Weekly Cycle: Stock Market Outlook 06.04.2018

 

“The most painful realization…is that the people who disagree with us are not especially hypocritical or contradictory.”

The Acrobat and the Fly
Rusty Guinn Epsilon Theory1

 

Market Outlook Update for [June 06, 2018]
Each week, we review the stock market using a specific set of information sources in order to cut through the noise generated by media publishing attention grabbing headlines. Weekly updates give e the opportunity to play trends while not overreacting on a daily basis.

 

Market Performance

Performance of a handful of macro indexes, as well as index and ETFs on specific sectors of particular interest. 

Observations:

  • Volatility [VIX] has dropped considerably over the last week
  • Emerging Markets VWO ( and BKF) up over 3% in last week
  • China Tech surged again last week.
  • Cannabis down over 10% last 3 months

 

Technical Indicators

Based on data and info from TradingView (Click for 30% off a pro subscription)

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

Observations:

○ Big improvement from a week ago for $SPY, $VTI
○ $CQQQ looks much improved this week
○ Emerging markets $VWO and $BKF much improved
○ $VIX has dropped significantly since a week ago

 

OldProf’s Risk Analysis

Each week, at the Dash of Insight blog, OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.

This week, OldProf writes that “Short-term trading conditions continue at favorable levels, much improved from the month-ago data.”

He also writes on how investors should handle news and speculation regarding Trade Wars:

“Is it time to worry about a trade war? For investors, not yet. For citizens, yes.

Free trade is an issue that differs dramatically in two ways:

  1. First-order impacts are very clear and immediate. The impact is on cohesive industry and worker groups. Nations emphasize their role as exporters.
  2. Other impacts are delayed, nuanced, and difficult to measure. Retaliatory tariffs have gradual impacts – inflation, producers (think soybean farmers) leaving the business, Fed rate increases in response to price pressures, and eventually a recession.

Investors cannot profitably plan now for these effects, since they will take many months or even years to show up.2

 

StockTrader Recap

Mark Hanna publishes a weekly Market Recap full of charts and insight on news and market trends at StockTrader.

This week, Mark writes that despite increased volatility “small caps (Russell 2000) and tech stocks held in quite well and we don’t have any major technical change in the indexes – more on that later..”

Short term: The S&P 500 remains mostly range bound and has for a few weeks, meanwhile the NASDAQ is looking a bit more spiffy of late.

Long term: Still very positive for the “buy and never sell” crowd.

 

Technical Analysis Update

Hacked (subscription-only) publishes a weekly technical update on U.S. indices with a weekly analysis of the S&P 500, NASDAQ, and DJIA, as well as a general market outlook. Other posts include trade recommendations (stocks, crypto & forex markets), worldwide-market updates, ICO analysis, and much more.

This week, Hacked has not yet posted an update.

 

Articles of note

$TSLA “The larger economic issue is that every durable good is becoming a service”

Software is Eating the World-Tesla Edition
Alex Tabarrok Marginal REVOLUTION

“stances. This week Consumer Reports changed their review to recommend after Tesla improved braking distance by nearly 20 feet with an over the air software update!3

“Consider this: how many investors buy stocks thinking they will sell at the bottom? NONE.”

Easy in Theory, Difficult in Practice – Of Dollars And Data
Of Dollars And Data

“Months go by and now the market is down 40%. Your spouse says to you, “Honey, we need to stop this. Think about our children’s future.” As this happens, one of your closest friend’s brags about how he sold when the market was down only 15%. CNBC reports this is the worst financial crisis of the modern era. You’re still buying and holding, yes?
4

User & subcribers models “grounded in fundamentals, with value coming, as it always does, from cash flows, growth and risk.”

User and Subscriber Businesses: The Good, the Bad and the Ugly!
Aswath Damodaran Musings on Markets

“Consequently, I went back to valuation first principles, where the value of any asset is a function of its cashflows, growth and risks, and adapted that approach to valuing a user or subscriber:
5

“Why is it that position sizing and actively managing a portfolio is seen as “trading”. It shouldn’t be.”

