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Trading the Trend

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Intra-day:



Yesterday we sat at 0.91. Today at 0.83. This reflects the continued selling pressure, which is being absorbed. Excepting a surprise and a massive jump in volatility, we are ready to move higher.

We had a bit of a jump but it was quashed pretty fast.



jog on
duc
 
Some perspective:

On a weekly basis (still have 1 more trading day this week).



On a monthly basis:



June/July has not been great for anyone other than Tech.

On a Quarterly basis:



Financials are noticeably lagging. Part of this are fears from GFC where financials were the epicentre of the collapse and part is from legitimate concerns about NPLs and Bank Balance sheets (despite stress testing and the Fed on standbye). For a healthy market, we will need the financials.

jog on
duc
 
So 2 of the sectors I am currently interested in:



Which represents that the Financials generally sit in a range with the market. They will occasionally get ahead and occasionally fall behind.

Currently, they are what might be described as undervalued.



Defence. Generally they run ahead of the market (overvalued). Mostly because their earnings are guaranteed pursuant to law and those earnings are and have been consistently growing. Currently, again, undervalued.



And Tech. Somewhat overvalued? As has already been mentioned, tech has enjoyed a very good run from 2013. Will it keep running? Maybe. The thing with Tech. is this: while Tech. may well continue to run, will all of the same names? Where network effects are important (everywhere in Tech) then the big boys will likely maintain that advantage: AMZN, GOOG, FB (hate FB) et al. The little chaps, blow hot and cold and potentially disappear.

So are there issues in the market? Of course. Will they resolve? Yes. Because essentially they have to. Therefore the lagging sectors will catch-up and hot sectors will likely cool. To chase now, unless you are a daytrader or have pretty fast turnover of stocks, runs the risk of having to reset pretty sharpish if a reversion to mean takes effect.


jog on
duc
 
makteb said:
Can someone explain to me Mr Fly's last paragraph, I want to make sure i understand the message.
Click to expand...
Not that clear indeed, you go on your own crazily inexperienced and get slammed at the next winter/crash
Or just embed with the starched collars aka more experienced brokerage community and eat your pie /profit without saying anything
- quietly use your advantage and make money wo waves

As a non english as native language, i can sometimes miss a lot or even go fully 100pc wrong, especially with that style
Interested in others interpretation.
It is always a very abrupt style..to day the least and as some more pc correct member already pointed out
But numbers and graph tables need no traduction
 
Session not over but as i type, US market up and interestingly the Dow and even Russell 2000 are well aboveell the nasdaq.not looked yet in detail but could it be seen as a start of the catch up of the non tech?
Tide rising lifting the remaining stuck boat: looking forward to the expert eyes of Duc today
 
ducati916 said:
Two of the Big 4

View attachment 105786 View attachment 105787 View attachment 105788 View attachment 105789

Bit crooked, but you get the gist. These are the 2 models that I like.

AMZN:

View attachment 105790 View attachment 105791

jog on
duc
Click to expand...
Something people infatuated with the fangs need to realise is that most of these revenues ultimately derived from selling stuff
Booking a holiday flat, buying a pair of sneakers,etc. So while the advertiser has a share of most purchases, there is still some profit elsewhere.
Fangs act a bit as a gst on the economy, but there is a limit as to how much they can grow vs actual underlying economy.that should be reflected in stock valuation.
More exactly should put a cap on the respective differential.
Hope my point is clear enough
In a nutshell:
So either laggards rise or techs fall
 
From the posts last night on AMZN, GOOG, some context (and this applies to all the FAANG stable). This trend is not new. It has been in place for some time now.



Traders were questioned re. Bounce/Trend:



The 'Bubble' vote received 30%. Any validity?



Currently QQQ enjoying an epic run. It is (slightly) higher, which would suggest a slight cooling off period as the other indices close the gap.

The FAANGs run from 2015 is in part (or largely) due to their global presence:



The thing about high profit margins is that they attract competition. With Tech. the network effect is real and can be difficult to overcome. It can however be overcome in a regulated market. AMZN has given up in China. Alibaba is the dominant force there. India looks dodgy, the Nationalist government of Narendra Modi is making life hard. In Latin America MercodoLibre is #1 by a long way. AMZN international is losing money. This is offset by AWS which makes money everywhere, currently 77% of revenues. Advertising holds 7% of all advertising world-wide. AWS is (scuttlebutt) the subject of a spinoff, which if it occurs, pretty much returns AMZN to a loss making entity (again).

In the US there are a number of issues:

(a) Poor labour practices;
(b) Poor culture, alienating top management (Mr Jassy head of AWS);
(c) AMZN using 3'rd party data to steal ideas (Congressional anti-trust investigation + GOOG, FB & AAPL);
(d) European Commission (anti-trust);
(e) Big institutional investors concerned.

