Behind The Street - Issue #7
November 29, 2021
November 29, 2021
Behind The Street Newsletter
I hope everyone had a great Thanksgiving holiday week and Happy Hanukkah to all our Jewish readers, wishing you happiness and peace this holiday season.
The only Black Friday sale I saw last week was across all three major indexes. The Dow Jones Industrial Average at one point was down over 900 points with the S&P 500 and NSADAQ both selling off nearly 2%. The INDEXCBOE: VIX was up nearly 55% or 10 points to 28.95, this was a massive move that will probably be short lived. Historically it is wise to short volatility when the VIX makes these massive moves to the upside, it does not mean the market has bottomed, but signals that a bottom may be closer than you think. At the time of writing this newsletter, futures are bright green across the board, be sure to keep an eye on trading volume going into the close and watch for a late day fade. If we close at the high of the trading day look for follow through buying on Tuesday with higher volume. One thing that I did notice about Friday’s action was that the yield on the U.S. 10 YR actually came down a bit amid the sell off, telling me that this dip will probably be bought.
The 50-day moving average on the S&P 500 is 4,536, a normal stock market correction usually finds support somewhere at or around the 50 day moving average. Two other main targets are the 100 day and 200 day that stand at 4,486 and 4,297 respectively. As a long term trend indicator, so long as the S&P 500 maintains above its 200 day moving average, the long term trend it up.
The Big Picture:
Long term nothing has changed, yet. We know that the Federal Reserve will continue to support this market by keeping interest rates suppressed including buying billions in mortgage-backed securities and U.S. Treasuries. It is important to watch what the Fed is doing instead of listening to what they are saying. I suspect that we will continue to see the Fed “moving goal posts” regarding tapering asset purchases and raising interest rates. Many people (myself included) are questioning why the Fed continues to support the housing market being that single family home prices across the country are at records highs amid a supply shortage.
This has created an environment where prospective first-time home buyers are being priced out of the market while the top 1% continue to grow their net worth due to asset price inflation. As I have stated many times, I believe the Fed is creating a two-tier society with extreme haves and extreme have nots. The wealthiest 10% of Americans own almost 90% of all U.S. stocks, and after the over 100% gain in the S&P 500 since the Covid lows, the wealth gap continues to expand at a record pace. I continue to be bullish on U.S. stocks going into year end.
The Institute for Supply Management’s monthly manufacturing index comes out on Wednesday at 10am EST. This report should give us some insight into whether price pressures and supply chain bottlenecks will continue or ease moving into the new year. The ISM releases its Purchasing Managers Index (PMI) on the first business day of each month. Members of the IMS Business Survey Committee (BSC) receive a questionnaire each month, that asks them to identify month over month changes (if any) for each index. The survey asks the largest 300 U.S. manufacturing companies in the United States questions relating to their business activity in the previous month covering five areas with equal weighting.
The ISM Manufacturing ROB/PMI is important because it represents 20% of business contribution to GDP in the United States. It reflects real goods bought and sold in the U.S. economy. I like to think of the ISM as a powerful leading indicator to the business cycle and following it closely can increase our odds for investment success. The ISM is almost like looking at the business cycle itself. When the ISM is over 50, the U.S. economy is expanding and therefore S&P 500 returns will likely be positive. S&P will rise GDP will most likely rise. However, when ISM is below 50, the U.S. economy is contracting and therefore S&P 500 returns will likely be negative. We can predict the 0, 0 situation. S&P 500 will fall, and GDP will fall. On a historical basis, the ISM predicts U.S. GDP with a 12-month lag time with 85% accuracy. I use the ISM as a guide to medium- and long-term portfolio allocation. View it here: ISM Report On Business® (ismworld.org)
CYBER MONDAY! Actually…… Cybersecurity Earnings!
Cybersecurity is often a hot topic of discussion on the streams. I always say to look for industries that are growing and will continue to grow at a rapid pace for the next 5 years. Cybersecurity is one of those industries. Zscaler, CrowdStrike, and Okta are all set to report earnings this week with Zscaler kicking things off after the bell on Tuesday.
$ZS - Analysts are expecting EPS of 12 cents, down from 14 cents a year earlier on revenue of $212 million, up 49%.
$CRWD – Analysts are expecting EPS to rise 25% to 10 cents a share on $363.6 million in revenue, up 56% form the same quarter last year.
