These Stocks Could Moon
Weekly Plan 7.30.23
Hello-
This was a good week for me as the market was quite tradable, as well as some of the names shared by me earlier in last few weeks.
A few of these are listed below -
INTC has an amazing session up about 7% to close near 37. I shared this name around 25 bucks.
ROKU gained about 33% on Friday to close at 90 dollars. I had shared this last year at 40 but only a few days ago I had shared my bullish bias at 60 dollars. See below image A.
BABA also gained 5% on Friday to close above 100 dollars first time in weeks, I had shared BABA bullish bias at 80 dollars.
PLTR 0.00%↑ rallies 10% and is now up 300% from that 6 dollar bottom call.
I personally think a lot of thematic stocks like ROKU are looking ripe for a large move and they are basing out of consolidation. I think they could rocket soon. I will share some of these names today that I like with subscribers. Subscribe below.
One thing I will warn the readers is that these newsletters tend to be long. They are not 2 minute reads as I share a lot of actionable insights which take time to describe and explain. This is not a signal service with 10% win rate. So keep an open mind when reading.
Before going into the weeds, I want to share few thoughts as I see develop for some of the risk on assets like Housing and the Oil market.
Both the housing and the oil market have ticked up higher in recent weeks. Particularly in the oil market, I have been a bull from 66 area and the WTI is now up more than 20% off those lows. It closed 1500 pips higher from these lows above 80 dollars on Friday.
Both housing and oil prices can be inflationary. They represent 2 major spending categories for most people- rent and energy. I have summarized below 3 scenarios which I think could drive these markets higher or lower in coming few months. Let me know what you think.
I have exposure to both these sectors and I have thought long and hard about the factors that could affect the prices of these assets going into rest of the year.
I have leveraged the difference between official core CPI and the current FED Funds Rate (FFR) at 5.5% to design my scenarios. This gap now sits around 2% with the FFR being higher at the moment than the CPI.
Another assumption I have made is that the FED Funds rates will now not go any higher than 5.5%. I think we have seen the last of the rate hikes last week.
Scenario 1:
CPI ticks higher, GDP and Unemployment remain stable.
This could be bullish for both housing and oil markets.
Scenario 2:
CPI ticks lower, GDP and Unemployment remain stable.
This could be bullish for both housing and oil markets.
Scenario 3:
CPI ticks higher, GDP collapses and Unemployment rises.
This could be bearish for the housing but a boon for the oil markets.
Scenario 1 is the most likely scenario for me in the short term.
Scenario 3 is the most likely scenario for me in the longer term.
I personally think we are looking at 1970s style repeat with one very big exception- the housing market did relatively ok in the 1970s. In 2020s, it may not. The reasons for this are beyond the scope of this newsletter.
On the housing market I was a housing market stock bull last year with XHB at 50. Now many are chasing this as 90 and that is fine with me.
However on the oil side, I have been consistent oil bull from XOM 60 and OXY 30. With these oil stocks, they sold off quite bit on Friday as the earnings were not great. The earnings are still high but not as high as recent quarters. Look I personally think oil has generational tail winds -
Anti fossil fuel governments in West
Wars and shortage of food
SPR running low in the US
And now as I said many months ago, WTI itself seems to have carved a new range. I do not really think the Western governments want the gas prices to go down. If they do go back to 2 dollars a gallon again, it disincentivizes EV buyers. So I think higher oil prices are here to stay. This could support the whole XLE complex.
I think if XOM, OXY holds 90 and 55, we may see these trade up to 200 and 100 respectively. This is a thesis which I believe will be voided if oil were to go back below 60-65 again. When that happens, is anyone’s guess.
Another thing I want to share with folks is that if you go back a 100 years, we have documented history of how the markets have done over a very long period of time.
The size of the equity markets is directly proportional to size of the national debt. Globally this ratio is about 50-70% in most countries and only in the US that it is so extreme around 200% now a days.
Another way I measure the frothiness or value is using S&P500 to Gold price.
I like S&P500 for longer term buys when this ratio is close to 1. And over a 100 plus year period this ratio is extremely over bought at 2.5, with one exception- in 2000 dot com bubble when it got to above 5.
It is near 2.5 right now.
Now if you want to use this information to make any day to day calls that is your decision. I am sharing this as a reference for multi decade valuations.
So historically, when this ratio has approached 1 or sub 1.0, for me that is a great area to go big on S&P500. You do not see this every day. These are major market cycle lows. We are talking about a handful of times this has occurred in a lifetime. 2008 bottom. 2010. 1980 bottom. 1973 bottom. End of Great Depression before that.
