Mad Hedge Technology Alerts!
Although poor long-term investments, meme mania captured the imaginations of short-term traders with its wicked price action.
The counterculture drumbeat of taking down the institutions was then usurped by the meme management who issued shares after any sort of short squeeze.
Onlookers had to know the energy would not last and it is finally dying down.
Euphoric moments minted traders who benefited from unusual price spikes when institutions were caught off guard and had to buy the stock back at outrageous prices.
It appears as if this stage of meme mania is at the dying embers, and a sell the rally pattern has emerged in the past month just as big tech has accelerated its lead over everyone else.
For short-term traders, executing directional bearish bets is still on the table and for long-term buyers, you never should hold any of these following companies.
This type of smash and grab philosophy was just too risky for the Mad Hedge Technology portfolio and we avoided it like the plague.
I saw this more as a byproduct of too much liquidity in the system than anything else.
The stocks which skyrocketed were, in most cases, failed business models and only specific anomalies helped price action spin their way.
Since the volume has fallen off a cliff, the sell the rally would be the logical way to go for all the risk-takers who missed out on the meme mania phenomenon on the way up.
Here are the stocks involved.
Clover Health Investments, Corp. (CLOV) operates as a health insurer. It recently said it would be expanding insurance plans across nine states and more than 200 new counties in a bid to focus on underserved communities. The share price of the firm soared 8% after the announcement.
BlackBerry Limited (BB) provides intelligent security software and services to enterprises and governments worldwide. The company leverages artificial intelligence and machine learning to deliver solutions in the areas of cybersecurity, safety, and data privacy.
It is placed fourth a list of 10 Reddit’s WallStreetBets meme stocks hedge funds are piling into.
The company’s shares have returned 145% to investors in the past twelve months.
The company announced that the QNX software marketed by the firm was now installed in close to 200 million vehicles worldwide. This is an increase of 20 million compared to last year.
ContextLogic Inc. (WISH) is a California-based mobile ecommerce firm.
It is ranked third on a list of 10 Reddit’s WallStreetBets meme stocks hedge funds are piling into.
On July 6, the company announced that ContextLogic B.V, the Dutch arm of the business, had been granted a payment license for the European Union region. The share price of the firm jumped more than 5% after the announcement, which a company official said was the first step towards becoming a payment service provider in Europe.
GameStop (GME) rose from $4 to $325 and currently sits at $180.
The stock has continued to trend down from $320 after the latest short-squeeze and momentum is strongly biased towards the downside.
The retail company sells video games and has a terrible business model.
The last one is AMC Entertainment Holdings, Inc. (AMC) whose stock went from $2 to $60 and now is back down to $40.
AMC was a headliner disaster during the pandemic because movie theatres were closed and consumers were substituting their services for Netflix or other streaming services.
The Chinese property tycoon Wang Jianlian who bought into AMC before the pandemic was able to exit from his investment with a $675 million gain.
He acquired the company applying $1.9 billion of debt in 2012.
The Wanda Conglomerate was bailed out by the Reddit trading army after his vision of making AMC a “true global cinema operator” fizzled out big time.
The cinema chain reported a net loss of $4.6 billion for 2020, thus it’s stunning that Wang was able to spin such a disastrous investment for a tidy profit.
The AMC stake sale is the latest instance of Wanda offloading assets under pressure from Beijing, which wants Chinese to pare back its overseas holdings and debt.
The company was placed on a watch list by regulators in 2017 along with Anbang Group, Fosun Group, and HNA Group. These privately controlled Chinese conglomerates had accumulated some of the world’s largest debts after snapping up overseas trophy assets, often at premium prices, and were facing significant debt maturities.
Wang got lucky but the annual 2020 losses highlight the extent to how bad these business models are and how fortunate they were to have received a bailout from retail traders.
I believe these stocks are good for a short-term directional bearish bet with a controlled stop-loss strategy if things go sour fast.
None of these are worth owning, there are just too many other items on the menu that are tastier in a roaring U.S. economy.
From a wider-angle lens, the stock frenzy has fueled a record flow of money into the market from retail investors.
Only just last month, traders bought almost $28 billion of stocks and exchange-traded funds on a net basis, the largest amount in a single month since at least 2014.
This surely means that this new source of investment flows has gone into big tech with its huge surges higher.
At some point, capital will find itself in a different part of the equity market again and the Reddit army will be resuscitated basically because too many of them took profits and will be able to roll those profits into new positions.
Don’t get dragged into the mud looking for an easy buck.
