Behind The Street - Issue #6

November 9, 2021

November 9, 2021

Behind The Street Newsletter

Day Light Savings time ended as we had to fall back an hour on November 7th.

The U.S. Stock Markets should fall back after gangbusters rally and back-to-back-to-back new all-time record highs. The S&P 500 is now extended 5% above its 50-day moving average after a strong rally off its October 4th lows.

Earnings season is almost over with all the Mega Cap Tech stocks reporting blockbuster results adding fuel to this equity rally. Now is the time to cool off heading into the Thanksgiving holiday to set ourselves up for a possible ‘Santa Claus” rally into year end.

Remember stocks go up AND down, and right now I’d like to see us take some time to digest these earnings reports, a pull back is welcome and healthy here.

Sector Focus:

Its important to focus on the big picture to decipher what industries will churn out explosive growth over the next 5 – 10 years. In my eyes that’s Cybersecurity and Cloud Computing.

Last week provided us with confirmation to my overall thesis that Cybersecurity and Cloud Computing will continue to be major growth industries going forward.

Fortinet ($FTNT) posted great results with EPS up 12% on revenue growth of 33% to $867 million. In addition, Fortinet guided higher on Q4 revenue. I am very bullish Fortinet’s SD-WAN offerings going forward.

SD-WAN is a software defined wide area network, and SD-WAN is going to become more popular as organizations migrate from existing legacy MPLS networks (Multiprotocol Label Switching). Coming from a tech and telecom background, I understand just how powerful and efficient SD-WAN can be for an organization. (Also, a great career to get into selling SD-WAN solutions)

Rapid7 ($RPD) reported EPS of 6 cents up 500%, on a 33% revenue increase to $139.9 million. Rapid7 also guided higher for Q4 revenue.

Rapid7 has a great insight cloud platform that collects large amounts of data across a corporation’s environment making it easy to identify vulnerabilities as well as monitor malicious activity and automate operations.

Other notable Cybersecurity companies are Zscaler, Crowdstrike, Okta, Ping Identity, and Palo Alto Networks. It is important to focus on growing and expanding industries not only from an investment standpoint but from a career development standpoint as well. Especially if you are a salesperson.

You need to be in the right spots and Cybersecurity is where its at in terms of tech/software sales. Great fortunes will continue to be made in this space for investors and salespeople alike. Remember, follow the money, follow the innovation, follow the value. Cybersecurity, Cloud Computing.

Earnings Recap:

So far 81% of companies in the index have reported a positive EPS surprise according to FactSet data. Additionally, 75% outperformed on revenue with 89% of S&P 500 companies reporting so far.

With positive earnings reports and a Federal Reserve printing money and keeping interest rates locked near zero it’s no wonder why the stock market continues to hit new record highs.

As the great Stanley Druckenmiller always says, “what is the Fed doing”. As of now the easy money will continue to flow providing ample liquidity to markets. What this tells me is that any pull back in this market will be bought.

The picture remains the same, if the Federal Reserve/Fed Chair Jerome Powell continue to telegraph to this market that it will be supported, stocks should continue higher over time.

Crude Watch CL!:

Let’s keep our eyes on Crude Oil, at the time of writing this newsletter we are trading around $83. In my view crude is going higher, much higher.

This will ride along with the second wave of inflation that is about to slam into Americas like you and me. I maintain my $100 crude oil price target and I believe we will break above the previous peak of $85 by the end of this week.

A higher crude oil price is by and large stock market positive; crude tends to lift the energy sector that in turn lifts the financials. Let’s keep our eye on this moving forward, you can follow crude oil futures under the ticker CL!.

As of June 29, the following are the five largest S&P 500 index constituents by weight:

1) $AAPL - 5.89%

2) $MSFT - 5.63%

3) $AMZN - 4.07%

4) $FB - 2.32%

5) $GOOGL - 2.03%

Distribution Days: (Days where index sells off in heavier volume than previous day. Signaling institutional selling. 5 - 6 distribution days in the span of 4 weeks signals market weakness) Investor’s Business Daily

Current Distribution Count: Market in Confirmed Uptrend

Leaders up in volume: $CFLT, $DDOG, $PGNY

Leaders down in volume: $SWAY, $CYRX, $DVAX

Something very concerning to me is the labor force participation rate that stands still at 61.6%. This is the lowest level of participation since the 1970’s, just another reminder the the stock market is not the economy. So do not be fooled by the “good” jobs report we just got. These were people already looking for work and thus do not represent a re-entrance.

According to Barron’s the number of re-entrance actually fell last month, to 2.1 million from 2.29 million in September. Keep in mind that employers are raising wages and in many cases wage increases will be passed on to consumers in the form of higher prices of goods and services.

However, you know I am an optimist! If you are currently at a job you should ask for a raise tomorrow, or you should apply to a competitor and get a 30% pay bump.

Happy New All Time Record Highs for Bitcoin and Ethereum. As stated on previous Behind The Street Newsletters I expect Bitcoin and Ethereum to maintain in it’s uptrend. Bitcoin is telling us that inflation is not transitory as Fed Chair Jerome Powell says.

Money is flowing into Bitcoin and on chain analysis shows large whales not selling their Bitcoin but buying more. The trend is your friend, and the trend is up. Over time I believe Bitcoin is going higher, much higher. At the time of writing this article Bitcoin broke another all-time record high trading at $67,500.

Thank You