$OKTA – Analysts are expecting a loss of 24 cents from a 4-cent profit last year on revenue of $327.2 million, up 50%.
Aside from the price action of these stocks, I would strongly recommend paying attention to the companies listed above for potential job opportunities. The most important thing we can do to stay ahead of the inflation curve is to incrementally increase our incomes each year. This is easier to do if you are in a sales position, particularity in tech/software sales. As a salesperson, it is so important to make sure that you are selling a product or service that is in high demand in a fast-growing industry. Stay away from taking on opportunities that involve industries that are in structural decline.
Look for open Account Executive and Enterprise Account Executive positions at fast growing cybersecurity companies. Your earning potential will be uncapped, and you should be able to attain your quota and even exceed quota attainment easily being that these products will be in high demand for the foreseeable future. In major cities across the county top producing Enterprise Account Executives can expect to make over $400,000, some even more.
I understand that this may seem to be a little off topic, but I assure you it’s not. The goal is to create an environment for yourself where you are building an established career with a great income so you can then plow your earnings into investments. Also, this is just one example of a lucrative career in tech. You can go into engineering, product development etc. Paying attention during earnings season is a great way to identify fast growing companies that you may want to work for in the future. Idea generation is key not only in investing but in your career trajectory as well.
Salesforce Tuesday
Keep your eyes on Salesforce as they report earnings after the bell on Tuesday. This will be their first earnings report since its acquisition of Slack Technologies closed. Slack competes with the likes of Microsoft Teams. I personally use Teams in my everyday work life in tech sales, however many of my friends utilize Slack.
Crude Watch:
Can crude prices rebound after last weeks nasty sell off? For the stock market rally to be sustained, crude oil needs to rebound. A concern over the Omicron variant seems to be spooking the market over concerns of another global lockdown. When people are locked down demand for crude drops. Perhaps the market is trying to tell us that more lock downs are on the way around the globe. As we talked about last week, reopening stocks all sold off hard including the airlines and cruise lines. Often the market will tell us what is in store for the future and judging by the harsh sell off in reopening stocks I believe more lockdowns are on the way. Maybe not in the United States, but other countries around the world. $CCL – Carnival Cruise is already back to levels back during May 2020 and I wouldn’t not be surprised if we hit new record 52-week lows. Stay away
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: $DHR, $PFE
Leaders down in volume: $ABNB, $FANG, $XPEV, $CPE
This is the time of year for tax loss selling and window dressing / performance chasing. Expect underperforming stocks to get dumped even more as portfolio managers are selling as a tax strategy. In a perfect world, I would like to see all major indexes sell off into their 50 - day moving averages in order to make way for the tradition “Santa Rally” into year end. Merry Christmas!
I bought the dip on both Bitcoin and Ethereum for my long-term accounts. My way of hedging against the mega debt bubble across the board is to dollar cost average into Bitcoin, Ethereum, and physical Silver. I want to be diversified across multiple asset classes as I make my way into may late 20’s (that is so scary to say!). I recently just bought a piece of property in Southern Florida to subsidize my cost of living. With interest rates being so low, I can have my tenant pay down my mortgage while living rent free. Overtime I will be building equity in the property while freeing up cash to buy more Bitcoin, Stocks, and Silver. Establishing a sound infrastructure is key to long term sustainability especially if you have a family. A roof over your head is the most important need in a person’s life in my view. I continue to be bullish Bitcoin and Ethereum as an inflation hedge.
Happy Tuesday everyone and make it a productive week! Stay optimistic because optimists always prevail. Don’t let volatility in the financial markets paralyze you, stay focused and keep your head on straight. As my good friend Jim Roppel always says, “So long as the Golden Goose of Capitalism is not crushed by socialism, the market will continue to crank out life changing opportunities.” I will see you right back here next week for the eighth edition of the Behind The Street Newsletter!
Your Pal,
Tom
Email: walkswallstreet@gmail.com
Much of the data in this Newsletter can be found here:
Investor’s Business Daily | Stock News and Stock Market Analysis - IBD (investors.com)
Barron’s | Financial and Investment News (barrons.com)
***The Behind The Street Newsletter is for educational purposes only. This is not an endorsement to buy or sell any securities. Please consult with your personal financial adviser. This is a collaborative space where we talk about the financial markets for educational purposes only.***