Stock Market Outlook 05.07.2018
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 regular weekly checkups for proper diligence. A weekly outlook provides relief from overreacting on a day-to-day basis, while still allowing for relative short term moves.
Index Performance & Technical Indicators
- S&P 500 (SPY) up slightly over last week
- Cannabis (MJ) up over 10% over last 30 days
- Tech (QQQ) up 3.5% in past week and 5.6% in last 30 days. Similarly, cybersecurity (HACK) is up over 6% in last 30 days.
- VIX is 50% down over last 3 months and 50% up over last year
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).
- Trading signals have turned overwhelmingly positive for wide, general indexes including SPY, VTI, VEA.
- Tech index (QQQ) has improved significantly since last week
- VIX has fallen further, with a negative score indicating bearish sentiment towards volatility
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 indicates a negative turn for short term trading conditions, while the long-term outlook remains unchanged.
Short-term trading conditions have turned negative.
The long-term fundamentals and outlook are little changed. The long-term technical health is back to strongly bullish.
This comes despite genuine positive surprises in earnings reports:
Corporate earnings continue to exceed expectations. This is especially interesting because of the unusual pattern this quarter. Expectations were not reduced significantly before the reports. These are true surprises. FactSet calls it the highest beat rate since they began compiling data in 2008.”
He also discusses how volatility effects trading vs investing, mentioning:
if stocks declined another 14%, would it tempt you to buy? If so, get your shopping list ready. The forward P/E on the S&P 500 has gone from 18.6 to 16.
Most people focus on price, not value, so these “sideways corrections” often go unnoticed.
Mark Hanna publishes a weekly Market Recap full of charts and insight on news and market trends at StockTrader.
This week, Hanna writes that short-term conditions have further worsened, with long-term conditions remaining positive.
The indexes continue to mark time range bound at lower levels (with moderately high volatility) which should be a concern for bulls until it changes. Unlike consolidation after a move up, this is consolidation after a selloff which is not usually bullish.
Short term: A lot of consolidation at lower levels. That is a concern for bulls. More tests of the 200 day moving average – also not great.
Long term: Still very positive for the “buy and never sell” crowd.
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 bullish bias”, which is more positive than last week’s “bearish bias.” There’s short and long term concern if SPX and QQQ break immediate term supports, yet they write “Further bullish momentum likely in the short-term.” More info on support levels in the weekly update.
Articles of note
The biggest companies focus on Customer Experience
Ben Thompson writes on the differences between Apple and Amazon, two companies closing in on $1 trillion valuations.
I mean it when I say these companies are the complete opposite: Apple sells products it makes; Amazon sells products made by anyone and everyone. Apple brags about focus; Amazon calls itself “The Everything Store.” Apple is a product company that struggles at services; Amazon is a services company that struggles at product. Apple has the highest margins and profits in the world; Amazon brags that other’s margin is their opportunity, and until recently, barely registered any profits at all. And, underlying all of this, Apple is an extreme example of a functional organization, and Amazon an extreme example of a divisional one.
Despite those differences, there is a commonality in a focus on customer experience.
Both, taken together, are a reminder that there is no one right organizational structure, product focus, or development cycle: what matters is that they all fit together, with a business model to match. That is where Apple and Amazon are arguable more alike than not: both are incredibly aligned in all aspects of their business. What makes them truly similar, though, is the end goal of that alignment: the customer experience.
More VC love for Canada
Like Brad Feld, venture capitalist (and prolific blogger) Fred Wilson is very positive on Canada.
More importantly, the talent pool in Canada is rich. Canadians are well educated and there are a number of very strong engineering schools in Canada. All of our portfolio companies that have engineering teams in Canada claim they get higher quality and retention in those teams than the ones they operate in the US.
So I’m bullish on Canada and have been since we started investing here almost ten years ago. And unlike the US, Canada has the wind behind it’s back in tech right now.
Tesla is not a tech-company
Scott Galloway writes that Tesla is an automaker and shouldn’t be considered a tech company.
Tesla has an amazing product, but has been mistaken by investors as an internet firm. Tesla lacks the frictionless networking effects of a Google or Facebook and doesn’t have the Hermés-like margins of an Apple. Yet, it’s trading at a valuation more reflective of a firm that can scale like a Facebook or generate the profits of an Apple.
His outlook for the stock isn’t good:
This means by the end of the year Tesla analysts will begin wringing their hands over liquidity concerns and dilution. This fear, coupled with rising interest rates, could spook bondholders and result in the equity being the tail of the whip as enterprise value drops.
Here is another monthly update on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs – and now prices are well above the bubble highs.
Reports like this make me question living the SF Bay Area.
Let’s state it plainly: The Bay Area must increase its total housing stock by 50 percent over the next 20 years to bring affordability down to a reasonable level.