come in or asked for enough money to make the empty trip worthwhile.

Now expand that dynamic across the 80% of global trade that happens by sea. That’s why the price of cars, couches, chickens, and everything in between is soaring.

This also caused huge traffic jams in ports. Suddenly everyone needed ships to go from a few ports in Asia to a few ports in Europe and North America. Not to mention that COVID-19 has led to a labor shortage in these same ports.

The number of ships that had to wait more than five days in port to unload cargo soared. In the first half of last year, only 5% of ships had to wait.

By December, more than 25% of ships were stuck waiting.

And remember, every waiting ship means thousands of containers that can’t be reused.

Even once the containers are emptied, they stay here. America’s imports from China have soared 54% since last year.

But exports to China are up just 4.4%. In other words, China is running out of containers to ship our stuff in. That container imbalance will stay around until at least next year.

So it’s going to be an expensive Christmas for gift buyers.

But a great one for shipping companies.

It’s also a bonanza for factories in unexpected places. For example, Intel Corp. (INTC) announced that it’s spending $20 billion to open two new chip factories in Arizona.

Meanwhile, Taiwan’s chip giant TSMC Ltd. (TSM) pays $12 billion for its Arizona chip factory.

Those are just two examples of businesses adapting to the effect COVID-19 has had on our supply chains.

Because logistics is global, what happens in one place will affect global trade in one way or another. There’s no getting away from that, even after this pandemic.

What we can do is adapt to it. And follow the trend to make some money.

In 2018, the Supreme Court struck down a law that created a massive windfall for investors.

Back in 1992, Congress passed the Professional and Amateur Sports Protection Act, or PASPA. The law reduced legal sports gambling to just the state of Nevada. It effectively made it illegal for voters to decide whether they wanted their states to have sportsbooks.

But when the high court struck down PASPA in 2018, it unleashed a wave of voter interest. States, struggling with deep debts and hungry for revenue, started to consider laws that would allow people to legally bet on the Super Bowl or even Russian table tennis.

If you thought that the legalization of cannabis was a big deal for investors, you need to learn about what’s happening with sports gambling. A new trend among gambling companies has the potential to deliver — get this — $30 billion in additional revenue annually by the end of the decade.

Let’s dig into this opportunity.

The Road to Legalized Gambling

The Supreme Court’s strike-down set off a wave of state gambling legalization reminiscent of the cannabis legalization trend earlier in the 2010s. The overturn of PASPA also pushed legal sports gambling into the investment spotlight.

Today, 21 states plus Washington, D.C., have legalized sports gambling thanks to broad political support and government desire for tax revenue. Another 10 states have legalized the practice but have yet to start operations. And three more states will push new legislation in 2021.

That’s a much faster pace of state legalization than what we’ve seen with recreational cannabis (legal in 19 states, Washington, D.C., and Guam).

Moreover, this pace is expected to accelerate in the future. Some analysts suggest that roughly 49 states (minus Utah) will have legalized sports gambling (and other forms of predictive gaming) by the end of the decade. (Utah is projected to reject gambling laws due to religious objections by the majority population.)

Given that 98% of states could soon have access to sports gambling, a significant opportunity has emerged for sportsbooks and casino operators. But, like any company seeking a new audience, sportsbooks are getting very aggressive with a new trend.

These companies are engaging in a significant amount of mergers, acquisitions, and partnerships.

The $30 Billion Driver

We have seen an incredible uptick in dealmaking and partnerships between sportsbooks and media outlets. It started when Sinclair Broadcast Group (SBGI) purchased regional sports networks from Disney in 2019. Sinclair, which broadcasts thousands of live sports games each year, rebranded its networks under the casino name Bally’s in a 10-year licensing deal worth $88 million.

Then, casino operator Penn National Gaming (PENN) got in on the action when it paid $163 million for a 36% stake in Barstool Sports, a popular network covering sports gambling and related gambling on certain shows. Penn has the right to purchase the rest of Barstool and is branding sportsbooks under the media company’s name in 10 states in 2021.

Even The Walt Disney Company (DIS) is getting in on the action. The entertainment giant owns sports network ESPN and has engaged in strategic partnerships with Caesars Entertainment (CZR) and DraftKings (DKNG). ESPN also hosts multiple shows that focus on sports gambling. And it will continue to develop its presence in Las Vegas and other gambling centers such as New Jersey.

FanDuel, a sports and fantasy gambling franchise, has a partnership with Turner Sports.

