Trucharts.com market udpate Jul 25. AMD, WYNN, LVS, INTC, QQQ, AAPL, MS...

Our thoughts on the Tech Bubble and the everything bubble

The EVERYTHING Bubble:

It has been a long time since we published our last post. We have had a huge Trump rally since the election and the markets ramped in straight line. The FANG stocks have been the biggest contributors to the gain in the S&P along with the small cap indices hitting new highs.

Stocks like ALGN, NOW along with many others are trading at valuations that defy even the loftiest imaginations. ALGN is trading at a PS ratio of 18.8 (that is we are paying 18x times for every dollar in revenue - absolutely mind boggling numbers).  In addition, there is no shortage of companies being funded by VCs at valuations that put the 2000 bubble to shame. Just recently DoorDash received a funding of 535M - that is over HALF A BILLION DOLLARS for a company that delivers food from restaurants.

Think about it - $535 M!! These mind boggling numbers are all a result of the non stop money printing from the Central Banks - the Fed, BOJ, ECB and the PBOC along with many other central banks. This is reminiscent of the 2000 bubble but above and beyond that. Real Estate is in another bubble - and everyone thinks that this will never stop or prices will never move lower. We all know that is not possible - there are limits to everything - simple motto - nothing goes up forever and nothing goes down forever.

Many of the DOW stocks are in downtrends - check stocks like CAT, DE - http://www.trucharts.com/stockcharts.aspx?tick=CAT
http://www.trucharts.com/stockcharts.aspx?tick=DE

The DOW is being held up by stocks like AAPL, UNH, BA and MSFT. Jeff Bezos has now become the richest person on earth - in a span of 2 years is net worth has moved over 100B - Bill Gates is not even close - think about it - one guy's net worth has crossed over 150B!!! Just in a span of less than 4 years. And yet the TV bobble heads are mesmerized by all of this - not a single talking head wants to say it is a bubble - SNB (Swiss National Bank - yes a bank) along with BOJ are buying stocks - when did banks start buying stocks - unheard of - yet folks it is happening.. Just take a look at some of the exponential charts we had exhibited in our last article and many of these stocks have been moving sideways but still at lofty levels. NVDA still trading at 13 times sales.. No revenue growth in many companies - yet the stocks keep trading at these lofty levels - that is called a BUBBLE.

We have central banks that are enamored by bubbles and bubble behavior - it is like being drunk and high - that feeling lasts only so long. Then we will get to the hangover. Stock buybacks are shrinking the pool of shares available and thereby help companies do financial engineering to goose up their EPS. But this is now a trading market and no longer a investing market - we strongly suggest keeping tight stops at the 100d SMA or 10% below the 50d SMA. Try to take some profits and have at least 30% in cash ready to invest. This has been a crazy market and it is now time to take some money off the table and wait for everything to unfold. We still like gold as a hedge - it has been moving in a tight range between 1200 and 1350 - we would nibble into gold and invest 15%-20% of investable assets.

SP500 has been moving sideways in a consolidation pattern and we have to wait and see what happens in terms of a breakout or breakdown. But is very tradeable - specially ETFs like SPY and SSO, along with the QQQ'. Rates will be going higher, so bonds should be moving down. Sell NFLX and look to short the semiconductors ETF SMH. The FANG stocks - are racing to the TRILLION dollar market cap - just think the FANG stocks are worth over $4.1T!!!

We will all be witnessing history here.. Keep your eyes and ears open.. but always learn when it is time to say - yes I have made a very good return and now it is time to take it to the bank..

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Good luck trading..

Founder/CEO (trucharts.com) - Co-Founder (Jetstox.com)

Kink in the market's armor - Is the pullback coming from these lofty levels??

Kink in the market's armor - Is the pullback coming from these lofty levels??

Are we starting to see a kink the market's armor. Was the 1 year anniversary of the election a mark of a short term or a long term top? What should we expect going into the end of the year and heading into 2018?

Exponential moves in many stocks as been very characteristic of this move in the markets. There has been narrow leadership and everyone, just like in the year 1999-2000, has been loading up in tech stocks and tech stock funds. It seems like we never learn from previous bubble manias and even though we are truly in a bubble with stocks trading at valuations not seen since 2000 and even the market multiples for many metrics above and beyond 1929, 2000 and 2007, none of the analysts (who by the way are in no way responsible for their recommendations) are NOT telling their clients to take profits and wait for better prices. Short covering has also extended many of the popular stocks and obviously the FAANG stocks along with some others in the market - keep flying high. Financial engineering, stock buybacks and earnings manipulations have become a way of keeping prices elevated. The level of complacency is unbelievably striking - there is no respect for risk. 

Every person you speak to thinks that there will never be a financial crisis or a major pullback in the markets. Personally, I believe in simple math and that there is always a reversion to the mean and trust me the mean is way below where the markets are. Typically 50d, 100d and 200d SMA are very critical in determining where the markets should find as support levels. Bubbles in real estate (many house flipping shows on TV - similar to 2007),  bond bubble (scares the shit out of me) and along with the stock bubble is mind numbing. The funding of startups day in, day out, is also a stark reminder of the days of 1999-2000. Startups that will vaporize and end in total losses will be the norm soon. 

Everyone thinks they are an investing genius and there is no way they will lose - that is when you have to take a contrarian view of the markets. Folks willing to fund companies like SLACK (nothing unique), WeWork, and many others at valuations that make your head spin has become norm and every next investor is trying to better up the next one by showing who is boss. This is NOT normal. 

The Fed and central banks around the world will be responsible for the next pullback and it will not be pretty. Market capitalizations of many companies are at mind boggling levels and unheard of. Some market capitalizations dwarf GDPs of certain countries and yet everyone thinks we are going higher. We think it is a serious time to start looking into taking profits and buying some protection in certain high flying stocks and sectors (semiconductor being at the top of the list).  

We suggest looking at puts for Jan 2019 for stocks like ALGN, ISRG and some other high flying stocks like RACE, NVDA and many others. Keep an eye on HYG and JNK - these are he ETFs related to the high yielding and junk bonds - these are pulling back and have a very good correlation coefficient to the market indices. 

Consumer debt is at all time highs - credit card debt is now at over $1T - yes that is a T.... Car loans, housing debt and HELOCS, student loans are at all time highs. We are a world in debt and it is all going to end badly.

Debt/GDP ratios for China is at a staggering 280% and going higher - and other nations debt/gdp ratios are also at staggering highs - all this debt has been created in one decade. The central banks have managed to print so much money that it dwarfs everything we have printed in over  100 years - they have managed to do it in 10 years - that tells you why we are in a bubble. Japan markets are being driven higher because the government is buying stocks - can you believe that - government buying stocks!!! it is the quintessential final nail in the coffin or basically giving up on the basic equations of economics - normal market cycles and following simple rules of the law of numbers and laws of supply/demand and demographics.

Charts for: DIA, LRCX, ALGN and NVDA below: EXPONENTIAL MOVES NEVER END NICELY. We recommend taking profits aggressively.

 

 

Here some article links for your reading:

http://www.zerohedge.com/news/2017-11-06/broadest-episode-extreme-equity-market-overvaluation-history

http://www.zerohedge.com/news/2017-11-06/tech-stocks-accounted-75-markets-october-return

https://www.washingtonpost.com/business/us-consumer-debt-is-at-a-record-high-havent-we-learned/2017/08/11/5c7bee6e-7e13-11e7-a669-b400c5c7e1cc_story.html?tid=ss_tw&utm_term=.ddfcf5fbcbed

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Good luck trading.

CEO/Founder - Trucharts.com