I hope everyone had a nice weekend! Happy July 4th!
Getting Real Ugly Out There
Each week, my screening process involves a combination of a number financial sites but my favorite site to use is FinViz. FinViz is a free site that allows you to filter and select on a number of stock criteria. I typically filter on stocks which are above all key moving averages, over $10 in price, liquid (>300K average volume), and have high relative volume (over 1X) for a given day, week, or other timeframe. The goal being to identify those stocks which are uptrending and under institutional accumulation while filtering out the noise. I included the link to my screener in case you would like to play around.
https://finviz.com/screener.ashx?v=111&f=ind_stocksonly,sh_avgvol_o300,sh_price_o10,sh_relvol_o1,ta_sma200_pa,ta_sma50_pa&ft=4&o=-volume
With market damage becoming worse by the week, identifying promising setups becoming fewer and fewer as most groups and sectors in bad Stage 4 declines, continually rejecting at key moving averages in each bear market rally in 2022. I have no interest in speculative biotech and wouldn’t put a dime in a Chinese stock. Playing defense and resisting buying into a Stage 4 decline is key as the macroeconomic data continues to soften and revert back to pre-COVID trends after the “sugar high” of low interest rates and fiscal stimulus wear off. This week, the Atlanta Fed GDPNow, a real-time GDP forecasting website, is now estimating a contraction of -1% for Q2 2022. If this should prove to be true then we are already in a technical recession based on two sequential quarters of declining GDP growth. Overseas, the Eurozone is likely already in recession as well as high energy costs cripple manufacturing and consumer budgets. China is playing cat and mouse with opening and reopening its economy with its “COVID Zero” policy and its too early to tell when a fully reopened China will function to help improve global GDP.
While painful, the Federal Reserve tightening campaign to cool off demand and hopefully reverse inflation is already showing signs of achieving its objectives. Its evident in the high frequency data and throughout lots of areas of the global economy (compounded by the war in Ukraine/Russia). I suspect that over the next quarter, the Stage 4 declines in many commodities and high interest rates will have the business media pivoting to talking about the Fed overshooting with its tightening when a swift economic deterioration is already showing up so early in its campaign to tighten monetary policy. Could Fed Chair Powell compound his mistake of being “too late” to combat inflation with aggressively tightening into an already rapidly cooling global economy? Certainly is a possibly and this narrative will likely grow louder this upcoming quarter.
Crypto Winter
If you haven’t been paying attention, the crypto economy has become unwound and is in a steep Stage 4 decline. Plagued with scandal, fraud, and threats of new regulation, this pocket of the economy that emerged over the past few years in under immense selling pressure creating a significant reverse wealth effect. Currently, the global crypto market cap has fallen under $900 billion USD. Just months ago, it was around $3 trillion USD.
Playing Defense
Freeport McMoran, a copper producer, is a prime example of a stock that appears on the verge of entering a Stage 4 decline. Now firmly below key weekly moving averages and support, RSI below 50, Freeport looks like it wants to breakdown much lower. In nasty bear markets like we are in now, its important to remove emotions, have firm sell rules, and protect capital at all costs. Developing a habit of routinely using technical analysis to play defense with your portfolio can save you lots of mental capital and stress.
Some interesting charts from this past week:
1) Refineries Running In Overdrive
US refineries in the Gulf of Mexico (PADD3) are running the hottest for this time of the year in at least 30 years: a stunning 97.9% of their capacity is running. Maintenance issues are front of mind as we go later on in the year after running this hard!
2) Gallup Consumer Poll
The latest Economic Confidence Index from Gallup polling has plunged to -58, the lowest since February 2009 ... as of June, 85% of Americans said economy is getting worse.
3) Home Prices to US Disposable Income
The average price of a new home in the US is now over 10x higher than per capita disposable income, the highest ratio in history. The current ratio is almost 100bps higher than the 2008/2009 housing market crisis. What could go wrong?
Stocks I’m Watching
1) Nexstar Media Group (NXST)
Nexstar Media Group, Inc., a television broadcasting and digital media company, focuses on the acquisition, development, and operation of television stations and interactive community websites and digital media services in the United States. The company offers free programming to television viewing audiences. The company also offers video and display advertising platforms that are delivered locally or nationally through its own and various third party websites and mobile applications, as well as owns WGN America, a national general entertainment cable network. Its stations are affiliates of ABC, NBC, FOX, CBS, The CW, MyNetworkTV, and other broadcast television networks.
When thinking through the second half of the year, a bruising midterm political election in November will likely being taking shape with candidates and parties spending big money to protect or change the current balance of power. Nexstar is the nation’s largest TV station owner and could be significant beneficiary of ad spend in the back half of the year. It serves markets which are expected to be tight political races. Nexstar has an excellent track record of delivering for shareholders, increasing fully taxed FCF from $2/share in 2012 to ~$35/share today. The stock is up ~25x over that period. Currently, Nexstar is trading at a meager 6X P/E and sports a 2.3% dividend yield. Technically, Nexstar appears to be building a base on base pattern and has been holding up so far while the market has taken a beating this year.
2) Raytheon Technologies (RTX)
Raytheon Technologies Corporation, an aerospace and defense company, provides systems and services for the commercial, military, and government customers worldwide. It operates through four segments: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense.
With the Ukraine/Russia conflict showing now signs of abating, there is a steady cadence of new funding announcements for the latest orders of military equipment from defense contractors like Raytheon. Last week, it was announced that the Missile Defense Agency (MDA) awarded a contract of up to $62 million to Raytheon. Raytheon is a defensive play in a recessionary environment, while its future growth will be boosted by higher defense spending in response to geopolitical tensions, especially restocking NATO defense members.
Disclaimer:
All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.