Stocks – TWTR, BAC, T, ROKU, AMD
Macro – SPY
- I Still Think We Get A Short-Term Retest
- What Does The Dollar Know?
- Stocks Remain Stuck At The High End Of Range
- The Feedback Loop Is Sending Stocks Higher, Vix At Key Support
- A Path To 3800 On The S&P 500 In 2021
- Volatility Implodes
- Volatility Collapsing
It is Sunday morning, and that means a new week will be upon us shortly. These weeks seem to fly by, and the market feels as unpredictable as ever. Watching the market for the past 25+ years has taught me to expect the unexpected, and while I think we have a path to 3,800 over the next twelve months, I’m not sure how that path goes. I started writing up a post about that thought yesterday, but I decided to wait and give the market another week or two to settle from the election. (Premium video content – A Path To 3800 On The S&P 500 In 2021)
If the election taught us anything, we should take the time to do our own work and form our own views. The election proved to be much closer than anyone thought, and despite the final electoral college total, like reading a box score, we know it was closer than the final score.
Bottom line, the purpose of the exercise isn’t to be right or wrong. Of course, being right is nice, but we know no one is right all the time, and having a process that works overtime is all that matters. Investing is no different and having that process and challenging your theories and beliefs against the herd is what makes us better. If you aren’t willing to take chances and be wrong from time to time, you can never win.
I turned another year old this past week, 43. It has left in a more reflective mood. When I started on this adventure of working for myself now almost 7 years ago and leaving a rather successful career as a trader. I never expected to have made it this far, with this type of loyal readership base, so thank you for that. I appreciate it in ways that words can not describe.
S&P 500 (SPY)
I am highly uncertain what this week will bring, especially after the past week. Last week, we saw a massive collapse in volatility and what appeared to be a massive rotation and short-covering. We know there was short covering involved based on the collapse in volatility, which comes with selling puts and selling volatility.
I tend to think we are likely to see a pullback of sorts this week. I do not think we are in the same position we were in at the end of 2016, with the Trump upset win. We are in a different period of time, with different challenges. The question will be how Biden chooses to handle the virus, but in truth, we may not see those policies put into place until nearly February.
We are forming a triangle pattern, and that would suggest we see a move lower from here to around 3,275. We will see.
AMD may still have a head and shoulders pattern that is in the works. The stock would need to rise above $87 before we know if the pattern is dead. The one part that isn’t clear to me is if there has been a real break out in the momentum or just a head fake on the RSI.
Bank of America (BAC)
Bank of America’s stock has struggled and is trending lower with an RSI that confirms the downward motion. The big level of support will need to come at $23.20. However, this stock and sector’s direction is likely to be heavily influenced by yields and the curve.
I will never understand what the market sees in Roku; I just won’t. The stock trades with a higher multiple than Netflix on a price to sales ratio. But Netflix clearly has a vast moat around, and the competitive threat proved to be much over-hyped and never developed. However, Roku, which has a much bigger competitive threat, which everyone seems to ignore, trades with a much higher price to sales multiple. Additionally, Netflix has a subscription model, and Roku runs an ad based model. It will never be clear to me what people see there. Can the stock go higher? Sure, it has the momentum behind, and it has been on a tear all year. How much higher, and how does it end, I don’t know.
After using Twitter a lot to find information over the past several weeks, I wonder what place it will have going forward. The company has clearly decided to have a say in what does and doesn’t get published to its platform, and that, to some degree, bothers me. I’m not sure what is exactly that bothers me, but it just does. I think what bothers me the most about it is that it could effectively decide at some point it doesn’t want financial content from guys like me and cut me off its platform, and then what would happen to my audience? In fact, all of these major social networks can, and that worries a small guy like me. Just like how Google decided to stop serving ads to my website for no reason, and there is nothing I can do about it. While appreciating the dominance from an investing standpoint, one must wonder what it means longer-term.
An increase above $43 sends it back to $46, with a gap to fill much higher.
I am also beginning to wonder how AT&T and its purchase of Time Warner fit into this whole equation. Is AT&T a wireless provider, or a company that is now also in a similar arena to Twitter, with its ownership in CNN and other news networks? The stock peaked around the time they announced they would buy Time Warner in 2016, and it has been downward ever since, a sign the market has strongly disapproved of the deal and continues not to see the deal bare fruit.
Lots of things to think about as I try to decide the future direction of my portfolio and how I want to invest going forward.
Have a good one
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