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.
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MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN NFLX, AAPL, GOOGL, NFLX
With the week being shortened due to the Christmas holiday and some investors on vacation, liquidity may come at a premium. Meanwhile, volatility has been heightened as the market continues to fall. Let us not forget that Friday was quadruple witching when options and future expire. It added an extra layer of volatility to Friday’s sell-off, mix in concerns around the government shut down, the resignation of Defense Secretary Mattis, all sorts of negative headlines of doom and gloom, the end of the world and there were no reasons for stocks to rise on Friday.
I came across this interesting article on ZeroHedge this weekend, about pension funds needing to rebalance their portfolios this week. According to the article, pension funds will need to buy a record $60 billion in stocks this week. It is a rare bullish article post on ZeroHedge.
Do Your Own Homework
Here is another reason you should take much of what you read with a grain of salt, or at the very least check multiple sources before forming an opinion. It came out this week that a star reporter for Der Spiegel a very well-known German publication fabricated his award-winning articles.
So what does this all have to do with investing, well, I think you need to think for yourself and form your own opinions and do what is best for yourself. Nobody knows your needs better than you do, and sometimes your gut is the best guide on these topics. There is no right and wrong answer, you are not part of a cookie cutter press. You do what lets you sleep at night.
Anyway, in another interesting tidbit, after Jeff Gundlach tanked the market a few days back during his CNBC interview, I guess Jim Cramer said something Jeff didn’t like. Anyway, I guess Jim Cramer doesn’t have as long of a leash at CNBC as I thought. I watched that interview with Jeff, and I am nowhere near his level, nor are many, but I do disagree with him on some topics. First was his comment about the deficit.
When we look at the chart below, the deficit for November was quite reasonable and not nearly as dire as the bond kind made it seem during his interview.
Let me be clear, we can see the budget deficit in November was no different nor deeper than in previous months.
Anyway, in our quest for knowledge and the outlook for the economy, I turned to IMF. There report from October noted in the summary:
The steady expansion underway since mid-2016 continues, with global growth for 2018–19 projected to remain at its 2017 level. At the same time, however, the expansion has become less balanced and may have peaked in some major economies. Downside risks to global growth have risen in the past six months and the potential for upside surprises has receded.
Indeed not a surprise, right? This seems to come in agreement to much of our earlier views and research.
Additionally, the IMF suggests that growth in the US may slow to 2.5% in 2019, down from their estimates of 2.9% in 2018. That can be found on page 39.
We can see that real GDP growth since the 2016 low has been steady and linear.
Perhaps there is some upside or downside to the IMF’s targets for 2019, but hardly what appears to be an economic meltdown warranting the steep stock market sell-off. But again, I am trying to be logically, and the market is not logically it’s emotional or perhaps even mechanical.
The Week Of December 24
Again, if we look ahead to this week, can equity prices continue to melt. Yes, because from many different angles I think we can pretty much agree the markets are no longer trading on facts, but on emotions and worst-case scenarios. Of course that is assuming there are actually any people leading the charge lower.
Should the Russell 2000 continue its current decline, the next level of technical support shall come at 1,266. The index is already 26% off its highs. A drop to 1,266 would be a decline of an extra 2%. It would have effectively erased all the post-election gains since November 2016.
I’m watching for a divergence between the S&P and the NASDAQ to form. Meaning the Russell puts together back to back days of gains versus a flat or falling S&P and NASDAQ.
Goldman Sachs is already trading at a price not seen since September of 2016.
Alphabet fell below support at around 1,000, and should it continue to drop the next level of support comes around $920.
Netflix fell below support around $250 we had watched so closely, and now that may result in the stock dropping and filling the gap at around $230.
It looks as if Netflix subscriptions are seeing its typical end of year surge according to Google Trends, and that could mean a significant subscriber growth number in the fourth quarter.
Investors seem to be betting that Apple is finished, selling its last iPhone ever, subscribers abandoning the platform. The next level of technical support for the stock comes around $140. Perhaps I am wrong though; there was this story from Nikkei: Apple to slice iPhone production 10%, oh wait that was from December 2016. But I found this one about Apple slashing 40% of its production units: US stocks set to open mostly lower as Apple shares slide. Sorry, my bad that was from December 2017. Notice a pattern.
Meanwhile, you can see the difference in the stock price and the analysts estimates. Still waiting on Apple to cut guidance for the quarter. I wonder what Warren Buffet is doing right now?
Amazon’s hit $1,355, and should it continue to fall it could be on its way to $1,200
Well, the stock is pretty much now back its to the historical range of it forward price to sales ratio.
Microsoft may be on its way to $96.00, but a drop below that price send it lower to $84.60.
When you really get down about all the market declines remember it is only money and to bet against the US hasn’t been the wisest of choices. If history is a guide we likely still have a few years left before the equity market plateaus for the next 15 to 20 years.
Photo Credit Via Flickr
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.
S&P 500, stock market, december 24, week of, amazon, apple, micorsoft, netflix