Nasdaq 12,000.
If you recall, Nasdaq 5,000 was a big deal in 1999 and then we crashed and didn't get back there until late 2016, when Trump was elected and tax-free fever was sweeping the land. Our National Debt was $18.15Tn at the time but 4 years later, the debt was up to $27.75Tn and the Nasdaq was at 11,500 in the fall of 2020 – as we waved goodbye to President Trump (well, more like dragged him out in January). Losing Trump didn't stop the Nasdaq, it kept climbing all the way to 16,600 in December of 2021 – up another 6,100 points in just a year.
Yet, somehow, people didn't think that was riduculous and unsustainable. What could those companies have done to justify a 50% pop in valuation in 24 months, let along the 120% pop of the previous 4 years? Noting is the correct answer, as it turns out and now we are back to 12,000, which is still 20% above 10,000 – which is the next real support line.
Were the companies in the Nasdaq 100 making 100% more than they were in 2016? That's how we would have justified 10,000. At 15,000, they would have had to make 200% more than they did in 2016 but noooooooooooo!, they were making the same or LESS for the most part and only the earnings multiples had changed. That's why there's this massive general collapse of the index – it has nothing to do with whether or not the companies are hitting their earnings but what multiple people are willing to apply to those earnings and that's based on forward expectations and those have been dropping off considerably.
The chart on the left is for the entire Nasdaq Composite, not just the 100 but it includes them and, as you can see, Revenues were up about 50% since 2016 so profits certainly were not up 200% – MAYBE 100% and there was no realistic way we were going to get to 200% – even without Covid, Deficits, Global Warming, Supply Chain Disruptions, Labor Shortages, Commoditiy Shortages, Inflation and War.
Once investors started to recoginize these things were not "transitory", they began to factor them into their forward earnings expection and PRESTO! – the market crashes as everything is re-valuated. This is not the type of thing we bounce back from – 15,000 was a MISTAKE – next time, we have to earn it!
We HOPE (not a valid investing strategy) that the Nasdaq manages to stay in the top of it's range, above the strong bounce line at 12,000 but it's being rejected so far and every day it spends below 12,000, it pulls that 50-week moving average 60 points lower, which is a very sharp decline. That is going to make the technical people nervous and, since over 90% of traders are technical traders (because fundamentals are hard work), we will be screwed.
If you are going to insist on playing with charts, at least take the time to understand WHY they are drawn – as opposed to wondering WHAT they mean. They don't mean anything other than a visual representation of things that already happened. Drawing a stock chart is no different than drawing a chart of a bird flying – there's almost zero chance you can predict it's short-term movements but, over a very long time, you can begin to see certain predictable patterns emerge.
More importantly, however, is understanding WHY a chart is drawn the way it is because, if you understand the effect the market has on how the chart WILL be drawn – you will have leapfrogged ahead of 90% of your fellow traders. In the case of the Nasdaq, very simply, we are now 3,000 points below the 50-week moving average at 14,770. That means, each week we are below 12,000, the 50 wma gets dragged down 12,000/50 = 60 points.
When the 50 wma was going up, the Nasdaq was about 2,000 points above it so 3,000 points below it – if this persists – means the angle at which the 50 wma will drop will be 50% sharper than the angle at which it rose and THAT will make a very ugly chart. HOWEVER, the 200 wma is way down at 10,725 so we're still raising that bar at a rate of 1,250/200 = 6.25 points per week. This is where we use that 2 train math from 7th grade – If the 200 wma is rising at 6.25 per week and the 50 wma is falling at a rate of 60 points per week and they are 4,000 points apart – when will they intersect?
The answer is July 25th, 2023 if the Nasdaq stays this low and they will cross at 11,100 so, as long as the Nasdaq stays over 1,200, the rate of descent for the 50 wma will slow down towards the end – hopefully enough that it will bounce off the 200 dma and avoid the death crosss but, for that to happen, the Nasdaq needs to stay over 12,000 – othewise we're screwed next August.
See how easy that is. Now we know what's going to happen through next Summer!
That's what our Strong and Weak Bounce Lines keep track of – it helps us differentiate a recovery from "just a bounce" so we can manage our hedges accordingly. As I told our Members, as long as we're over the Strong Bounce Line at 12,000, we're going to lean a little bullish and hope (not a valid strategy) that the Nasdaq finds support and can get back into the upper end of the 10,000-15,000 range but it was bad news from NVDA last night as they lowered their forward guidance – we can't keep having those…
On the brigther side, DLTR and DG did well, as we expected but so did M (old favorite) and WSM and LULU and, BIDU pulled out nice earnings as well – so hope is not lost.
8:30 Update: All hope is lost as Q1 GDP came in at -1.5%, down from -1.4% in the first estimate and going the opposite way of the -1.3% expected by our leading Economorons. On top of that, Q1 Corporate Profits fell $66.4Bn to $3.2Tn – that's a 2% drop as reported in Q1 vs Q4 but up 12% from last year, when the Nasdaq was at 13,000 and the S&P was 4,000.
So again, we HOPE the Nasdaq is a little low and the S&P is bottoming at 4K. We NEED to see that index hold 4,000 to be comfortably bullish, as well as Russell 1,800 and Dow 32,250. All looks good this morning EXCEPT the Nasdaq – we'll see what the day brings.
See Swamp, you're smarter than you think!
Oil $114.50 – happy driving! /RB at $3.79 – all-time high.
Phil / BABA – Any thoughts on their earnings?
BABA/Batman – The earnings were kick-ass. There's still the China fear thing but, as a company – they are so, SO undervalued.
there is an ETF for everything now. I heard someone mention COWZ of the final trades on CNBC.
COWZ seems plausible
https://www.paceretfs.com/products/cowz
Cash Cows Index Strategy
Free cash flow is the cash remaining after a company has paid expenses, interest, taxes, and long-term investments. It can be used to buy back stock, pay dividends, or participate in mergers and acquisitions.
The ability to generate a high free cash flow yield indicates a company is producing more cash than it needs to run the business and can invest in growth opportunities.
In all of our BABA trading (we started with 15 2023 $250/300 bull call spreads on 2/3/21 with 10 short Jan $200 puts at net $3,500) we are down $127,880 and the net of the current position is -$23,388 plus we're spending $26,6000, so pretty much we need $130K to get even so $132.50 will do it and above that is gravy. That's really not too bad for a position where we originally targeted $300. Of course, if they even get to $200 we'll have $400,000….
COWZ/Stock – Good premise but with new ETFs, you don't know that they will actually execute the strategy properly.
don't forget, we have a 3 day weekend coming up .
Yay!
That's why I didn't want to leave the STP bullish – too risky over a long weekend.
Also why I wanted to add some more bullish positions – we have plenty of coverage and I want more balance if we don't need the hedges.
Craziness!
Better than bleach?
Wow, they almost started selling PFE for a bit…
Gotta think about this one. $74 is $83Bn and they make $3.5Bn so we're over 20x. They also have $12Bn in debt so 0.2x x $12Bn is $240M knocked off that $3.5Bn as rates tick up (at least) and then we're at 25 x so I'd say SBUX is more of a case where they were simply over-priced before. That doesn't mean we can't play them. 20% below here would be great so $60 is a no-brainer and you can sell the 2024 $60 puts for $5.85 – that's pretty good.
Don't forget where the name Starbucks came from…
KHC is back down to 37 because of a UBS analyst just discovered inflation…
LOL!
GPS took a loss but ULTA did great. Interesting shifts in spending.
COST can’t even figure out how to lose. That’s because they make all their money on the memberships, not the sales.
Alaska air pilots on verge of strike
Negotiating tactic