People come to me all the time whether it’s on social media, email, or within the trading room here at Simpler. They ask me things like ‘what’s your analysis of the close today, how about tomorrow, how about next month, how about the coming year.’
So here it is, my analysis for short and long term basis for the month. With some extra tidbits about what I’m avoiding and more importantly…
What I’m buying…
FAANG’s have been the market leader. They’ve led the market higher most of the year, in an emotional, parabolic fashion. For most of 2017, it seemed as though stocks would never stop trading higher. I’m sure that sucked in many a new investor, hearing constant stories about stock market success, especially in Facebook, Apple, Amazon, Netflix, and Google. This new investor probably started bailing quickly on their investments during Q2 and Q3 too.
After less than desirable earnings in Q2, FB and NFLX took a turn for the worst, and broke their solid uptrends. The Earnings Kiss of Death came next for Apple in Q3. GOOGL is interesting because while it had solid Q2 numbers, it quickly lost momentum and fell going into Q3 earnings, taking a further hit after earnings itself. AMZN is like a marathon runner that crashed and burned after meeting the trillion dollar valuation.
I liken the rise in AMZN similar to Bitcoin. Parabolic and filled with excitement but all good things must come to an end. I think AMZN is now in a downtrend, and won’t be saved by Black Friday/Cyber Monday, and I doubt it’ll hit the $2050 level again.
All five of these stocks are now in a significant downtrend.
A correction of 10% is normal. 20% and more from the highs? That’s a bear market. In all five, I’m looking for more downside, as well as the rest of the market. This is my first bit of analysis on how I plan to play the rest of the year.
Now onto the next.
FAANG stocks, both by market cap and by percentage of holding within indexes, have a huge impact on the overall market. It’s held this control since the tech bubble from 1995 – 2001. With FAANG going from an uptrend to a downtrend, it’ll lead the rest of the market lower. The Nasdaq can’t rise if it’s most important names are bleeding to death.
I’ve said multiple times that tech may very well be done. However, there are certain sectors I like for higher prices — just not tech.
What about MSFT?
Well, MSFT deserves a spot in FAANG more than the stocks that are actually there. MSFT has shown continuous year over year growth, and it’s avoided The Earnings Kiss of Death. With solid EPS, solid revenue, and positive guidance, I look to MSFT to be the best long term buy, as well as a good short term buy on up days.
Why? It’s a honey badger.
It has relative strength. It’s also fundamentally sound.
So, that’s one solid buy. I’ll provide more tomorrow.
If you can’t wait till then though, you can grab a $7 trial to our Options Gold subscription, and get multiple trades ideas daily from me and the rest of the Simpler team HERE.
Now onto my next promise — what you should avoid.
For starters, American car companies. Yes, they had a nice boost after Q3 earnings, but resistance overhead is heavy. We’re also at all-time consumer debt highs, with rising interest rates and rising tariffs. Not a great time to buy cars.
I think the earnings pop will soon fade. The exception to that may be GM, with their new technology for self-driving cars. I’ll keep an eye out, but TSLA seems much further ahead along those lines.
From a technical standpoint, TSLA is showing consolidation on the weekly and monthly charts. I for one, think this breaks out to the upside and I’m looking for a price target on TSLA at $450. I don’t like trading TSLA on a short term basis, as a single tweet from Musk sends it moving one direction or another, in combination with a constant barrage of short sellers messing with the stock.
For some reason, shorts want TSLA to fail but I think TSLA will be the way of the future. I own two different Fords and I love my American made cars but I’d love to buy a TSLA someday.
BA is an interesting case because I’m looking for industrials and transports to trade lower. This fits into my bear market thesis as well, and is Dow theory 101. Out of the airplane suppliers, I would stick with BA, but quite frankly, XLI, the sector SPDR industrial sector doesn’t have many names that look to trade higher. Yes, we could get an oversold bounce, but it’s still a downtrend.
BA at this moment in time does look like it’s ready for an oversold bounce, but again, it saw a significant break in trend and I’ll not be looking to buy BA at these lows.
Transport stocks like UPS and JBHT are showing consolidation and look to break even lower. Anything in the industrial sector that is affected by tariffs, I’ll avoid to the long side and set up for potential shorts. A slow down in transports and industrials is also a critical factor in a fading economy. This should be watched closely.