One Position Sizing Strategy for Long Term Success
Jae Jun The Value Investing Blog of Old School Value

“It’s that people believe a value investor has to invest a certain way.
By this, I mean things like:

don’t buy and sell often
know everything about the business you buy
hold small number of positions and bet big

6

GDPR is helping centralize market further to benefit of $FB $GOOGL

GDPR is centralizing the market
Tyler Cowen Marginal REVOLUTION

“The reason: the Alphabet Inc. GOOGL +2.58% ad giant is gathering individuals’ consent for targeted advertising at far higher rates than many competing online-ad services, early data show. That means the new law, the General Data Protection Regulation, is reinforcing—at least initially—the strength of the biggest online-ad players, led by Google and Facebook Inc.
7

“Predicting the A.I. winter is like predicting a stock market crash – impossible to tell precisely when…but almost certain that it will”

AI winter is well on its way
Piekniewski’s blog

“This gradual shift from rich, big corporations to government sponsored institutes suggests to me that the interest in this kind of research within these corporations (I think of Google and Facebook) is actually slowly winding down. Again these are all early signs, nothing spoken out loud, just the body language.
8

“With fewer births, and less net migration, demographics will not be as favorable…”

U.S. Births decreased in 2017
Bill McBride Calculated Risk

“Births have declined for three consecutive years following increases in 2013 and 2014.”
9

 

 

 

 

  1. http://epsilontheory.com/the-acrobat-and-the-fly/
  2. https://dashofinsight.com/weighing-the-week-ahead-is-it-time-to-worry-about-a-trade-war/
  3. http://marginalrevolution.com/marginalrevolution/2018/05/software-eating-world-tesla-edition.html
  4. https://ofdollarsanddata.com/easy-in-theory-difficult-in-practice-4d28200f638
  5. http://aswathdamodaran.blogspot.com/2018/05/user-and-subscriber-businesses-good-bad.html
  6. https://www.oldschoolvalue.com/blog/investing-strategy/position-sizing-strategy/?source=rss
  7. http://marginalrevolution.com/marginalrevolution/2018/06/gdpr-centralizing-market.html
  8. https://blog.piekniewski.info/2018/05/28/ai-winter-is-well-on-its-way/
  9. http://feedproxy.google.com/~r/CalculatedRisk/~3/Xnk5DygKf_g/us-births-decreased-in-2017.html

Weekly Cycle: Calm before rapids?

Stock Market Outlook 04.30.2018

Each week, I review the market using my own set of information sources to gauge the market. While I’d prefer to be long-term investors and check the markets less frequently, I believe my skills in selecting enduring businesses for long-term success are lacking those of great investors. Instead, I use a trend following strategy with periodic checkups. A weekly outlook gives us some relief from worrying about day-to-day fluctuations, while still allowing for relative short term opportunities and trends.

Index Technical Indicator & Recent Performance Summary

Based on data and info from TradingView (Click  for 30% off a pro subscription)

  • Scoring has been updated this week to give a more granular look at each index on my list. Scoring is now based on the net count of positive and negative technical indicators signals over three time horizons (daily, weekly and monthly)
  • Volatility index (VIX) showed most movement of any on list over last week, dropping by 2.5%.
  • VNQ (Vanguard REIT ETF) performed best, though still showing negative signals on weekly and monthly basis.
  • China Tech stocks (CQQQ) up nearly 30% over past year
  • Cybersecurity ETF (HACK) has performed well over last year and gets top score on technical signals
  • VEA (developed markets ETF) slightly behind in technical signal score and shows good results over last year
  • Overall, technical signals look great on a monthly basis, good on weekly basis, and show a lot more volatility and randomness on daily basis.

stock market outlook 04.30.3018

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

OldProf’s Risk Analysis

Each week OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.

This week, OldProf doesn’t see much change from last week, with things largely remaining neutral in the short-term and looking bullish in the long run.

 

Short-term trading conditions remain in the neutral zone.

The long-term fundamentals and outlook are little changed. The long-term technical health is back to strongly bullish.

Similar to another article linked to below, he mentioned an article in Morningstar on the overuse of  declaring  “bubbles” in markets:

Many bubbles are proclaimed, but few arrive. The word is not useful; rather than signal something extraordinary, it has come to mean “securities I don’t like because they strike me as being too expensive.”

StockTrader Recap

StockTrader publishes a weekly Market Recap full of charts and insight on overall market trends.

This week, StockTrader says conditions have weakened on a short term basis. Despite strong earnings, markets haven’t reacted overly bullish, which may be a cause for concern. Nothing has changed in the long-term.

Earnings season remains strong – as anticipated – and while individual companies have been rewarded, it has not led to a broad rally of any sort as much of this was forecast.

