Weekly Cycle: Market Outlook for 08.06.2018

Weekly Cycle - Stock Market Outlook 08.06.2018

Weekly Cycle: Market Outlook for 08.06.2018

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.

 

“Prices are too high” is far from synonymous with “the next move will be downward.” Things can be overpriced and stay that way for a long time . . . or become far more so.”

― Howard MarksThe Most Important Thing: Uncommon Sense for the Thoughtful Investor

 

Market Performance

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

 

Observations:

  • SPY and VTI up over 2% over last month, nearly 7% over last 90 days
  • CQQQ down nearly 15% in last 3 months
  • Meanwhile, QQQ up almost 9% in last 3 months
  • MJ down nearly 10% in last month

 

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:

  • SPY, VTI show very bullish trading signals
  • QQQ remains very strong
  • VFH continues with strong trading signals
  • HACK remains somewhat weak

 

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.

Note: No updates since July 23, 2018.

 

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

“Short term: The S&P 500 is holding its breakout – watch that level just below 2800 if there is any selling.”

“We began last week’s recap with this chart regarding the percent of stocks in the NASDAQ over their 50 day moving average – it was at 42%.   Fast forward a week and the number is 42% again – despite a 1% gain for the week in the index.  So a bit of a divergence here; mega stocks like Apple – the first trillion dollar company in the U.S., are masking some weakness below the surface.1

Mark Hanna StockTrader.com

Articles of note

— Chipotle’s app is driving huge revenue growth and growing quickly. 

“Chipotle’s digital sales grew 33% in the last single quarter after growing 20% the quarter before”

The dead simple strategy behind Chipotle’s $1.3B second life
About the author Fast Company

” Its latest quarterly earnings beat all expectations, with an 8% increase in revenue to $1.3 billion, for which it has four things to thank: raising its prices, cheaper avocados (sweet, green profit margins!), a maturing delivery business, and a digital app that is growing at a phenomenal rate.2

FANG stocks are not the only highly valued companies currently. 

“The median price-to-sales ratio on the S&P 500 currently stands at an unprecedented extreme”

It’s More Than Just FANG Stocks Investors Should Be Worried About
jessefelder
August 1, 2018
The Felder Report

“What investors really should be worried about then is the possibility that the reappraisal of the FANG stocks is representative of a much wider reappraisal that began back in February. Because if the heroic assumptions behind these unprecedented valuations are not met the repricing for not just the FANGs or MCBM but the entire stock market could be significant.3

Katsnelson received an email from Tesla saying cars can now be ordered and ready in a few months. Most of the nearly 350,000 pre-orders are unfilled and production rate is nowhere near great enough to deliver all in four months. 

“You can design and order [a Tesla Model 3] today for delivery in approximately 2–4 months.
…What happened to 345,000 orders?”

Questions I’d be Asking If I Owned Tesla Stock
Vitaliy Katsenelson Vitaliy Katsenelson Contrarian Edge

“If I was a Tesla investor I’d be seriously worried about the company’s balance sheet. There are some ominous signs that Tesla’s financial situation is deteriorating rapidly. Tesla reportedly recently sent an email to its suppliers asking them to give some money back to help the company with its profitability.
Such requests are made by companies looking for Hail Mary solutions to significant financial problems. If suppliers start questioning Tesla’s financial viability, they’ll start shortening their accounts receivables periods and start requesting letters of credit. This would escalate the company’s problems. Hail Marys are acts of desperation. Putting this in the context of the likely Model 3 cancellations, — Tesla’s cash burn has likely gotten a lot worse.4

— Unlike past decades, there are more young, growing, and unprofitable companies in public markets. Many times, these young companies have dilution, options and share classes that make a discounted cash flow analysis more complex. 

“Dilution, share based compensation and shares with different rights are just as much an issue when you compare multiples across companies”

Share Count Confusion: Dilution, Employee Options and Multiple Share Classes!
Aswath Damodaran Musings on Markets

” Dilution, share based compensation and shares with different rights are just as much an issue when you compare multiples across companies, and ignoring them or using short cuts (like full dilution) will only skew your comparisons and lead to mis-pricing stocks. I would suggest four general rules:5

— A recommendation of poker player Annie Duke’s book, Thinking in Bets, and her recommendation to omit outcome when analyzing decisions. 

“any talk of outcomes when analyzing decision quality, especially when you have incomplete information”

The Right Place, The Right Time – Of Dollars And Data
Of Dollars And Data

“For example, you wouldn’t think that someone who drove home drunk and survived had a good decision-making process.  Why?  You have information that suggests otherwise.  However, when someone gets rich by day trading you aren’t as sure as to whether this was good decision-making or good luck.  You have less information, so you are more prone to judge the decision based on the outcome.
As I have discussed before, focus on your efforts, not your results.  It’s the only thing you can control.  With that being said, I am once again going to recommend checking out Annie’s book to help you focus on the things you can control.6

— More information doesn’t necessarily lead to a better decision; often it just gives a false sense of control. 

“you should concentrate on a few key elements in stock selection, i.e., what are the 5-10 most important things”

Illusion of Control in Stock Analysis | Safal Niveshak
Safal Niveshak

“Trying to increase your confidence by gathering information that is supposedly unknown to most others really only makes you more comfortable with your investment decisions, not better at them, and is generally an unproductive use of your limited time.7

  1. https://www.stocktrader.com/2018/08/06/weekly-market-recap-aug-05-2018/
  2. https://www.fastcompany.com/90209037/the-dead-simple-strategy-behind-chipotles-1-3b-second-life
  3. https://thefelderreport.com/2018/08/01/its-more-than-just-fang-stocks-investors-should-be-worried-about/
  4. https://contrarianedge.com/2018/07/31/questions-id-be-asking-if-i-owned-tesla-stock/
  5. http://aswathdamodaran.blogspot.com/2018/07/share-count-confusion-dilution-employee.html
  6. https://ofdollarsanddata.com/the-right-place-the-right-time/
  7. https://www.safalniveshak.com/stock-analysis-and-illusion-of-control/

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