Then there’s DraftKings, which made a massive move in March 2021 by purchasing Vegas Sports Information Network (VSiN), a gigantic Vegas-based sports media group that hosts 18 hours per day of gambling-related content.

Why does this dealmaking matter? Because these media outlets will direct people to sportsbooks, get them excited about the legalization effort, and move them away from any remaining black market for the practice.

And there’s a lot of money on the table.

Equity research firm Macquarie suggests that the U.S. sportsbook and online gambling market will grow by an annual rate of 33% through 2030. It projects that these media deals alone could deliver upwards of $30 billion in 2030.

On the surface, it’s a no-brainer. Actionable gambling content will drive more and more people to these sportsbooks, where people will bet on games and events. And it likely won’t stop at sports. Suppose the United Kingdom’s gambling market is any guide. In that case, people here will eventually bet on government elections, or even if Elvis is still alive. (One gambler in 2017 bet 25 pounds that the King is still with us. The bet would pay off 2,000-to-1, or 350,000 pounds.)

This trend opens many possibilities for companies like Penn National Gaming, DraftKings, Caesars Entertainment, and Flutter Entertainment (an Irish bookmaking firm that evolved from a massive merger between multiple U.K.-based gaming firms). Flutter is listed on the London Stock Exchange, but it also trades over-the-counter here in the U.S. under the ticker PDYPF.

With DraftKings reporting earnings today, and given its growing market power, this is a stock to watch. In the coming week, I’ll revisit these gambling stocks. I’ll tell you which companies are rated “buys” and which are not. I’ll even tell you my favorite one as well.

As I noted yesterday, cybersecurity remains a must-own sector for investors. Moreover, this defensive sector is the backbone of the 21st century economy. But let’s take a moment to define cybersecurity.

Cybersecurity refers to tools that protect computers, network servers, data, and mobile phones. It operates much the same way that a bouncer would outside of a bar.

It keeps bad people out and ensures the proper flow of good information.

It protects information stored and processed on the networks and devices I mentioned. And it’s more important than ever. Research group Cybersecurity Ventures says cybercrime could cost the global economy a lot of money.

How much?

As much as $10.5 trillion annually by 2025.

I want to break down cybersecurity at greater length today and offer a few great stocks. You can add these to your watchlist or even add them to your portfolio. After all, we want to ensure that you profit from this incredible trend.

Three Types of Cybersecurity

At the very core of cybersecurity, there are three different buckets that we can discuss: cloud security, application security, and network security. Let’s go one by one.

Cloud Security

Cloud cybersecurity is booming as a sector right now. It was the primary driver of the 12% increase in cyber-spending in 2021, according to Gartner. (Annual spending on cybersecurity will hit $150.4 billion this year, the consultancy says.)

Cloud storage refers to data servers that are accessed over the internet. It does not require direct storage management by the user. (You don’t need to save documents on a computer.) If you’ve used Google Drive, this is an example of a cloud storage platform. It’s a booming business. Fortress Business Insights says the cloud storage market could grow from $76.43 billion this year to $390.33 billion by 2028.

Cloud computing has a strong reputation for enhanced security. It requires active monitoring by companies like Google and others who protect the systems. And that could deliver lots of revenue and profits to companies focusing on this space.

CrowdStrike Holdings (CRWD) is a company with a “cloud-native endpoint security platform.” Its platform relies on network effects linked to “crowdsourced data.” This improves the platform’s efficiency and allows it to grow smarter and assess real-time threats such as malware.

The stock is currently in the Green Zone on TradeSmith Finance and has uptrend momentum. However, this is a stock that anticipated more volatility, given its VQ score of 50.99%. Still, it could see more stabilization as cloud computing expands into the top category in this sector.

Application Security

Application security refers to the protection of data that companies store on specific applications. This data is required to run a business. The major issue with these applications is that they’re accessible across many networks. This leaves them prone to cyberattacks. The easiest way to protect application data is by utilizing things like antivirus software or encryptions. Application security also helps protect websites and web applications critical to a company’s operations.

This market is not massive by any means. The application security market was worth around $4 billion last year, according to Mordor Intelligence. If you’re looking for a stock with a specialty in this arena, I have one.

Rapid7 (RPD) operates a product called tCell, which monitors applications in real time. It can assess application risks, provide real-time updates on attacks in progress, and protect applications from existing threats. Its software “crawls” through highly complex applications to understand vulnerabilities. It then provides insight on how to improve security. The stock is currently in the Green Zone and remains locked in uptrend momentum. It, too, has a high VQ score, as many cybersecurity firms do. But investors looking for a long-term opportunity may be content to buy and hold and use trailing stops for protection.

