(THE JACKSON HOLE SYMPOSIUM WILL STEAL THE SPOTLIGHT THIS WEEK)

August 19, 2024

Hello everyone,

Week ahead calendar

2024 Democratic National Convention Aug. 19 - 22

2024 Jackson Hole Economic Policy Symposium Aug. 22 – 24

Monday Aug. 19

10 a.m. Leading Indicators (July)

9:30 p.m. Australia RBA Minutes

Earnings:  Palo Alto Networks, Estee Lauder.

Tuesday Aug 20

8:30 a.m. Canada Inflation Rate

Previous: 2.7%

Forecast: 2.7%

Earnings:  Lowe’s

Wednesday Aug 21

2 p.m. FOMC Minutes

Earnings:  TJX Companies, Analog Devices, Target, Raymond James Financial.

Thursday Aug 22

8:30 a.m. Chicago Fed National Activity Index (July)

8:30 a.m. Continuing Jobless Claims (08/10)

8:30 a.m. Initial Claims (08/17)

9:45 a.m. PMI Composite preliminary (August)

9:45 a.m. Markit PMI Manufacturing preliminary (August)

9:45 a.m. Markit PMI Services preliminary (August)

10 a.m. Existing Home Sales (July)

11 a.m. Kansas City Fed Manufacturing Index (August)

7:30 p.m. Japan Inflation Rate

Previous: 2.8%

Forecast: 2.9%

Earnings:  Intuit, Ross Stores

Friday Aug 23

8:00 a.m. Building Permits (July)

10 a.m. New Home Sales (July)

Later this week, we will be tuned into Jerome Powell’s speech at the Jackson Hole symposium.    This speech comes just a few weeks after the July Fed meeting where he gave investors some confidence that a September rate cut was on the table.   This confidence was built on “coded statements” from Powell, that appeared to say a lot, without saying anything decisive. 

To further confuse investors about the Fed’s actions going forward, we were whipsawed by the Aug 2 non-farm payrolls data, and then the retail sales report and softer inflation data last week. 

This week investors will also be able to examine the behaviour of the consumer as we have earnings results from retail chains, including Lowe’s and Target.

We can also pore over weekly continuing and initial unemployment claims data to gauge the temperature of the labour market.

Outside the U.S., attention will focus on inflation metrics, with significant data releases from Canada and Japan. 

Goldman Sachs urges investors to “keep the faith” that the U.S. will avoid a recession…

My advice: be ready to take advantage of any volatility going forward.   Scale into sold-off stocks and gradually build your positions. 

MARKET UPDATE

S&P 500

The market rejected the recent low a couple of weeks ago very quickly.  Is that the low?  We can never be certain.  If it is, then we have made an Elliott Wave 4 pattern low, which should now be followed by the market running up to new highs in the mid-5,700’s or toward 6000.  (But don’t expect a straight lineup). Only once this Wave 5 is over, will the bullish sequence from the October 2022 low of 3,492 be complete.  And this then leaves the market vulnerable to its biggest corrective sell-off since this bottom.  The market will tell us where the top is in its Wave structure over the coming weeks/months.

GOLD

Gold has pierced the $2,500 level, and now seems set to rally to the mid $2,500’s and then $2,670.  Support lies around $2,480-$2,450.

BITCOIN

Bitcoin is still undergoing a complex corrective structure.  Support is still found in that band between $40k and $50k.  We are looking for a sustained break above $60,000 to encourage advance toward the $70,000 level, enroute to the key $73,794 resistance.

QI CORNER

Elon Musk, Albert Einstein, Charlie Munger and many others are big believers in INVERSION THINKING. 

What is it exactly?

Let’s throw some light on it by looking at some extracts from Alex Penunuri on X.

• Inversion thinking is a problem-solving technique where you tackle problems backward.  Instead of focusing on success, you identify WHAT leads to FAILURE and AVOID those actions.  This leads to a faster & easier decision-making process.
• Elon Musk is a big advocate of inversion thinking.  He often uses it to avoid pitfalls in his ventures.  He identifies potential failures early & steers his projects away from common mistakes.
• It’s also a tool Charlie Munger regularly used.  “Avoiding stupidity is easier than seeking brilliance” – he believed.  Rather than trying to win, avoid losing.
• Why is inversion thinking so powerful?  As humans, we’re better at seeing threats than seeing opportunities.  By inverting your thinking, you turn complex problems into obvious solutions.
• Another benefit of inversion thinking is its ability to relieve anxiety. When facing a difficult problem, it’s hard to see the way out.  Inversion lets you see situations from a different angle.
• Another example:  Building a relationship.  What behaviours will ruin a relationship? Judgement, Lack of communication, No respecting the other person.  By inverting the question, you can easily see how to avoid a bad relationship.
• What about the business context…What behaviours would ruin a business?  Having a bad product.  Not promoting your stuff.  Giving customers a poor experience.  It’s hard to see how to grow a business, easy to see how you can destroy one.
• How can you apply Inversion Thinking in your life:
• 1/ Find the problem
• 2/ Identify the desired outcome
• 3/ Invert it by asking what would prevent that goal from happening
• 4/ Plan to avoid those actions

SOMETHING TO THINK ABOUT

Cheers,

Jacquie

(CONSUMER BEHAVIOUR AMID RECESSIONS: WHERE DOES THE MONEY GO?)

