Weekly Cycle: Market Outlook for 07.09.2018

Weekly Cycle Market Outlook July 09 2018

Weekly Cycle: Market Outlook for 07.09.2018

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.

 

“Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”

~Howard H. Aiken
via Why Share?
Howard Lindzon

 

 

 

Market Performance

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

 

Observations:

  • VNQ (Vanguard REIT index) up over 10% over last 90 days
  • SPY down just over 1% since 1 month ago
  • China tech (CQQQ) down over 8% last 90 days (trade war fears, possible buying opportunity)
  • Emerging markets ( VWO BKF) down 10% and 8% over last 3 months.
  • Cannabis (MJ) up 8% over last 90 days

 

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:

  • VIX signals are down significantly
  • SPY considerable stronger
  • VNQ and QQQ much stronger than 1 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 in Weighing the Week Ahead: Inflation on the Horizon?

“Short-term trading conditions continue at highly favorable levels. Actual volatility declined dramatically in the four-day week.”

“Homebuilders. Barron’s especially likes Toll Brothers (TOL), suffering from an “excessive decline” leaving the stock “significantly undervalued.” The company has been performing well despite the highly-publicized headwinds of higher interest rates and increased costs. [Jeff – I agree but have chosen two of their competitors.]1

 

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 in Weekly Market Recap Jul 08, 2018

“Currently the action for short term traders is choppy and tricky. Those with a long term view still are in cruise control”

“Long term: Still very positive for the “buy and never sell” crowd.2

 

Articles of note

— Today’s tech stocks (FAANG) are not nearly as overvalued as the biggest tech stocks of the dotcom bubble

FAANG “currently trading at 37x earnings and 5.5x sales. The four in the late 90s were trading at 100x earnings and 26x sales.”

The Ghost of Tech Stocks Past

” These four stocks would collectively fall 77%. Other stocks got hit much harder.

Nortel was worth $283 billion. It went bankrupt.
Lucent was worth 285 billion. It merged with Alcatel in 2006, which currently has an $11 billion market cap.
America Online  was worth $220 billion at its peak before it merged with Time Warner. They were bought by Verizon for $4.4 billion.
Yahoo was worth $125 billion. It was also recently bought by Verizon, for $4.5 billion.3

Speaking of FAANG stocks, Domino’s has beat all of them since 2010, and there are a handful of businesses in much more traditional industries that have grown by as much as 5500% since 2010

“since 2010 it is Domino’s that beats Netflix and the rest of FAANG since 2010:”

Who Has The Best Business Model?
Howard Lindzon Howard Lindzon

“If you are looking for the best stocks since 2010 it is actually paint protection film, manufactured housing and commercial dry cleaning equipment that have made their investors the most money4

— Is there a problem brewing with passive, blind index investing? Here the case is made that the largest companies are being overvalued and that indexes are bending criteria to include the biggest tech stocks. 

“consequence is an ocean of money flowing into the largest companies for reasons that could be unrelated to their merits as investments”

The Hidden Index Bubble
Isaac Pino, CPA The Motley Fool

“For investors, this raises questions about whether there’s a bubble within index investing. So far, valuation metrics like price-to-earnings ratios have not gone completely haywire, as they did in 1999 during the dot-com bubble. Back then, the cyclically adjusted price-to-earnings (CAPE) ratio was nearing 45 at the time of that bubble’s collapse; it’s at 33 today.
But that time frame provides some context. In 1998, just before the dot-com bubble, the largest stocks were thriving. The 10 largest companies in the U.S. market were up 38.5% that year. Then the market turned and took everyone with it — shareholders in small and large companies alike.5

— A good read on the excessive number of bear calls and how the noise makes it difficult to know when to take action. 

‘Turning to Amazon, again we have over 100 different ETFs that have overweighted the stock”

Same Old Greed In A Shiny New Wrapper
The Felder Report

“It’s the very same sort of insatiable greed on the part of Wall Street serving the insatiable greed on the part of investors that has driven every speculative mania throughout history. Only this time it comes in a brand new, shiny wrapper that people can use to call themselves “passive investors.”6

“For all the time spent worrying about this risk, the overwhelming majority of short term traders…haven’t found a way to avoid it”

The Money Gods’ Price For Achieving High Returns

“Briefly, stay long when SPX is above the 10-mma at month end, move to cash when below. There are still drawdowns of more than 15-20% (e.g., 1987, 1990, 1998) and the strategy can underperform in a grinding bull market, but the long term track record is excellent.7

— Canada’s Shopify scored a big win in British Columbia. Presumably, this is a large growing market given Canada’s recent law changes allowing recreational cannabis nationwide. 

“Shopify has been named as the sole vendor to provide ecommerce services for cannabis sales across…British Columbia ”

Shopify to run ecommerce cannabis sales within BC
Business Chief Canada

“The Liquor Distribution Branch (LDB), set to become BC’s only public retailer of cannabis products, stated that Shopify was selected ahead of a number of other bidders due to its proven track record of offering reliable delivery services.8

— A look at the best business model, which typically results in giving away a great product cheaply (or freely) to the majority of customers, while providing the opportunities for best customers to spend. QVC and Amazon are cited as examples. 

“A key to shared-value transactions is that you then use a portion of the spend from your best customers to indirectly fund products for your average users”

Who Has The Best Business Model (And It’s Not Google Or Facebook)
Medium

“What if instead you had a business model that could maximize revenue from your best customers, and then share that value across all your customers, while not annoying users in the process? Sounds good right? Not only does such a model exist, but it’s being used by many companies to great success. I’ll call this strategy shared-value transactions.9

 

 

 

 

  1. https://dashofinsight.com/weighing-the-week-ahead-inflation-on-the-horizon/
  2. https://www.stocktrader.com/2018/07/08/weekly-market-recap-jul-08-2018/
  3. http://theirrelevantinvestor.com/2018/06/30/the-ghost-of-tech-stocks-past/
  4. http://howardlindzon.com/who-has-the-best-business-model/
  5. https://www.fool.com/investing/2018/06/24/the-hidden-index-bubble.aspx
  6. https://thefelderreport.com/2018/06/27/same-old-greed-in-a-shiny-new-wrapper/
  7. http://fat-pitch.blogspot.com/2018/06/the-money-gods-price-of-achieving-high.html
  8. https://canada.businesschief.com/marketing/2728/Shopify-to-run-ecommerce-cannabis-sales-within-BC
  9. https://medium.com/@efeng/who-has-the-best-business-model-and-its-not-google-or-facebook-ca36f967bbd1

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