Network Security

Finally, we have network security. This refers to the protection of a company’s internal network from outside threats. Network security deploys a secure infrastructure that protects against outside access, misuse, spam, phishing scams, or theft.

Palo Alto Networks (PANW) operates some of the most powerful and widely used firewall security platforms. It works with a motto that companies should have “zero trust” in communications that come from outside the company network.

This means that all communications — even an email that is supposedly from your mother — require skepticism. Palo Alto is a major supplier of security to enterprise-level companies. Last year, the company earned $3.4 billion in revenue.

PANW is currently trading in upward momentum and sits in the Green Zone on TradeSmith Finance. It also has less risk than the other companies on our list. Its VQ is just 26.4. This makes it a more compelling stock. But there’s more: The company is also a major holding of hedge fund manager Ray Dalio and has been part of our Best of the Billionaires portfolio since May 14.

Investors looking to play cybersecurity should learn more about the different categories. Remember, cybersecurity is essential at every level of business today. And it will continue to be a profit generator for investors in the years to come.

I’ll be back tomorrow to discuss one of the most under-the-radar trends in America. So be ready to ride a wave of potential in a brand-new sector that could generate $30 billion out of thin air by 2030.

With the delta variant of coronavirus now sweeping across the United States, we face new challenges for the economy.

We may see life grind to a halt yet again in some U.S. states. And we could easily see another pullback in the markets as a result.

Yet even with another wave sweeping the nation, it still doesn’t feel that life ever got back to normal.

Take the Olympics, for example. Remember, these Olympics weren’t supposed to happen this year. In 2020, the International Olympic Committee (IOC) moved the event back a year for the first time ever.

The same happened to the European Cup in soccer. The same goes for countless concerts, festivals, conferences, and other events.

Companies cut back on spending and workers. Budgets were changed at Fortune 500 companies and every mom-and-pop shop that you know.

All except for in one industry.

There were no cuts to defense spending. And those stocks performed very well over the last year.

So, what does that tell you about the market?

You should always play defense.

There’s Always Money in War

Last year, the world’s governments spent a whopping $1.981 trillion on their militaries, according to the Stockholm International Peace Research Institute (SIPRI).

That’s up 2.6% from 2019 and the highest number on record.

That’s despite the pandemic sending global GDP down by 4.4%.

So even as the pie was shrinking, countries around the world beefed up their militaries.

The U.S. alone accounts for 39% of the world’s military spending.

And SIPRI says we boosted our defense budget year-over-year in 2020 by 4.4%.

Even the world-stopping COVID-19 pandemic can’t stop security spending.

Because even before COVID-19, the world was getting tenser.

In Asia, China has been growing its military budget every year for 26 years running. And it’s using its forces to put more and more pressure on Taiwan, which it claims to own.

Chinese jets and naval vessels have been breaching Taiwan’s borders to send a message. One of President Xi Jinping’s missions in recent years has been to reunite Taiwan with mainland China under a “One China” principle.  

But China is flexing its muscles elsewhere, too. In 2020, dozens of Chinese and Indian soldiers died fighting each other in the Himalayas.

That event might seem remote. But at stake are crucial trade routes that could make or break China’s influence in South Asia.

In the South China Sea, China is building military bases on disputed islands.

The Chinese Navy scares away ships fishing in international waters almost daily.

One-third of all global shipping goes through the South China Sea. So China’s power play there is a clear attempt to secure its own trade – and threaten the control of the trade of others, too.

The American Initiatives

America is responding by building up its military presence in the Pacific region.

This trend means more cooperation with India and closer ties with Japan’s military.

In May 2017, we even supplied Vietnam’s coast guard with six patrol boats. This was part of a broader attempt to bolster the country against China’s rising presence.

This goes to show how quickly a common enemy can make you forget past disagreements.

And let’s not forget about Hong Kong, Britain’s former colony. The British handed the city back to China in 1997. At the time, China agreed to keep the place a democracy until at least 2047.

Instead, in June 2020 China imposed a “national security” law on Hong Kong. Despite its name, all the law did was make any criticism against China illegal.

China has arrested countless journalists, scholars, students, and politicians. Others have fled.

