MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN SHARES OF AAPL, NFLX
The Week of November 26
This week will carry great importance because of the G20 summit, and the upcoming meeting between Trump and Xi. Hopefully, these guys can come to some agreement, and the trade wars can end. If they can not, then the only option left to save the stock market is for the Fed to change its stance on monetary policy in December. It really may be just that simple. The economy has two sides monetary and fiscal policy, and now neither are helping the stock market.
So the stock market at this point goes like this: get a trade war deal, and the market can rally. If there is no trade deal, the stock market will need the Fed to change its stance on policy. If neither happens, then the stock market shall continue to fall. I am very serious about that because the worst thing that can happen now is a Fed that is raising interest rates into a slow economy.
I am going to put into even simpler of terms to understand. The trade war is slowing economic global growth. If the economy is slowing due to a trade war the worst thing the Fed can do is to continue to raise interest rates. Why? Because higher interest rates make the cost of money more expensive, making the dollar strong, depressing commodity prices, and it slows the economy even more.
If a trade war agreement is not reached, the Fed will need to change its monetary policy due to the slowing economy. Now if you can’t understand that raising rates in a time of an economic slow down is bad news, I really can’t help you. I may have just repeated myself three times. But that is how important it is.
Chip stocks have been among the hardest hit as I have noted. Many of the company have noted slowing growth, weak demand, higher cost due to tariffs. So this is one group that would likely benefit the most should a deal be reached.
As I noted yesterday, the chart appears to be creating a double bottom pattern. While it is too early to say that a firm bottomed formed there are signs of hope. The RSI has been steadily rising, but it still has further to rise before it out of the woods.
It is as if Apple has sold its last phone, and there are no buyers left in the world. The company’s market cap has fallen nearly $300 billion. For some perspective, the company is forecast to have total revenue in fiscal 2019 of $280 billion. It is as if the market is saying Apple’s iPhone, iPad, services, wearable, and Mac sales are all going to zero. I find it highly unlikely that happens.
What makes even more sense? Is that earnings estimates for 2019 and 2020 have fallen a stunning 2.5% to 3%. Make senses? A 25% decline in the stock price for a 2.5% decline in earnings estimates. My gut also tells me that Apple earnings estimates will not fall 25% either.
All of this move lower, in my opinion, is absolute nonsense, because investors are pissy over iPhone units sales not being disclosed any longer. Again, this is precisely why Apple is stopping the disclosure of these numbers. Quarter after quarter last year it was the same nonsense about iPhone units sales being weak. I will believe it when I see it.
Anyway, the stock is likely going to continue to fall, because that is what the market does best, overreact. That means that $164 is on the table.
Let’s move on to Netflix. The company has put itself in a tough spot with tremendous guidance for subscriber growth in the fourth quarter. The term Netflix subscription on Google Trends is starting to rise again, and I expect it will continue to rise, as it does every fourth quarter.
The stock is once again heading towards its long-term uptrend. Shares bounced once off that support level this week, and we shall find out soon if it bounces back next week.
Alibaba is now nearing a breakout. The RSI has already broken out and now the stock is nearing a break out should it rise above $152, and could be on its way to $166.
That will be all for today!.
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.
sp500, apple, netflix, november 26, trump, xi, alibaba