Hope everyone had a nice weekend!
Recap of Week of 1/25/21 Weekly Stock Bullfinder Picks:
Farfetch Ltd (FTCH): -2.8%
Corsair Gaming (CRSR): -1.6%
Luminar Technologies (LAZR): -3.8%
YTD 2021 Weekly Stock Bullfinder vs. SPY: +4.8%
Wow! What a week! The overall market was extremely volatile this week as the major indexes pulled below their key moving averages while the GameStop and AMC short seller battles raged and consumed the financial news narrative. Corsair had a nasty failed breakout this week after hitting resistance and sharply pulling back due to weak market conditions. Setup still looks pretty good at the moment. Luminar continues to consolidate sideways and is building energy for a nice breakout. Farfetch showed nice relative strength this week and has held its 20 EMA while it also consolidates. It may need its earnings report coming later this month in order to provide some rocket fuel for it to move significantly higher. I continue to expect big things from this name this year.
Key level of market support I was watching into next week.
Based upon market conditions, raising some cash and trading smaller until volatility clears is the way to go. The “wind” is not at your back with the market below key moving averages if we get further deterioration this week. In the meantime, take careful notes of earnings season winners and those stocks on your watchlists exhibiting relative strength, especially in the face of huge down days like we had on Friday. What is going up and staying flat and not giving back much? Given the market noise and shenanigans with GameStop and AMC, companies who have excellent earnings reports this past week such as Microsoft, Apple, ServiceNow, Lam Research, Skyworks, among others, have not been rewarded for their strong earnings beats. We will see how the market reacts to strong beats and raises this upcoming week in various names as we get deeper into earnings season. Keep an eye on Tuesday reporting from both Alphabet and Amazon to provide clues on the QQQ tech heavy index direction. Also, keep notes of companies putting up strong earnings and raising guidance as they will run once the market returns to an uptrend. As we are in a corrective period, be mindful to try not to catch falling knives until key moving averages are recovered. A helpful guide I sometimes use for determining when a stock has finished its bottoming pattern (in addition to reviewing the key moving averages) is to wait until you see a 5EMA/10EMA cross on a daily chart. While this doesn’t work 100% of the time, this binary rule often keeps me out of the doghouse when trying to buy the dip too early before the bottoming and consolidation is completed. This also works for the larger indexes such as the closely watched QQQ and SPY indexes. Given the run we have had, it would not be surprising that we end up with a full 5-10% correction to remove the froth and extended charts coupled with the fact that February tends to be a seasonally weak month.
Some Thoughts From This Week:
-Tucked under all of the crazy headlines this past week were the developments from Capitol Hill that apparently President Biden has given Congress the go ahead to move forward with passing a COVID-19 relief package through the budget reconciliation process (i.e. via Democrat narrow majority without Republican congress support). Pay careful attention to movements on this matter this upcoming week because it will may likely set the tone for future legislation efforts and what may be coming next. Biden has run on “unity” and trying to pass bipartisan legislation but also faces strong voices within his own party to pass the Democrat priority list. Will Republicans want to work with Biden and his administration if they are bypassed right out of the gate? Will Biden work across the aisle or not? This is his first test. If reconciliation is used, this could be a market negative event as this would likely indicate that a whopper of a tax increase package (combined with infrastructure funding) could be coming later this spring/summer. In addition, adding another $1.9T of fresh fiscal stimulus on top of the $900B recently passed could result in a potential market blow off top and even more mania in the cryptocurrency markets due all the money printing and deficit spending.
-While I believe that explaining the precise reasons for the markets direction is a fools errand, there have been clear signs building over the past 3-4 months in particular that “frothy dislocations” are occuring which I believe may be partially due to the parabolic expansion of the Federal Reserve balance sheet and fiscal stimulus over the past year. We have seen significant P/E multiple expansion in stocks, parabolic rises in cryptocurrency assets (even obscure names like Doge coin??), rapid rises in the number SPAC IPO’s with market makers pumping pre-revenue companies ($QS, Quantumscape, an EV battery maker that goes from $10 to $130 a share with no revenue or batteries to produce until 4 years from now!) , unprecedented call option buying by retail investors, and surging retail trading volumes. This behavior usually has historically been strongly correlated to at least a short term market top or pullback. Even Cathie Wood of Ark Invest has indicated in her recent interviews that she predicts we will have a “doozy” of a correction sometime this year but predicts we will continue higher due to an accommodative Fed and pent up demand from the COVID-19 pandemic.