Mad Hedge Technology Letter
July 12, 2021
Fiat Lux
Featured Trade:
(RIDE THE MOMENTUM)
(SHOP), (NFLX), (FB), (AMZN), (GOOGL), (NFLX), (AAPL), (MSFT)
Just as millions of people in the United States are sensing that life has returned to something that resembles normalcy, the Coronavirus’ delta variant has emerged as American technology stocks biggest upcoming inflection point.
This certainly ups the ante in the struggle to grapple with the pandemic and has wide-reaching consequences for your technology portfolio.
Fresh data from the U.S. Centers for Disease Control and Prevention shows that more than half of all new cases in the U.S. were attributed to the delta variant, which is believed to be easily transmissible.
About 50% of Americans are fully unvaccinated meaning 50% are not, which could lead to hellacious autumn for the 175 million who are not.
The tech market has sniffed this out.
Data suggesting this variant is three times as infectious as the original coronavirus strain is the catalyst for a massive rotation into premium big tech who boast glamorous balance sheets.
It is still unclear if this virus is actually deadlier or leads to more severe illness, but the health of Facebook, Google, Apple, Microsoft, and Amazon aren’t reliant on the outcome of the delta variant or at least relative to companies that have physical storefronts.
I believe the momentum in these names will continue in the short term as more countries prepare to carve up new movement restrictions and quasi lockdowns to combat the new variant.
The recent tech rotation has been inconspicuous but powerful and the who’s who of big tech are enjoying a stellar run in the past month with FB up 6%, GOOGL up 4.5%, AAPL up 13%, MSFT up 8%, and AMZN up 11%.
These premium tech stocks are acting almost like U.S. treasuries and are increasingly defined as a perceived flight to safety because of
the net high quality of the assets.
Whether there is another virus that kills another 4 million globally again, investors are confident that these prioritized tech stocks are immune to any meaningful weaknesses.
On a granular level, pullbacks are becoming highly rare and mini pullbacks are becoming the only practical entry points into these stocks.
Readers waiting for a 5% drop are still waiting.
Reading waiting for 10% drops risk never getting in when the going is good.
Fresh news of Japan banning spectators for the upcoming and badly organized Tokyo Olympics took down GOOGL and FB 2% intraday only for shares to make up half the losses in one afternoon.
The delta variant has strengthened the “buy the dip” philosophy that is deeply entrenched in these 5 tech names.
The strength of tech can be seen further down the totem pole in inferior names.
Shopify (SHOP), Canada’s ecommerce crown jewel, is another winner with shares up 19% in the past 30 days.
If this rotation continues, I can realistically expect dips or sideways price action in Uber (UBER), Lyft (LYFT), and Airbnb (ABNB) because their investment case weakens relative to the big 5 in a delta variant world.
Netflix (NFLX) is another one that will harvest the low-hanging fruit with strong near-term action resulting in a 9% gain in the past 30 days.
It’s highly likely that in more than several regions around the world, the delta variant will re-silo consumers and hamstring businesses.
Crushing any green shoots that the reopening is supposed to deliver isn’t an ideal runway to growth.
Epidemiologists are starting to come out of the woodwork with Hungarian virologist Ferenc Jakab saying Hungary will be lucky to “get away with August” when referring to a possible 4th wave.
This hasn’t been fully priced into the U.S. tech market and tech will enjoy a full-scale rotation if the 4th wave arrives in full force.
However, I don’t believe we are on the cusp of another $12+ trillion bailout for the delta like last time go around, which does cap momentum to the upside.
There will also be a lack of meme stock profit-taking and bitcoin profit-taking that can be rolled into the big tech safety trade.
Sensibly, this could be a short-term boost for emerging growth tech as well with the likes of DocuSign (DOCU), Zoom Video (ZM), and Teladoc (TDOC) benefiting from investors dusting off the 2020 playbook again.
I forgot to mention that U.S. treasuries falling to $1.36% is the primary reason why at the balance sheet level, growth tech will also get the benefit of the doubt in the short term.
This won’t just be a big 5 momentum encore, others will enjoy the fruits of labor.
Loss-making tech is inordinately reliant on rates being low to subsidize losses and as the 10-year rate has gone from 1.72% to 1.36%, it’s no surprise that growth tech looks like eye candy now too.
Big tech is certainly more durable and has the capacity to navigate around rising rates which is the deal-clincher for me.
I am inclined to get back into the market with any delta scare that cheapens tech before the next leg up.
The embarrassing loss in the judicial system against FB by the Feds is the cherry on top.
I am bullish tech in the short term.