August 14, 2024

Hello everyone.

Which would you most likely give up if a recession descended upon us?

1. Netflix
2. Fast food including Chipotle, McDonalds, Burger King, Taco Bell, In-N-Out Burger, Baskin-Robbins, etc
3. Your favourite coffee fix
4. None of the above

If it was me, and I had to choose one, apart from d) it would be fast food.  But then, that would be easy for me, because I don’t eat it in the first place.  So, I’m cheating a little in that sense.   So, my second pick would be my coffee fix.  Again, easy, as I am a tea drinker and prefer to make a pot of tea in the morning or (grab a teabag if I’m in a hurry).

If we are not going to eat out, and are not getting our coffee fixes, then where would our discretionary dollars be going?

Many will find comfort in media options.  And Netflix comes to mind here.

How many people have not spent a lazy day binge-watching their favourite series or rewatching old movies?    

Netflix may turn out to be a stalwart stock against a backdrop of recessionary dark clouds building up on the horizon.  Analysts at J.P. Morgan believe the service provides good value, even with their latest price increases.  Capex is expected to come in around $ 17 billion this year, and JPM has an overweight rating on the stock.  Their price target of $750 indicates around 18.5% upside potential from Monday’s close.  From the beginning of this year, the stock is almost 32% higher.

Following its second-quarter earnings announcement on July 18, Netflix shares are trading only around 2% lower, compared with the S&P 500 which is down around 4% over the same period. Of note, in the second quarter, Netflix reported a 34% yearly increase in its ad-supported memberships, and total memberships topped analysts’ forecasts.  JPM analysts regard subscription services like NFLX and SPOT as “being more resilient during periods of macro pressure.”

Netflix is positioned well as it targets 500M+ global (connected TV) households.

Spotify has also been a strong performer this year, with shares up 80% year to date.

Netflix (NFLX) Daily chart

I recommended Netflix (NFLX) on January 17, 2024, when it was $480.

Spotify (SPOT) Daily chart

I recommended Spotify (SPOT) on January 7, 2024, when it was $193.52

I am not suggesting you buy at this time or add weight.

SOMETHING TO THINK ABOUT…

In a recent talk the Private Wealth Group of Wells Fargo Advisors offered comments on investing.  Here are a few takeaways. 

“What we can learn from history is that people don’t learn from history.”   

“All this creates a lot of short-term thinking in the markets.  They become focused on what is in the news, and money drives toward these companies and industries, it’s during this time that investment principles are forgotten.”

Their thoughts on the media are interesting.  (In the 1980’s, I don’t recall any financial media channels.  CNBC was founded on April 17, 1989, two years after the 1987 crash. It was originally the Consumer News and Business Channel, a joint venture between NBC and Cablevision).

Getting back to their ideas…

Tuning out the headlines to stay focused on the long term.

“People get caught up in what’s going on in the news and what the media is talking about.  A lot of people are working from home.  They have got the TV on.  If you watch any of the financial news networks, there’s not that much news every day.  They just keep talking about the same thing over and over and over again.  And people hear that, and they stick with it and then it becomes real to them, and all their investing principles and history is gone by the wayside.”

QI CORNER

Cheers

Jacquie

(DON’T GET TOO COMFY – MORE CHOP & CHURN IS ON THE HORIZON)

August 9, 2024

Hello everyone.

ARE WE THERE YET?   

Historically, it is rare for markets to put in correction lows in August.  September and October are more likely to see an eventual bottom.  So, be ready for equity market volatility in September. 

ELI LILLY(LLY)

Eli Lilly reported impressive second quarter earnings.  Mounjaro, a prescription medication for Type 2 diabetes, and Zepbound, a prescription medicine for weight loss are two drugs by Eli Lilly seeing incredible demand.  In its first full quarter in the U.S. market, Zepbound brought in $517.4 million in revenue.  In the second quarter, it generated $1.24 billion in U.S. revenue.

Obesity affects nearly 42% of adults in the U.S. according to the latest data from the Centres for Disease Control and Prevention. 