The big retailers (smaller than AMZN) WMT et al are waking up to online. They will challenge in the US. Whether they make inroads is hard to say.

These are all forces which over time may have an impact on outperformance. Could you have grabbed them at the bottom in March? Of course. The valuations were still extremely rich, AMZN is a PE of 118, that does not allow for any missteps.

jog on
duc



 
ducati916 said:
With Tech. the network effect is real and can be difficult to overcome.
Click to expand...
Indeed
This is why in my opinion, they are not all equal and i would value Alphabet far morei than Netflix in term of strength I see Netflix heading to s slow death
Amazon retail marketplace itself not a fan on the long term but AWS...yes
Etc..
 
Fundamental case for defence:



Earnings and production on a steady trend. With US elections approaching, it would probably be better for defence to keep Trump in the WH rather than Biden, but even if we get a bit of a Democratic slowing, valuations are low enough after COVID to offset any reductions. Biden would be stuck with the 2021 Budget (to be decided) in any case prior to his possible election.

jog on
duc
 
When chasing stocks, caution needs to be exercised: NVDA:



On a run:

Mr 9K



While the insiders



jog on
duc

 
I appreciate what you're saying, but I think there's a bit more to it than that duc. I don't know how old you are or if you're a computer nerd but I am and nvidia's next generation chips, a market they have the overwhelming lion's share of, are just around the corner at a time when everyone are stuck indoors. Combine that with their near stranglehold of the enterprise simulation/modelling market, an incredibly profitable market currently going nuts in an attempt to find coronavirus treatments and vaccines, and I'm expecting them to fly off the shelves at a serious premium too.

Unrelated: Here's a graph I know you'd be interested in:


Washington is talking about trying to get the next batch of stimulus out before the august recess, they're just bickering about how it'll look.
 

So my first issue is obviously that an insider, the CEO, is selling huge chunks. This is almost always a Red Flag in individual names. Up to this point, companies have been able to buyback stock from Options dilution (cheap debt). From an earlier post:



That game is (for the moment at least) over.

NVDA has been buying back stock in this manner:



In 2019, $1.6 Billion. To date this year: $0.00. That is going to start weighing on the market at some point.

Second point: the fundamentals are seriously in decline, not from 2020, which you would expect due to COVID, although you seem to be saying the opposite, that they will improve, but over the last 3 years. I'll go into them in greater detail later.

Needless to say, this is an accident waiting to happen.

jog on
duc
 
Before I respond: Do you know anything else about the company? How it gets its chips manufactured, its supply lines, the market it's in, what the most profitable stuff it targets is, how things look for the chip market as a whole, its comparison to AMD, Intel, skyworks etc etc?

I ask because nvidia has very successfully moved an awful lot of what was previously CPU driven jack-of-all-trades type modelling and computing into massively parallel processing. GPU's are now being used for all kinds of things (which are admittedly far more specialised types of computing) that were unthinkable a decade ago and this trend is not changing. Under the right circumstances/with the right instruction set(s), gpu's can perform functions dozens of times faster that cpu's due to the very nature/architecture of gpu's themselves and nvidia has excelled at getting this type of stuff happening.

In other words, I'm talking about a structural shift. Hence why the market cap of nvidia, a gpu manufacturer, is now larger than intel, the biggest cpu manufacturer. IIRC, a decade ago nvidia was 1/6th the size of intel.

I'm not saying that what you're saying doesn't have merit, but there's more to this.
 
I haven't downloaded any of the financials because that takes a lot of time and I'm really not that interested anyway. However:



These are some of the quickly (easily) spotted issues.

jog on
duc
 
Yeah I thought as much (don't mean that as a dig at you). You're looking at the first things anyone looking at a new stock would look at.

GPU manufacturing is cyclical - it takes years per generation like with cars. The next generation are out late this year. As you can imagine, like with cars, sales will always slump when the next model is just around the corner. Classic osborne effect.

So the new models come out, they fly off the shelves, and then sales gradually reduce until the next model/generation comes out, and the cycle repeats itself. Right now, we're only a few months away from the next generation coming out (teasers are already being "leaked") so few people are buying anything while they wait.

The market is obviously pricing in its anticipation of the next gen's sales as I agree with you that there's no current fundamental for the gain(s) we've seen lately aside from the structural shifts I've mentioned previously obviously, and they aren't nearly enough to explain this much of a rally.
 
Last edited:
Some food for thought from Ray Dalio:
My take away is that a great deal of smart money will move into precious metals as a long term storage of wealth, in effect the diversification of assets within portfolios, as investors seek some wealth protection and security.
 
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