It is important for me to bring this up now because I think Gold is in a long term bull market.
High inflation is good for Gold. In true deflationary times, Gold, like everything else may collapse as well.
In the short term however, I think this 1975-1980 area is now a resistance for Gold. I did not like the yields rally as well as this rally in Oil despite the surge in yields.
This tells me that we may retest 1900 area again on Gold. This could also keep pressure on NEM at 44 for a retest of 39-40 as long as Gold remains below 1980.
So this is how I view Gold. What about Fool’s Gold?
Interestingly enough, despite the swoon in Bitcoin prices, the crypto stocks held their own.
I shared a bunch of crypto stocks a few weeks to months ago and many of them have doubled from their prices then. A sell off in Bitcoin did not deter these stocks from rallying.
I see this as a plus for the whole crypto ecosystem. Crypto stocks I think were once in fluff category and are now reasonably prices. This is where I think AI is in right now - it is in fluff zone but eventually these AI stocks will also come in line with value like the way the crypto ones are.
So which ones I like the most?
Below is a list of some of these names which I like. These are thematic ideas which are not necessarily based on technicals or fundamentals rather than macro themes.
COIN
I was a bull on COIN near 50 bucks before it almost doubled. It is 95 right now.
I think it may remain supported on any pullbacks into 80 area and this may retest its recent highs near 110-120.
MARA
Same story here.
I shared this around 10 and it is now 16 and change. I remain a MARA bull. I think 10 dollars is a good support and it could float up above 20 if it holds 10.
Let us zoom out to the bigger picture for a second rather than remain in the weeds. Let us look at where the puck is going to be.
Personally for me, I spend a lot of time on intraday watching the S&P500 tape. I don’t know about you but at times I do not have time to track each stock that I own in terms of how it is doing. Especially for these small caps to mid caps like there are many of these in crypto world. Since this is a nascent industry, volatility is quite high. One name in particular which I feel resolves some of these issues is a basket of these crypto stocks.
That would be something like a FDIG ETF. I shared this last year I remember around 9 dollars and it is now about 23. I think it is still quite attractive even though it is up a lot this year. Crypto adoption is going to sky rocket once the Central Banks all jump in this.
Why?
Because average person will be paid in crypto. They will pay in crypto. Crypto usage and transactions will explode. So if you think crypto is expensive now, what happens when we are paying for every thing with crypto? This is why I personally like to have some crypto exposure. Not in coins- coins come and go. In gold rush, who knows who is gonna find gold? However, we know those who sell shovels are gonna sell a lot of shovels.
So yea, this is how I feel about this whole crypto space now . I think it is in cusp of public adoption. It may be a 1-2 years out but it is coming.
So with FDIG, I will probably build a position and add on any pull backs into 20, sub 20 areas if I get one.
What other themes are on my radar?
Before we dig deeper into these themes, consider subscribing if you have not already. It is not every day that such major shifts happen in our lifetimes. This is a good time for oversold names like $ROKU even though it is Summer.
Eventually every one catches on to these ideas in mark up phase but it is always almost better to get in during the accumulation phase. This newsletter costs a dollar or less a day. It is silly not to be subscribed for tremendous insights like this. A soggy burrito alone costs 20 bucks now a day! This is tremendous value. DO not miss it!
I do want to share a thought about Open Interest with folks before I forget again.
In particular, I heard from a couple of people about owning a futures position for a long time. In particular, holding on to a losing short position over several weeks.
Futures marker is ruled by professional traders. 99.99% of the volume in futures markets comes from a handful of 1000-2000 large accounts in the US.
When you look at futures volume itself, on something like Emini S&P500 it could be a million or 2 million every day. Out of this 2 million, how much volume goes to Open Interest? Less than 1000-2000 lots a day on a good day.
What does this tell you?
Most of the volume in futures is day trading volume. No one (statistically) is taking home any position - long or short.
Similar things can be said about short term options in SPY and QQQ. Very little open interest change at end of the day.
I wanted to leave this as a food for thought about how other large traders trade and what they do with their positions at end of the day, every day. These guys are experts at holding very little to no risk. Every single day. Think about it.
As a smaller retail, it is mind boggling that we have some folks who will hold this risk for 200-300 points or even more when market goes against them. And get out when it goes 10 points for them. In the long term, I think this is not sustainable.
With all due respect, when I see this, in my mind it is refusal to accept the risk. When I let the trade run against me, and I have done fair share of it, it is because I am not able to accept the risk. If I can not accept the risk, then I can not be a trader. It is as simple as that FOR ME.