As a result, South Korea, Japan, and others are boosting their defense budgets. In fact, China recently threatened Japan with a nuclear attack should it interfere in Chinese politics.

Things elsewhere are tense, too.

In 2014, Russia invaded Ukraine and annexed Crimea. At the same time, it also started a low-grade rebellion in two eastern Ukrainian provinces.

Fighting there continues to this day in what is a proxy war between the West and Russia.

Nearby leaders in countries like Poland, Lithuania, Estonia, and Latvia are nervous. All four nations have experienced Russian invasions in the past. To no one’s surprise, all four countries responded to Russian military maneuvers by boosting their defense spending.

In the Middle East, Syria’s civil war continues with no signs of stopping.

In Africa, Ethiopia has descended into a civil war. Libya’s civil war seems like it may finally be ending. Unfortunately, that has pushed Libya’s jihadists to other countries.

In Chad, those jihadists managed to kill the country’s president in battle. In Mali, the jihadists have weakened the government so much, the military staged a coup. Twice. In a single year.

In both of these African countries and elsewhere, European forces are helping fight the jihadists. No one wants another ISIS that can once again launch terrorist attacks to Europe and beyond.

Europe also wants a stable Africa to stem the tide of refugees coming to its shores.

For similar reasons, the U.S. is looking to increase its military aid to South America.

Industries Positioned to Profit

All this spending will take many forms.

There’s money for guns, tanks, and ammo. But there’s also opportunity in sophisticated drones and electronic warfare systems that jam enemy communications.

Both are crucial tools in the conflict in eastern Ukraine.

There’s also another kind of electronic warfare.

I’m talking about the big increase in cyberattacks on businesses, hospitals, and pipelines.

After all, with America responsible for 39% of all defense spending, the probability of a direct attack is low.

Instead, enemies like Russia and China are looking for other ways to hurt us.

Take the May hack of the Colonial Pipeline system. Backed by Russia’s military intelligence service, those hackers stole 100 gigabytes of data.

They also shut down the pipeline that supplies much of the East Coast’s gasoline and jet fuel. And demanded a ransom of $4.4 million while they were at it.

To be paid in Bitcoin, of course.

The company ponied up, but the tool the hackers gave was so slow that it didn’t matter anyway. The pipeline system was down for a week, causing fuel shortages.

At least the FBI was able to recover most of the money.

But the Colonial Pipeline hack is just one example of the scourge of these ransomware attacks. According to Israeli cybersecurity company Varonis, a ransomware attack happens every 11 seconds.

Often, the targets have been hospitals. Because of the COVID-19 pandemic, hospitals were more critical than ever last year. Hackers, sponsored by China or Russia, took advantage.

The U.S. health care industry lost an estimated $20.8 billion to 92 ransomware attacks in the last year alone. The attacks hit 600 hospitals and affected 18 million patients, according to Varonis.

That number was a whopping 470% higher than in 2019.

But Russia and China have been hitting some higher-profile targets, too.

Last year, Russia-backed hackers managed to breach three software companies. They then used their software to piggyback into their primary targets.

They ended up with access to 11 federal departments, including the Department of Defense and Department of Homeland Security. Other targets included defense contractors, the British government, and even NATO.

The hack lasted some eight months, ending in December 2020. This was the worst case of cyber espionage ever.

But just one month later, China-sponsored hackers breached Microsoft’s email service. This gave them access to emails from at least 30,000 Microsoft customers, including both private companies and government agencies.

The truth is, this won’t stop. The rewards for the hackers are just too great. They keep making money with their ransom demands. Meanwhile, their government sponsors get access to valuable information.

So it’s time we adapt. Defense contractors help fill our needs for physical defense. But to protect us from virtual dangers, we need cybersecurity companies.

Tomorrow, I’ll dig into a few cybersecurity stocks that stand out, according to TradeSmith Finance. I think you’ll enjoy this list of stocks to buy to take advantage of this critical, long-term trend.

This morning, Alibaba (BABA) reported earnings before the bell.

If you haven’t been following the Chinese technology stock, it has faced an incredible amount of pressure.

In October, the Chinese e-commerce giant’s stock traded just shy of $320.

Last week, it fell below $180 per share for the first time since the 2020 COVID-19 market crash. Today, I want to discuss recent events at the ninth-largest company by market capitalization trading on the U.S. stock market.

Then, I’ll tell you if and when this company will become a “Buy.”