-The trading volumes in GameStop and AMC and others this week strongly suggest to me that hedge funds, international players, or other institutions piled on bad short bets. As they say “this isn’t you Aunt Sally buying”. When I see GameStop had 197M shares transacted alone just on Wednesday, I have a very hard time thinking that Reddit and Wall Street Bets were solely responsible for the skyrocketing trading volume we saw this week. Why did this occur? Perhaps it was done by peer rivals to drive max pain for hedge funds like Melvin Capital who had large short bets but I think the SEC investigation of this mania will be very revealing of who participated in this. In particular, who are the identities of some of these Reddit bloggers who seem to be well versed in orchestrating gamma squeezes through call options? Could there be hidden actors at play here spreading misinformation for their personal fund’s gain? Only time will tell and still lots to unravel.
A short story I saw on Twitter to think about in light of AMC and GameStop.
-I have found it very ironic that Chamath Palihapitiya, a venture capitalist who has emerged as the face the SPAC IPO process, gets tons of air time and publicity on CNBC and Twitter this week capitalizing on the Robinhood mess by telling his followers to switch their brokerage accounts to SoFi (which turns out that he is the SPAC sponsor for ($IPOE)!). How convenient! On Tuesday, he quickly swings a $250K call option bet to $500K (donated to Barstool charity fund which is great) on GameStop (which inevitably encourages copy cats) in one day and further perpetuates the short squeeze pain and Robinhood brokerage clearing issues. Robinhood then responds on Friday with lots of stock and option trading restrictions, in particular many of them Chamath’s SPAC sponsored names like $IPOE and $IPOF. What is really going on here? Did Chamath try to take Robinhood public via his SPAC names and was rebuffed? Is there more to this or is this just a coincidence? Certainly a crisis not wasted on Chamath’s part.
-On Wednesday, Silver Lake Capital Partners, a private equity firm, took advantage of the parabolic rise in AMC Theaters stock price and sold their $600M convertible bond investment in AMC Theaters (which was heavily underwater prior to this week due to closed/underperforming AMC movie theatres from COVID-19 and whose return on investment was looking extremely remote) for a $113M profit. Sticking it to the hedge funds?
-It is all but certain that certain brokerages, highlighted by Robinhood, will be making several trips to Washington DC to get yelled at in front of various Congressional committees over the next several months. It remains to be seen what tangible legislative reforms may come out of this, if anything. One helpful one would be for Congress to more closely monitor and regulate the capital levels and margin requirements of these brokerages such as Robinhood and others that have seen a huge rise in trading and App signups because it is clear their service cannot support the surge in trading volumes. For example, WeBull account signups Thursday were 1,548% higher than their 7-day average. Clearly these names technology and clearing mechanism were ill prepared to handle these trading volumes. A big negative would be for Congress to create a new trading transaction tax for these brokerages that would inevitably be passed along to the retail investor.
Some interesting charts I wanted to share this week…
#1- Shots, Shots, Shots!
I have enjoyed checking in each week to the Bloomberg vaccine tracker to see how the US and the world is performing with the COVID-19 vaccine rollout.
So far in the US, 28.9M vaccine doses have been administered with 1.6M vaccine doses administered on Friday 1/29. We are currently at a 7-day rolling average of 1.3M shots per day. Based upon Biden Administration commentary, there is a hope that we will have hit a 7 day rolling average of at least 1.5M vaccine doses by the end of next week. Progress. Globally, were are doing over 4M vaccine doses a day.
Here is a little conversion table I saw on Twitter that puts things into perspective. Assuming you want to vaccinate 80% of the US population including children, at our current pace, it would take a year to vaccinate 80% of the country, assuming a 2-dose vaccine.
#2- VIX Volatility!
