The S&P Hits a New High
Arun S. Chopra CFA CMT
With the market having moved to new all-time highs, I thought it was a good time to review and share some of my research from this summer. Although the path out of the December low has surprised many, there were lots of reasons to be constructive and optimistic throughout the move.
This dovetails well with my broader melt-up call ("The Melt Up") in 2017. The larger takeaway from my work, I'd argue, is bucking the crowd through experience and avoiding the constant market crash rhetoric by looking at markets holistically.
In 2017, the melt-up call was a combination of market internals and Fed policy, while the 2019 grind higher was much more about price action and valuations coming out of a material low (December 2018). Each situation is different, but under the surface involves similar techniques (breadth, sentiment, trend, etc.).
Today I thought I would walk through a few concepts that were helpful over the last year as the market rallied to new highs (chart...
The Software Sell-Off
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...
The NVDIA Dump
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'...
The Micron Dump
- 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...
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...
3% Treasury Yields Still Don't Matter
- 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...
Intel: The 15-Plus Year Breakout - Part 2
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...
3% Doesn't Matter
- 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.
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,...