MARKET UPDATE #159
Free weekly stock market education service with 3 stock ideas.
Disclaimer: The content is for educational purpose only. No investment advice. Please read the full disclaimer. |
|
|
Hi ,
conservative and mega cap stocks lead, growth stocks lag. That's the current situation in the stock market. It's not uncommon that the NASDAQ, S&P 500 and the broad market go in different directions. I saw that many times in the past and it's a very tricky market environment. Best tip: Look at your watchlist, follow your proven routines and wait until everything sets up again. Be patient!
Sitting on your hands it difficult. A lot of traders think that the job of a trader is to trade. But that's wrong: The job of a trader is to manage risk, observe, do research and take bets only if there is a high probability that you can win. Action, buying and selling is only the minor part of the job. Never forget that!
Here is what you will find in this newsletter:
- Questions and answers from the subscribers forum
- Comment on the current market situation: NASDAQ 100 outperforms the broad market
- Stocks I am watching at the moment: $PUBM, $SLAB, $SNOW
- Trading tips: Does it make sense to switch styles based on the market?
If you have questions, please use the subscribers forum.
Thank you and good trading,
Julian
|
|
|
|
|
MARKET CONDITIONS
NASDAQ 100 outperforms the broad market
It's not uncommon that the majority of stocks is in a downtrend but the NASDAQ 100 or S&P 500 prints new highs. That's very tricky market environment. If you look at the indices alone, you will never see what's really going on in the market.
I can remember market situations like 2014-2015 and 2018 where the majority of stocks went sideways and the NASDAQ went up. That's a market environment where you can lose a lot of monetary and mental capital if you push it too hard.
Never forget that the NASDAQ and S&P 500 is highly weighted towards the mega cap stocks (Apple, Microsoft, Google …). As long as they are able to move higher or sideways, the NASDAQ and S&P 500 will move higher too. |
|
|
|
NASDAQ 100 ($QQQ) vs. Russell 2000 ($IWM): I drew in all the situations where the NASDAQ moved higher while the Russell 2000 were in a correction or underperformed. Very difficult and dangerous market environments. |
3 LEADING STOCKS
This week I have 22 stocks on my watchlist, Same number as last week. I added more semiconductor names but I am not interested to trade them. I don't find anything interesting to trade right now.
Would you like to learn how to find stocks like below? Look into my video course Growth Traders Toolbox. |
|
|
|
$PUBM: I am not so familiar with the story of this stocks, but it held up very nicely in the last days. The company is engaged in digital advertising and growing very fast.
You can see that the price is still 100% away from the all-time high. Take that serious! There is a lot of potential overhead resistance.
Sales growth in the last 3 quarters: 54%, 88%, 54%. EPS growth in the last 3 quarters: 350%, >999%, 85%. EPS estimated for 2021 and 2022: 42% and -6% (!).
|
|
$SLAB: Another semiconductor stock with a nice chart. The company produces chips which are used for wireless connection (e.g. IoT, cars etc.).
I am not interested in those supplier companies but the chart look great: Clean base, low volatility and very close to the highs.
Sales growth in the last 3 quarters: 34%, 48%, 39%. EPS growth in the last 3 quarters: 226%, 120%, -53% (!). EPS estimated for 2021 and 2022: >999% and 17%.
|
|
$SNOW: I highlighted the stock in previous issues of the newsletter. The company provides digital analytics software. It's one of a handful of software stocks which are not broken down. A very high relative strength in comparison to other stocks of the sector.
Sales growth in the last 3 quarters: 110%, 104%, 110%. No positive quarterly EPS. Positive EPS estimate for 2022.
|
TRADING TIPS
Does it make sense to switch styles based on the market?
The concept of adjusting your style to the market sound good, but works terrible in reality. There are times when growth outperforms value and times when value outperforms growth. Sometimes large caps lead, sometimes mid or small cap. The problem: It's difficult to determine the change in the markets in real-time.
Usually the transition from growth to value stocks take place over multiple weeks and very slow. Both move up in parallel until growth or value stops to lead. It's too late to change the stocks in your portfolio when you noticed the change.
What to do? Simple: Follow your strategy! Growth outperforms value, especially in strong bull markets. Value stocks can move 20-50% in 6-12 months while growth stocks can easily move 100% or more in 6-12 months! That's why I accept to be out of the markets from time to time and wait until growth stocks are in favor of the market again.
The only alternative is to trade both styles in parallel and move money from one strategy to the other, depending on what works best. But again: This is difficult requires a different trading style. So it's not my business. |
|
|
|
Growth vs. Value - Since 2009 growth clearly outperformed value. Of course it depends on the chosen period. Value usually has smaller corrections than growth. But we are only interested in trend and growth usually outperforms value in uptrends. |
|