The demand for weight loss drugs in on the rise around the world.  The global market for obesity medication is expected to hit $105 billion in 2030, according to Morgan Stanley’s research.  That’s up from the firm’s forecast in September of $77 billion.

Drug manufacturers like Eli Lilly and Novo Nordisk, the pharmaceutical company that makes Ozempic and Wegovy, are racing to meet that demand.  Both companies are investing billions to build new manufacturing plants to boost supply of the popular medications.

Eli Lilly was founded in 1876 and became a publicly traded company on the New York Stock Exchange in 1952.

$1000 invested in Eli Lilly 10 years ago would now be worth $13,143, an estimated percentage increase of 1,214%.

The lesson here is don’t try and attempt to use a company’s short-term performance to predict how well or how poorly it may do in the future.  There will always be market fluctuations.  The key is to stay the course and let the growth narrative unfold over time.

This is an item of interest, not a suggestion to buy (LLY) right now.  But (LLY) is an excellent stock to hold for the long term.

WHAT SHOULD MY PORTFOLIO LOOK LIKE?

An illustration of asset classes and allocations by age. 

It is different for everyone.

So, one example does not fit all.

WHAT IS… FORWARD PRICE/ EARNINGS RATIO?

The forward price/earnings ratio is a measurement of value.  It is found by dividing a stock’s most recent price by next year’s earnings per share estimate for the entire year.  If that estimate is unavailable, then the estimate for the full current fiscal year is used.

For a better understanding of what forward price-to-earnings means, let’s look at an example.  Let’s say a company’s current stock price is $25.  Analysts estimate an EPS of $1.50 for the next quarter.  Its forward P/E ratio would be 25/1.5=16.

Difference between forward P/E and trailing P/E

The main difference between standard P/E and the forward price-to-earnings definition is that the former uses actual EPS that has already been reported by a company, whereas the latter uses the EPS estimate.

The standard P/E is used to evaluate whether a company is overvalued or undervalued, whereas forward P/E ratio determines future estimated value.

Let’s look at an example.  If the current price of a stock is $8 with the EPS of $1, and its earnings are expected to double in the next year to $2, the forward P/E ratio will be 4x, or half of the company’s value when it earned $1.

If the forward P/E is lower than the current P/E, analysts expect earnings to increase.  On the other hand, when the forward P/E is higher than the current P/E ratio, analysts expect earnings to decrease.

QI CORNER

SOMETHING TO THINK ABOUT…

Cheers

Jacquie

(THE CORRECTION IS UPON US – BUCKLE UP)

August 5, 2024

Hello everyone,

U.S. Markets turned down sharply last Friday after the July nonfarm payroll revealed the highest unemployment rate since 2021, catching many by surprise.  (If you had read my Monday, July 29 newsletter last week, you would have already known we were in a Wave 4 down period and would have been aware of the targets).  Many stocks were absolutely battered, including Intel.  No sector was left untouched.  Yields fell, and the TLT rallied strongly.  But you knew all this was about to happen – you had been forewarned.

The US dollar depreciated against all major currencies, with particularly steep declines against traditionally risk-off currencies like the Swiss franc (CHF) and the Japanese yen (JPY).  In response to this data, markets are now pricing in steep rate cuts – as many as 150 basis points – from the Federal Reserve by year’s end.  ( I said earlier in the year that the slowdown in the economy would show up in the second half of the year and steamroll its way through the economy like a ball falling down a hill, gathering momentum as it fell, and this is exactly what is showing up in the data now – the economy is slowing faster than most realize, and the Fed is where it was when it went to raise rates -  slow to the party - and will now be expected to act aggressively.)

All Aussies will be watching the Reserve Bank on Tuesday.  No change is expected, but many are hoping for a rate cut.

Economic data points from China, including the trade balance and inflation figures, will give some insight into an economy that is still struggling post-pandemic.

I am not suggesting you buy any of the stocks listed above at this time.  I am merely showing you what the bank is focused on.  We hold three of these stocks in our portfolio:  Caterpillar, Amazon and Microsoft.