Short term: A lot of consolidation at lower levels. That is a concern for bulls.

Long term: Still very positive for the “buy and never sell” crowd.

Technical Update

Hacked (subscription-only) publishes a weekly technical update on U.S. indices with a weekly analysis of the S&P 500, NASDAQ, and DJIA, as well as a general market outlook. Other posts include trade recommendations (stocks, crypto & forex markets), worldwide-market updates, ICO analysis, and much more.

This week, Hacked’s outlook is “Neutral with a bearish bias.” There’s concern that a general downward trend is possible. More info on support levels in the weekly update.

 While breaks of the intermediate-term supports are likely, outlook is not outright bearish until confirmation is received.

Short- and long-term bearish if S&P 500 and NASDAQ break their respective intermediate-term supports.

S&P 500 and NASDAQ need to hold their intermediate-term supports and break above the orange resistances for outlook to shift to bullish, at least in the short-term.

Articles of notes
Stop calling bubbles

Morgan Housel wrote a great post on the aforementioned topic on the rising trend in calling bubbles.

Since there’s no definition, anyone can classify anything they want as a bubble and no one can prove them wrong. What began as a serious topic among economists has become a job-security loophole for pundits.

Alas, he gives his own take on the true quality of a bubble:

It’s only a bubble if return prospects don’t improve after prices fall.

Canada to rise as for tech entrepreneurs

Brad Feld makes the case that Canada has a great opportunity – and even advantage over the US to rise as a home to tech entrepreneurs and startups due to immigration-policies put into place under Trump.

From a Bloomberg article on the topic:

A big reason for the shortfall is that the year-old program has been constantly under assault since the election of President Donald Trump…

…No one has been granted a visa, and Homeland Security said last year that it’s working on a plan to kill the rule entirely

Feld, as a venture capitalist, writes about his first-hand knowledge:

The Toronto/Waterloo startup community is on fire. Many companies I’m involved in are exploring offices in Canada, especially Vancouver (for the Seattle folks) and Toronto (for the east coast folks) since it’s so difficult to get work visas in the US for employees. Other entrepreneurs from around the world are simply opting to start the company in Canada rather than the US because of all the uncertainty around visa status.

There is a window in time where Canada has a massive strategic geographic advantage over the US.

Lindzon on Solar and Consumer Product Goods

Howard Lindzon, always transparent with his investments, wrote positively on solar and consumer products goods this week.

I’m noet yet familiar with this company specifically, though are long $RUN and $SEDG. He credits Charlie Bilello for the tip on First Solar.

At Stocktoberfest, my friend Charlie got a ‘perfect 10’ score for his ‘chart battle’ take on being long First Solar.

Regarding CPG, he writes about how $PG has been getting beat up due to the rise of microbrands.

Amazon does not want to kill Procter & Gamble…at least quickly. There are a lot of advertising and promotional dollars Amazon would like to extract from them marketing inside/on Amazon.

Over the next 10 years, the Company can also buy 1,000 rising microbrands and go directly to the customers themselves.

The whole CPG (Consumer Product Goods) sector is going to see explosive deal action and volatility for the forseeable future

Value of judgement to rise as a complement to AI

Coming to us via a post at Kottke.org on AI is an article at McKinsey titled The economics of artificial intelligence. Guest editor Patrick Tanguay surmises, and quotes from the original article:

The very interesting twist is here, where he mentions the trope of “data is the new oil” but instead presents judgment as the other complement which will gain in value.

“So as the value of human prediction falls, the value of human judgment goes up because AI doesn’t do judgment—it can only make predictions and then hand them off to a human to use his or her judgment to determine what to do with those predictions.

Investing in cannabis as a healthcare play

Todd Harrison and Loren DeFalco, who run CB1 Capital, makes the case for cannabis as a healthcare investment in this video from Stocktoberfest.

DeFalco, who runs CB1 Capital with Harrison, took notice in Cannabis-based products because of a seizure he had. His treatments did not help, and in certain cases worsened his health. He found real treatment in cannabinoid wellness.

 

Final Thoughts

I’ve been reading Kevin Fedarko’s book The Emerald Mile about the fastest ride ever down the Colorado through the Grand Canyon. He provides fascinating details on the history of the Canyon, including how the Canyon was formed seemingly slowly over a long period, yet most change came in short bursts.

