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The Software Sell-Off

Uncategorized Sep 17, 2019

Arun S. Chopra CFA CMT 
September 2019

  • Software stocks fall aggressively.
  • A look at how this setup came to be over the last few months.
  • How inter-market analysis and timing tools preceded the momentum break.
 

The big story last week was obviously the declines in software and momentum stocks. The big story for the year has been the bond market and overall move in yields. With the steep decline in rates in the US and the move to negative rates abroad, there has been a lot of confusion in equity positioning and market outlooks.

Today I will walk through the move in bonds, and the specific relationship to software and momentum names, as well as how (and why) I saw a lot of these breakdowns setting up in advance. I will primary focus on the making of, and thinking behind this trade in general, and conclude with some charts on the stocks themselves.

This will not be a larger investment outlook on the space or the stocks themselves but more of a review of how I believe we...

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The NVDIA Dump

Uncategorized Dec 15, 2018

 

Arun S. Chopra CFA CMT

December 2018

  • Nvidia drops 50%.
  • See why I shorted the name in the 230s.
  • See how Bitcoin, volume and momentum all diverged dramatically before the decline.

Part 3 of the stock dump series starts here, with today's focus on Nvidia (NVDA) (see part 1, The Micron Dump (NASDAQ:MU) and part 2 The Netflix Dump (NASDAQ:NFLX)).

Again, these articles are designed to help show a multidisciplinary approach to stock trading, investing, and position management. Let's jump right in.

It all started in June when the crypto market cracked and was down over 60%. There were numerous analysts at the time who tried to claim this would not impact the semi space. I took a different view, especially given what we were seeing with the broken trendline in the semiconductor index.

Readers of my work know I like to look for intra-market relationships vs. strict fundamental narratives. In Micron's case it was the auto index that was diverging dramatically, and in Netflix'...

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The Micron Dump

Uncategorized Dec 09, 2018
The Micron Dump
Arun S. Chopra CFA CMT
December 2018
  • Micron drops 40%.
  • See why I shorted the name in the 50's.
  • See how behavioral finance can assist in determining fear and greed.

Every now and then there's a trade that really opens up an opportunity for a conversation about fundamentals, price action, and behavioral finance. Turns out Micron (MU) was just that stock in 2018.

I am sure Micron is big favorite here at Seeking Alpha. It has all the parameters I assume the bulk of readers care about. Strong cash flows, demand as far as the eye can see, large cash position, a PE of under 5.

But that didn't stop the stock from dropping 40%. In fact it dropped significantly more than the market, and almost as much as high flyers such as Netflix (NFLX) and Nvidia (NVDA).

Today I want to provide a different view on the stock rather than the traditional deep value, fundamental can't lose bet.

Now, many are going to say the decline is due to China, or DRAM pricing, or any other host...

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The Fed Pulls The Punchbowl

Arun S. Chopra CFA CMT 

November 2018

  • Markets come under pressure as the Fed pulls the punchbowl.
  • A look at how to monitor liquidity across equity markets.
  • Why and how I shorted NVIDIA and Netflix near their peaks.

A deeper dive into credit and dollar dynamics.

After calling for major breakout last year in "The Melt Up", I switched to a much more cautious stance as the calendar turned over. There were four major factors coming into the year I was most concerned about. I often see laundry lists of concerns; I have found that somewhere between pointless, redundant, and confusing. The following four however lined up perfectly and were powerfully simple (no particular order).

  • Proprietary exhaustion indicator fired in Jan., first time since 2014
  • Election Year Seasonality
  • Fed Policy
  • Trade War

It was these four reasons that I stayed balanced in 2018, with 65% equity exposure on average all year, with much of that long/short. As the year has progressed, the above framework...

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3% Treasury Yields Still Don't Matter

Arun S. Chopra CFA CMT
June 2018
  • In February I argued the rate move was overdone.
  • At the time many assumed rates were breaking out.
  • How price and sentiment help determine future price action.
 

In February I wrote an article titled '3% doesn't matter'. This was about two weeks after the market hit its peak with respect to the overall rising rate fear.

There were 3 primary takeaways from my initial article.

  • Rising rate concerns had hit a fever pitch
  • 'Bad' charts were being passed around everywhere, artificially adding fuel to the fire
  • The correct interpretation of yields showed a healthy rotation and/or normalization process

Today I will review the 2016-2018 cycle in yields, including price action, sentiment, and the impact to specific sectors. I will then take another look at where we stand overall on the 10-year treasury yield today.

Price and Sentiment

I've been consistently quoting Gundlach's comments on the value of technical analysis from a few weeks ago, more...