Week ahead calendar

Monday, August 5

9:45 a.m. PMI Composite final (July)

9:45 a.m. S&P PMI Services final (July)

10:00 a.m. ISM Services PMI (July)

Previous:  48.8

Forecast: 51

Earnings:  Simon Property Group, Diamondback Energy, Tyson Foods, Progressive

Tuesday, August 6

8:30 a.m. Trade Balance (June)

12:30 a.m. Australia Rate Decision

Previous: 4.35%

Forecast: 4.35%

Earnings:  Super Micro Computer, Fortinet, Devon Energy, Airbnb, Wynn Resorts, Axon Enterprise, TransDigm Group, Yum Brands, Fidelity National Information Services, Uber Technologies, Marathon Petroleum, Caterpillar

Wednesday, August 7

3:00 p.m. Consumer Credit (June)

10:00 a.m. Canada Ivey PMI

Previous: 62.5

Forecast: 58

Earnings: Costco Wholesale, Warner Bros, Discovery, Occidental Petroleum, Ralph Lauren, CVS Health, Hilton Worldwide Holdings, Walt Disney Company

Thursday, August 8

8:30 a.m. Continuing Jobless Claims (07/27)

8:30 a.m. Initial Claims (08/03)

10 a.m. Wholesale Inventories final (June)

9:30 p.m. China Inflation Rate

Previous: 0.2%

Forecast: 0.3%

Earnings:  Gilead Sciences, Akamai Technologies, Take-Two Interactive Software, News Corp, Paramount Global, Expedia Group, Martin Marietta Materials, Eli Lilly

Friday, August 9

8:30 a.m. Canada Unemployment Rate

Previous: 6.4%

Forecast: 6.4%

MARKET UPDATE

S&P 500 

Correction sell-off in progress.  Support zone = between 5,265 – 4,950.  Sustained break of 4,950 would probably see a much deeper sell-off toward the late 4,500’s.

GOLD

If gold can hold $2,350 area, the metal could advance to the mid $2,500’s.  A break of the latter level would see gold rallying toward the $2,650 zone.  However, if gold does fall below the $2,300 area, we could see a fall toward $2,260 or even $2,200.

BITCOIN

As I write this Post Sunday after/evening, I am watching the price action of Bitcoin, which is now sitting at $54,190.00.   There is strong support at the $50k level, and at the $40k level.

PSYCHOLOGY CORNER

Herd Behaviour

This occurs when investors follow the actions of the majority, often leading to trends and bubbles.  Herd behaviour can result in significant swings as large groups of investors buy or sell simultaneously.

Exploiting Herd Behaviour

By understanding how herd behaviour drives market movements, investors can position themselves to benefit from the irrational actions of the crowd.  For example, contrarian investors often buy when others are selling and sell when others are buying.

QI CORNER

AUSTRALIAN CORNER

It’s the Olympics, so we must celebrate our athletes’ achievements.

Australian, Saya Sakakibara, wins the gold medal in BMX and dedicated it to her brother.

GOOD VIBES CORNER

Cheers,

Jacquie

(EXAMINING THE TECHNICALS IN NVIDIA (NVDA) AS WE NAVIGATE THE MID-SUMMER STOCK SWOON)

July 31, 2024

Hello everyone,

The long-awaited summer vacation has arrived for the stock market.   Stocks are at the mercy of investors who decided one day that they wanted to own something different rather than just technology stocks.  So, the sell button was decidedly pushed en mass, and funds then poured into a variety of other sectors, most notably small caps, and interest-sensitive sectors, which include home builders, health, and energy stocks. Of course, this movement has a lot to do with rate cuts that are not too far away.

But also, the tech sector is taking a healthy break.  This sector has run very hard at what seemed like 12-cylinder horsepower. Eventually, a rest is needed.  We are witnessing a broadening of the market as we head into the final months before the U.S. election takes place.

One of the stock favorites in the tech sector is Nvidia (NVDA).  It is one stock that has definitely been on a sprint to the stars and is now taking a much-needed rest.   Using Inside Edge Capital charts, let’s take a deeper dive into how that stock looks from a technical perspective, and where we might see significant support levels.

Firstly, let’s look at the 200-day moving average, shown in the dotted blue line in the chart below.   You will notice that it is trending higher, and the stock price is still well above the 200-day MA.    The stock is still in a well-established up trend.  Since it broke above the MA in January 2023 NVDA is still around 540% higher since that move even after the recent sell-off.

There is a possibility that NVDA falls into a consolidation pattern as we wait for earnings at the end of August, which would allow the moving average to trend higher closing the gap.

The uptrend support line (red-dashed) should intersect the stock price at around $96-$93 depending on the continued rate of share price decline.  $96 is also this year’s break-out level, and it should now offer support.

Let’s not forget volume.  This identifies the seller’s conviction in this sell-off.  The 50-day MA of the daily volume totals is clearly in a decline since April.  In other words, the urgency of selling is waning.

Based on the fundamental outlook of continued strong earnings growth and the technical outlook, the stock should not get too far below the mid-$90s before the low is found.

On this chart, I have drawn support and trend lines, showing where the stock price may find lows.  I have also drawn the trend line showing declining volume since March 2024.

Weekly NVDA chart

Cheers,

Jacquie