Up through the first half of the twentieth century, most tourists who contemplated the walls of the Grand Canyon assumed that this landscape was shaped slowly and gradually over tens of millions of years. This is true, but only in the broadest sense—which is to say, by stretching the process out on the scale of deep time. In the 1950s and 1960s, however, the geologic credo was further refined and scientists began to appreciate that the steady march of geomorphic change is punctuated by catastrophic bursts: brief moments of exceptionally brutal violence in which things happen very quickly indeed. In the canyon, these bursts take the form of debris flows.

Fedarko, Kevin. The Emerald Mile: The Epic Story of the Fastest Ride in History Through the Heart of the Grand Canyon (p. 118). Scribner. Kindle Edition.

Nature’s patterns have a way of playing out in other aspects of life, including markets and technology, and this seems a fitting reminder.

Automation may not replace jobs as quickly as predicted

Automation is touted to be ready to take over many jobs, including truckers. Here’s a rebuttal, specifically related to truck drivers, from a comment at Marginal Revolution. A few highlights:

One of the big failings of high-level analyses of future trends is that in general they either ignore or seriously underestimate the complexity of the job at a detailed level. Lots of jobs look simple or rote from a think tank or government office, but turn out to be quite complex when you dive into the details.

I’ve been working in automation for 20 years. When you see how hard it is to simply digitize a paper process inside a single plant (often a multi-year project), you start to roll your eyes at ivory tower claims of entire industries being totally transformed by automation in a few years.

A lot of pundits have a sense that automation is accelerating in replacing jobs. In fact, I predict it will slow down, because we have been picking the low hanging fruit first. That has given us an unrealistic idea of how hard it is to fully automate a job.

Based on my own experience with setting up routine tasks for online-oriented jobs, the role of a human to adapt to changes is very underestimated.  It seems more likely that automation will be used as a tool by humans. It requires a different set of skills, but it’s far from robots working without human interaction.

Using crypto to pay viewers & other new business models

Jeremy Epstein looks at how Amazon is integrating advertising into their streaming video service, and how it could be applied to crypto-enabled business models of the future:

Let’s leave aside the legitimate fear that now Amazon has even MORE information about you, locked away in proprietary databases, and can manipulate you at will since who cares about that anyway, right?

What Amazon is now doing, better than anyone in the history of TV has ever done, is tie content viewing directly to revenue.

For every show you watch, intro you skip over, episode you quit halfway through…every single click, you are going to earn some sort of crypto-token for it.

That’s right, you will get paid to watch TV. (That’s all we need, right? At least my kids can become revenue generators now.)

Vendors will run AI algorithms on all of the data that you (and others) generate and serve even more relevant ads based on your viewing habits.

You’ll get your content for free and you will get paid to watch it.  Then, you’ll use those crypto-tokens to buy the products that advertisers put in front of you (which is paid for in the same crypto-tokens), all part of the circular economy.

It likely won’t be Amazon that will find a way to pay you, as they’ve shown they are happy to keep your data in exchange for finding ways to sell more, but there are new business models, made possible by crypto and blockchain.

via Amazon Shows How You Will Get Paid in Cryptocurrency to Watch TV at Never Stop Marketing…

Google’s AI Ranks Photos on Merit

NIMA uses a CNN that is trained to estimate what photos a user would find aesthetically pleasing or technically proficient on a scale of 1 to 10. Coming up with this number relies upon object recognition networks which help the AI recognize elements within the image.

via Google’s Artificial Intelligence Now Ranks Photos on Merit at Light Stalking

Blockchain Based AI is Coming

As Deepak Dutt, CEO of AI-based identity proofing company Zighra says, “When data is commoditized, AI algorithms become the most valuable part of the ecosystem.” In other words, we’ll see a power shift from those who own big sets of data to those who build smart, useful algorithms. That’s great, but if we’re moving data to blockchains, some big, thorny questions still exist. For example: Where does the data go? How is it discovered and utilized? Why would people put their data in there? And don’t the “big guys” still have a huge advantage in terms of building powerful AI? Welcome to the world of Blockchain+AI

via Why you want blockchain-based AI (even if you don’t know it yet) at Never Stop Marketing…

Jeremy Epstein on AI for marketing

The AI tools getting created now could become a part of a marketing arms race that gives early adopters a chance to tighten their OODA loops, learn faster, and execute faster which will widen the gap between them and their competition.

via Will AI-as-a-Service Make Marketers Better? at Never Stop Marketing…