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The Twitter Turn

Arun S. Chopra CFA CMT

May 2018

  • After falling 80%, Twitter has more than doubled off the lows.
  • What can we learn about this entire cycle, from IPO to today.
  • Bringing fundamental, technical, and behavioral factors together.

After being crushed since going public, Twitter (TWTR) has more than doubled off the lows. I wanted to spend some time looking at the entire cycle as there is much to learn from it in my view of it. Today, I plan to touch on valuation, charts, management, and a little behavioral.

Today's agenda:

  • TWTR, GPRO, SHAK, OTCPK:HMNY, and the dreaded Doji (Technical)
  • Financial Gravity (Fundamental/Behavioral)
  • Stock compensation issues (Management)
  • The Twitter Turn, bringing it all together

For those who know my work, I've often written about IPOs, pump and dumps, overvaluation, absurd reason, and bubble logic. So that's where I'd naturally like to start.

TWTR IPO

When Twitter came public in 2014, I was skeptical to say the least. Here we go again I thought. 25B?...

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Intel: The 15-Plus Year Breakout - Part 2

Uncategorized Apr 28, 2018
Arun S. Chopra CFA CMT
April 2018
  • Price has zoomed 22% since the original article.
  • A look at why.
  • A deeper conversation into longer term price action.

Since I wrote Intel, the 15+ Year Breakout, on December 6th, the stock has zoomed, up over 22% vs. the market which has essentially gone nowhere. In fact Intel (NASDAQ:INTC) has been the second-best performing mega cap since that time, only bested by Amazon (AMZN).

The article initially was supposed to be about my latest "fundamental factor" strategy, "earnings yield" stocks, which is one of eight factor models I run.

The Intel analysis was rooted in two more simple 20-30K foot concepts surrounding this most recent model, and I chose it because it was one of the bigger names out of my list. The hope was it would provide a good template for the strategy I was so excited about.

Basically this was the premise at the time:

  • Earnings yield model (upper panel) shows a name with significant outperformance potential, in this case...
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3% Doesn't Matter

Arun S. Chopra CFA CMT
February 2018
  • Everyone is talking about 3% on Treasury yields as a line in the sand
  • The most common long-term yield chart being passed around is flawed.
  • A look at the correct Treasury yield channels.
One of the most passed around charts in the last 2 months has been the ten year Treasury yield chart. Supposedly we are on the cusp of a major breakout in yields.

Let's first look at how we got here...

Chart Malpractice

The most common chart being published on tens looks like the following 3 (please note they are not my charts; they are simply others I have come across in a variety of mediums). I have purposefully blurred out any contributor information as that isn't my game. This is about trying to be on the right side of the market, period.

Chart 1. The 3% resistance Level

This is the market's new bear 'hope'. 'Rising rates are about to break a 35-year downtrend and 'crash everything'. For that to happen however, the chart has to match the narrative,...

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The Melt-Up

Summary
  • The market started melting up in September of last year.
  • Another way to think about this is the market is getting away from the Fed.
  • Many stayed bearish all year long, repeating the same risks that have existed for many years versus objectively looking at price action.

See how Fusion members were in front of the move.

So the market is melting up....

Yes, we have all heard the term in the past 4 months or so. So much so that I saw a lot of perma bears dismiss any possibility of higher prices - instead, they saw further proof of a suckers' rally and an eventual crash.

But nothing could be further from the truth. Just because the search term went trendy is hardly a reason to dismiss it. Especially in the later stages of a bull market.

I've written a lot about the differences between this market and past overall peaks, particularly '08. One of the most important conditions has obviously been monetary policy. This is part of the reason I was able to see the early 2017...

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The Bitcoin Bonanza

Arun S. Chopra CFA CMT
December 2017
  • Bitcoin has had a historic run.
  • The time to buy was the breakout of the downtrend in 2015 and close above 300.
  • Fear and greed are the two most powerful market forces.

Investing vs. speculating in a boom/bust system.

In all my years in finance, I've never seen anything like this, particularly on the upside. The data says no one has.

Before I get started, let me say I am not a crypto hater. As a former gold bug during 2005-2011, the goal of decentralization is well understood. I know what I need to know about these vehicles and wrote about the boom to technicians this market has provided in my past article Cryptocurrency Charts!

With that said, on to the bonanza...

Chart Watching

Technicals get mixed reviews. On Seeking Alpha, it seems to be a lukewarm sorta deal. Which is great, in the end it's highly subjective. I'd argue so is fundamental valuation, but that is for another day.

Technicals can, however, tell us a lot about emotions. This...

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