Stocks Grind Higher Looking For The Light At The End Of The Tunnel

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

Otherwise, enjoy the column!

Subscribe to the Monster Stock Market Commentary and join the 2,408 subscribers getting it for FREE every day!

August 17, 2020

STOCKS – AMZN, FB, SQ, PYPL

MACRO – SPY, QQQ

Mike’s Reading The Markets (RTM) Premium Content – NOW WITH A 2 WEEK FREE TRIAL

The market continues to be range-bound, with the Qs rising by 1.2% but remained around that $275 level, which it has been stuck since early August. From the standpoint of what happens next, at this point, I can’t find one bullish indicator that I track. Options betting continues to build, suggesting lower prices lie ahead, gamma levels are also suggesting upside in this market is completely limited. I talked about this in the morning and midday update. In 2019, we always had that backdrop of a favorable valuation based on earnings, but this year that crutch is gone.  Low-interest rates are great, but they are low for a reason. The equity risk premium is favorable to the market, but is that what this has come too? Just multiple expansion?   Not exactly an ideal situation to be in if you ask me.  (Premium content – A Sudden And Swift Drawdown? – with a 2-week free trial) 

The current path from a purely technical standpoint gets the Qs to no higher than $280, by the middle of September, then everything will converge. That is about 1.9% higher from its current spot. 

S&P 500 (SPY)

Still, no gap fill in the S&P 500. Ugh. Not what we wanted to see. But it doesn’t go higher either.

Amazon (AMZN)

Amazon continues to trade in this triangle; for now, I guess that we will have a breakout or break down in about three days.  The RSI is telling us what direction is to come. 

Facebook (FB)

I saw some bullish option betting on Facebook, which suggests the stock continues to climb. I noted in an article for Forbes. It’s possible, but the shares move higher is a story of multiple expansion. So as long as investors are willing to pay a higher multiple for the stock, then things will be beautiful. But gaps do eventually get filled, remember that. (Facebook’s Stock May Still Have Much Further To Climb)

 

Square (SQ)

Square keeps going higher, and so it might as well go to that upper end of the trading channel around $170. 

PayPal (PYPL)

I heard that stocks only go up, and PayPal seems to be one of those stocks. So sure, why not, $220 seems like a great spot to go. 

But in all seriousness, both PayPal and Square are great stories. Their valuations, that’s another story. PayPal has a market cap that is that same size as Bank of America, around $230 billion. I’m not sure what the right valuation for PayPal is, to be honest. It could be the case that the stock is worth 35 times 2022 earnings estimates. Hey, why, not.  Look at Square; it makes Paypal look cheap, trading at 84 times 2022 earnings estimates.  

Multiple expansion, oh, what a dangerous game we play. 

That’s enough for today. 

-mike

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.  

 

 

[mailpoet_subscribers_count]
2,408
[mailpoet_subscribers_count]
2,408
%d bloggers like this: