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Broad Market Outlook
Last night hanging with Shake in his fancy wrap around balcony hotel suite that cost something like a share of Google a night in Brooklyn, the topic of the markets comes up with one of his friends who's a professional soccer player.
Throughout my time in the markets, I continue to try to simply the market to non professionals in a way that they can digest and hopefully understand it. Throughout the conversation, he did learn a thing or two, yet I would be willing to bet he doesn't change one bit. Let's walk through a few of his issues with the market and our thoughts.
Soccer Pro "What are your thoughts on crypto? I just have never in my life needed to use it"
"It's simply a form of speculation, but when there is no real utility or need for it, eventfully we move onto the next thing (weed stocks, options, etc). We use (need) Amazon everyday, you wear (want) Nike's every day, you use your IPhone hundreds of times a day (AAPL), you use your credit card (V MA) or cash and they always work. It isn't solving a problem, its just giving people a new way to speculate"
He agrees and continues to go in on the uselessness of it, then proceeds to explain that he is investing in a penny stock that invests in crypto. Which completing goes against his initial thought, already shocked, I compose my poker face to see where this contradicting conversation is going to turn to next.
His next beef was with the FED and the fact that they are printing money as a result the market has climbed back to the prior all time highs.
"So you are mad that you are making money right now? Or would you rather the market and your investments be lower?" I ask.
He replies "Of course not, everything I bought went up so I'm happy"
So then your not mad at the FED then right?
"I guess not (feeling enlightened and somewhat confused), his next take is unemployment and how bad it is.
I reply "Do you know anyone who's been bankrupted as a result of the current situation? (answer is no), do you know anyone who lost there home? (no) I explain that yes the numbers were high, however they were and are temporary, those jobs were not permanently pulled out of the economy forever, they were just put on pause. Sure some jobs will be lost for good, however most of those jobs were not essential, in the sense that the company hosting a podcast didn't really need 20 people to run it and could do just fine with half. Some companies are trimming the fat and that is necessary in business.
His next thought was "I am just waiting for the next crash due to the virus"
"Waiting? We just had one of the largest crashes in history a few months ago, that was the crash, and the next one whenever that one comes, will be for something completely different, just as all of the previous crashes everyone prepares the next crash to be what happened last time yet that's never the case."
I continue "as we are seeing information disseminated at faster rates, the crashes and recovery's are speeding up. 2008 took 5 years, 2015 took 2 years, 2018 took a year, this current crash and recovery has barely taken 6 months."
Now as we are getting near the end of this chat, his final thought was the classic "the market cant go any higher because we are back at highs"
"You are correct that the markets and stocks tend to stall temporarily at the retest of a prior high, however where most people are expecting another 50% drop to take advantage of, yet they didn't take advantage of the last 50% drop, 30% or 20% drop and more often actually do the opposite by trying to sell. The market will more then likely stall or pull back a small amount just enough so they think they're right and they get short (he brings up the SPXU a leveraged short SPY ETF) and then the market continues to ride higher.
Then he goes into the sad part of short sellers getting hosed (himself) but I too nip that in the butt quietly. During this brief conversation, he was able to learn the simple answer, forget trying to invest in what you say are foolish investments, yet that is too simple, too boring to actually do. He wants the action and the excitement and that's why he's gambling as most people in the market do.
But you are not that gambler, you are thinking clearly forming game plans, you are not rubbing a 3 leaf clover, and kissing a rabbits foot that some long shot gamble will pay off.
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Macro Rotation Outlook
SPY
Dow Jones
Nasdaq
MDY Mid Caps
IWM Small Caps
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Discount Code Alpha20
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Sector Rotation
Sensitive - sectors that have moderate correlations to overall market conditions.
VGT Tech
VDE Energy
VIS Industrial
VOX Telecom
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Cyclical - sectors that are more sensitive overall market conditions.
VAW Materials
VCR Consumer Discretionary
VFH Financials
VNQ REIT
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Defensive- sectors that tend to outperforming during sub par market conditions.
VDC Consumer Staples
VHT Healthcare
IBB Bio Tech
VPU Utilities
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Big Picture Set Up
DLTR
DLTR has been setting up for quite some time for this $100 gap fill, this last week its held up it a tight $3 range. Will be looking to buy up through $100 vs $97 day 1. Earnings are August 27th, so it continues to flag throughout this week, best to wait till after the report.
MDC
MDC has a nice blue sky breakout through $46 however we have done a great job avoiding buying the perfect breakout price. I will look to sneak in above $44.50 vs $42 for now to have a bit of a better price if that $46 is ready to breakout shortly.
PEG
PEG is a snoozefest of a stock, so do not expect fireworks however this is a slow grinder, a $2 risk trade that could become $1 risk to break even a few days into the trade.
V
V has been testing most patience as we have been waiting for $200 after the little fake out move it had, as most are getting bored and wanting to move on, feel that is exactly what it needs to go, less eyes on it.
MMM
For everyone in MMM with myself, this has been a solid support buy back swing, and for the members who have held the full trade without kicking any, pumped to see that, for now my stop is vs $164 for most. If it can clear $168 then we could see this in the $180s so it might not hurt to give some back a bit wider to be in for the second leg. You can see in May how I sold too soon and missed the second leg.
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