The Cboe Volatility Index, or $VIX, is a real-time market index representing the market's expectations for volatility over the coming 30 days. The $VIX measures the level of risk, fear, or stress in the market when making investment decisions. The $VIX spiked 62% higher on Wednesday, the 3rd largest 1-day % increase in history (note: $VIX data goes back to 1990). The VIX closed at 33 on Friday which is still significantly elevated.
#3- Chips and More Chips?
Cathie Wood and ARK invest presented their “2021 Big Ideas Report” recently and discussed emerging themes, predictions, and growth opportunities based upon their market research. One area that caught my eye was their prediction for an explosion in the AI chip market over the next five years which they predict will see a 33% CAGR over the next 5 years. Key players here are Nvidia, Taiwan Semiconductor, AMD, Samsung, Lam Research, among others. Very bullish for semiconductor companies (from chip designers, to the equipment suppliers, to the foundries).
Download full report here: https://ark-invest.com/big-ideas-2021/
#4- Canada vs. US Housing- The Great Divide?
I found this chart pretty striking given the roaring hot real estate market that exists today in the US. This chart points out that even though the US market is super hot (and some even arguing is in a price bubble due to low rates), its amazing that Canada’s average home price are 40-50% GREATER than here in the US. Wow!
Weekly Stock Picks for the Week of 2/1
#1- AdaptHealth Corp (AHCO)
AdaptHealth Corp., together with its subsidiaries, provides home healthcare equipment, medical supplies, and home and related services in the United States. The company provides sleep therapy equipment, supplies, and related services, including CPAP and bi-PAP services to individuals suffering from obstructive sleep apnea; home medical equipment (HME) to patients discharged from acute care and other facilities; oxygen and related chronic therapy services in the home; and other HME medical devices and supplies on behalf of chronically ill patients with diabetes care, wound care, urological, ostomy, and nutritional supply needs.
The AdaptHealth chart looks constructive as it consolidates sideways and was actually up almost 3% on Friday showing strong relative strength. Notice the nice volume spike in early January that came in to support the drop down to the 50MA after announcing offering news. This chart is showing strong signs of accumulation and recently received an upgrade from Bank of America to a new target of $46 last Tuesday. Look for this one to move higher if the market cooperates. Set stop loss with a break of the 20EMA.
#2- Novocure Ltd (NVCR)
NovoCure Limited, an oncology company, engages in the development, manufacture, and commercialization of Optune for the treatment of a variety of solid tumors. The company markets Optune and NovoTTF-100L, a Tumor Treating Fields delivery system for use as a monotherapy treatment for adult patients with glioblastoma. It is also developing products that are in Phase 2 pilot and Phase 3 pivotal trials for brain metastases, non-small cell lung cancer, pancreatic cancer, ovarian cancer, liver cancer, and mesothelioma.
Novocure has been in a steady uptrend and has found support multiple times at its 50MA. It is now re-testing support at the 50MA so we will see if helds again as it now oversold which provides the chance that we could see a bounce. Novocure has strong estimates for future growth and should have upcoming news this quarter on whether or not its tumor treating field cancer therapy has benefit for stomach cancers. Set stop loss loss on a clear breakdown of the 50MA.
#3- 1 Life Healthcare (ONEM)
1Life Healthcare, Inc. operates a membership-based primary care platform. The company has developed a healthcare membership model based on direct consumer enrollment, as well as employer sponsorship. Its membership model includes seamless access to digital health services paired with inviting in-office care routinely covered under health insurance programs. The company also offers administrative and managerial services pursuant to contracts with physician-owned professional corporations or One Medical Entities.
1 Life is telemedicine peer to Teladoc (which also shows a strong chart) and looks to be setting up in a bull flag pattern. The Cathie Wood ARK Invest ARKG genomics ETF recently bought this name last week which may explain the accumulation pattern and tight closes as other funds may be getting involved here. This one has strong estimates for future growth and has been announcing new agreements and deals for virtual healthcare with various organizations and hospitals over the past year. Alphabet's Google Ventures is a key investor, and Alphabet is also one of the largest clients of One Medical, the clinic brand run by 1Life. Set a stop loss with a clean break of the 20EMA.
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