MARKET UPDATE #157
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. |
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Hi ,
alea iacta est or The die is cast! The markets decided to correct. That was a scenario I created in the last newsletter but I thought that we would see another upmove before. However, as a trader you have to adapt and that's what I did. The market forced me to sell all of my positions and I did that over multiple days. Now it's time to wait patiently until the markets turn around.
Jesse Livermore said: There is a time to make money and a time to go fishing. Now it's time to go fishing. We never know for how long, but sooner or later the market will give us a new opportunity: long or short.
Here is what you will find in this newsletter:
- Questions and answers from the subscribers forum
- Comment on the current market situation: Look at the stock market
- Stocks I am watching at the moment: $TSM, $AMBA, $QCOM
- Trading tips: Buy and hold works until it stops working
If you have questions, please use the subscribers forum.
Thank you and good trading,
Julian
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QUESTION AND ANSWERS
No new question or answer this week. You have to register for the forum! If you have an account, you have to login.
Do you have a question for me? Use the free forum. Links are below!
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MARKET CONDITIONS
Look at the stock market
Instead of writing a lot, I analyzed 3 charts for you which shows the situation in the market clearly: |
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ARK Innovation (daily chart): Clear correction and even bear market for growth stocks. I personally think that the ARK team is doing a very bad job when it comes to stock selection. However, it's a index which covers many growth stocks and it's down below all important support levels. |
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Russell 2000 (daily chart): The last support held, but that's not a guarantee for a bounce. Observe the situation closely. A consolidation around the lows and below the EMA 200 would be a bad sign. Even a rally to the EMA 65 would be bearish. |
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NASDAQ composite (daily chart): Market failed again at the upper trend channel resistance. The market is in a trend channel for 9 months now! That's a long time and another bounce is not likely. I think that the NASDAQ will now chance its character and maybe move into a correction or broader sideways consolidation. Remember: We can have a bear market in the ARK Innovation & Russell 2000 and a sideways market in the NASDAQ. Go back to 2018-2020 and see how the indices were out of synch. |
3 LEADING STOCKS
This week I have 22 stocks on my watchlist, 11 (!) less as last week. All stocks are in a bad shape! I am not interested to buy any pullback or breakout until the markets are clearly turning up again.
Would you like to learn how to find stocks like below? Look into my video course Growth Traders Toolbox. |
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$TSM: This is the leading semiconductor producer of the world and produces the chips for all big companies (AMD, NVIDIA, Apple …).
The stock underperformed in the last months and it's a clear laggard in comparison to other semiconductor stocks, but it held up nicely last week.
Sales growth in the last 3 quarters: 24%, 26%, 21%. EPS growth in the last 3 quarters: 28%, 18%, 17%. EPS estimated for 2021 and 2022: 14% and 21%.
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$AMBA: This is the shining star for me! Even though we had a failed breakout, the stock is close to the all-time high. In opposite to all other normal semiconductor stocks, $AMBA has a real story to sell: They are producing AI and visual recognition chips for automotive, robotics and other applications.
Sales growth in the last 3 quarters: 28%, 58%, 64%. EPS growth in the last 3 quarters: 475%, 483%, 533%. EPS estimated for 2021 and 2022: 576% and 22%.
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$QCOM: The stock held up very nicely last week. I personally prefer younger stocks, because they move faster, but maybe $QCOM is re-inventing themselves. They have a new CEO and are very successful with the Snapdragon platform which is used in smartphones and cars.
Info: The last quarterly numbers in MarketSmith are confusing. They mixed GAAP and Non-GAAP. I go with the Non-GAAP numbers.
Sales growth in the last 3 quarters: 52%, 65%, 43%. EPS growth in the last 3 quarters: 74%, 123%, 76%. EPS estimated for 2021 and 2022: 26% and 7%.
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TRADING TIPS
Buy and hold works until it stops working
Buy and hold is a very risky strategy in my eyes. Because nobody knows the future, nobody knows if the stock market will go up, down or sideways the next 5, 10 or 20 years.
When somebody says that buy and hold is the best strategy, she or he never studied the past of the stock market. The best example in my eyes is the Japanese stock market: It went sideways for 21 years with a 82% correction. If you bought 15 or 20 years ago, you didn't make money for almost 20 years! Now you think that could never happen in the US? Never say never … You don't know the future.
Here are other examples of popular stocks:
– Apple corrected 60% to 80% multiple times in the past.
– Amazon corrected 95% in 2000-2002 and 60% multiple times afterwards.
– Tesla pulled back 65% in 2020.
– Netflix corrected 80% in 2012.
– Home Depot corrected 75% in 2000 to 2009 and went sideways for 14 years.
– Cisco corrected 90% in 2000 and never saw a new all-time high since 21 years!
– Microsoft corrected 76% in 2000 to 2009 and went sideways for 17 years.
– Nvidia corrected 60% in 20219.
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You can extend the list by many, many names. The question is: What are you doing if your stock corrects 50-90%? Are you able to hold on to such a stock? If you own a portfolio of 10 stocks which all correct 50-90%, you lose all your capital.
It's easy to see that a buy and hold strategy is very risky. Investing in stocks which go sideways for 10-20 years is a catastrophe. Especially if you thought that those stocks were a good investment for your retirement.
Everybody should have an exit strategy and to avoid those huge losses and long sideways market. Never say that this could not happen to your favorite stock! It's a lie … All of those stocks which corrected 50-90% in the past were favorites then. And don't forget all the companies which went bankrupt and not around anymore … |
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Nikkei - The Japanese stock market was the favorite market in the 70s and 80s. After the extreme upmove it went sideways for 21 years and had a 82% correction. Could this happen to the US market too? Never say never. |
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