The “Do It All” Tech Company

There has been considerable interest among investors when it comes to China. The world’s second-largest economy continues to grow at a breakneck pace. Its population sits north of 1.5 billion people, and its middle class has expanded in recent decades.

As such growth continues, there’s an easy comparison that some investors like to make when it comes to buying Chinese tech firms.

They’re looking for the Chinese version of Apple. Or the Chinese version of Microsoft.

When it comes to Alibaba, the company is considered the Amazon of China. Today, the company has a valuation north of $500 billion and maintains the sixth-largest global brand valuation.

Alibaba has a robust e-commerce and retail platform that handles sales among buyers and sellers in 240 countries. It has a massive artificial intelligence division and maintains an Alibaba Cloud business to manage its e-commerce ecosystem. It also invests billions of dollars into startups through its venture capital firm.

If there were ever a company that could touch Amazon’s reach, Alibaba would be it.

Alibaba does have one major edge over Amazon. Each year, Amazon hosts its 48-hour Prime Day event. It’s a massive shopping event that generated $11.19 billion in June 2021.

In China, a similar shopping holiday is called Singles’ Day on Nov 11. The 11-day shopping event leading up to Singles’ Day in 2020 generated $74.1 billion in revenue.

Regulators Pounce

Despite all of Alibaba’s success and growth potential, the sharp sell-off has less to do with its operations and more to do with its government.

China remains a communist country, and its political leaders don’t like competition regarding population influence. Starting in October, Chinese regulators began a series of regulatory crackdowns on their entire technology sector. We’ve witnessed a dramatic crackdown over concerns related to personal security and data privacy. We’ve seen Beijing enact rules that eliminate for-profit tutoring, a move that forces some companies to become nonprofits.

Shares of education stocks Gaotu Techedu (GOTU), TAL Education Group (TAL), and New Oriental Education & Technology Group (EDU) are all off more than 80% from their 52-week highs.

Recently, Chinese ridesharing giant DiDi Global (the Uber of China) went public on the New York Stock Exchange. Just days after the IPO, Chinese officials mandated an end to all new registrations for the company’s app. The news sank shares of DiDi, which surpassed $18 after the IPO but soon fell to as little as $7.16 after the crackdown. The app has been removed from digital stores, and DiDi could face “unprecedented penalties,” according to Bloomberg.

Chinese officials are reining in their companies’ ability to raise capital in foreign markets. They’re citing worries about data, cybersecurity, and personal privacy. But it’s unclear if this is a larger effort to consolidate power around the nation’s most influential companies.

It’s also worth noting that Chinese officials forced the cancellation of the highly anticipated IPO from Ant Group, a massive financial technology firm backed by Alibaba.

Alibaba also faced a $2.75 billion fine over “anti-monopoly” rules and security concerns. In addition, it might have to give up control of its customer data to the Chinese Communist Party for “social scoring” — a system imposed by the government that rates every Chinese citizen for their social and economic reputation. The Social Credit System is more or less a blacklist that can cut people off from various perks like air travel and the internet if they are deemed “untrustworthy.”

What’s Next for Alibaba

While Alibaba has faced remarkable scrutiny, it’s unclear just how much further China can go before it starts to affect both investor confidence and its broader consumer economy. Alibaba is a highly important company to China, given its massive reach, supply chain success, and broad consumer platforms. It does not appear that China wants to blow up or nationalize the company.

It simply wants to cull the company’s influence. Some analysts have said that China is paranoid about its technology companies gaining similar influence over its nation. The analysts say that the influence of Facebook, Amazon, and Apple in the U.S. is the reason for the increased scrutiny and regulatory moves. The CCP doesn’t want “social” competition.

It also doesn’t want any financial competition. Keep in mind that China has introduced the “digital yuan,” a signal that the government wants greater control of the nation’s financial ecosystem. This could dramatically impact Alipay as the Chinese government looks to grow its market share on payment solution platforms.

With this in mind, Alibaba remains a stock to watch due to its incredible reach and size. But again, we’re talking about one of the top 10 largest companies trading on the NYSE by market capitalization. Regardless of today’s earnings report, the stock is too risky to trade right now.

Shares of Alibaba have been in the Red Zone on TradeSmith Finance for seven months. It has also been locked in downtrend momentum for two months and maintains a Bearish rating from social sentiment platform LikeFolio.

Don’t speculate on this company right now. Instead, let’s wait to see if momentum does return to the stock in the weeks or months ahead. When Alibaba moves into the Green Zone, I’ll alert you right here in TradeSmith Daily.