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- US tech stocks are very close to flashing a major buy signal
US tech stocks are very close to flashing a major buy signal
But the next three weeks may pose additional risks
Thomas Look
September 30, 2022
US tech stocks are very close to flashing a major buy signal
KEY POINTS
We are in the midst of the final leg of the current bear market.
Whether this is followed by a V-shaped recovery, a U-type, an L, or a downward sloping L is open.
But we see the expected positive divergences related to hyper-growth stocks, such as:
Why we may see a short-term market bottom
With exceptions such as the dismal performance of Hertha Berlin and the malfunctioning of the Berlin airport, the future is hard to predict. But positive divergences pointing to an end of the short-term selling squeeze of hypergrowth tech stocks have slowly been emerging.
The Dow Jones Industrial Average recorded a 52-week low on Friday, the 23rd of September, while both - the NASDAQ and the NASDAQ 100 are still some 150 - 200 points above their June lows.
Microsoft, Meta, and Google traded at fresh 52-week lows. At the same time, the group of enterprise tech/ cloud companies with better earnings raised guidance for 22/23, such as Snowflake, Paloalto, Zscaler, Crowdstrike, Sentinel, and Gitlab still trade above their 52-week lows.
The VIX has moved up to around 30, and we are about three weeks away from the start of a period that cyclically is one of the best for the US stock market.
Natural gas is less than one USD higher than it was a year ago, WTI Crude (Nov′22) oil is less than 10 % higher than a year ago, and copper is 20 % lower than it was a year ago. Leading economic indicators point to a sharp downturn in inflation in 4 - 6 months.
Bottomline: We advise investors to begin buying stocks from our strong conviction list
Starting on Monday, 26th September 2022 we advise investors to begin buying stocks from our strong conviction list (Mostly recession-proof or very resilient to an economic downturn - e.g. cybersecurity). Slowly with no need to rush, the steady Eddie type...
Conservative investors: Start to sell cash-covered out-of-the-money puts with no leverage. Option premiums are extremely high providing a good safety margin if the markets decline further.
Gitlab - 47,90 USD (as of close 23 September): Sell 1 Put, Strike 40, Expiration January 2023, Price 23rd September 2023: 4,60 USD - You effectively would buy Gitlab at 35,40 USD which is +25 % below the current price. If the stock closes above 40 USD on expiration day in January 2023 you keep the option premium which is around 10 % of the current share price (10 % return for a 3-months holding period, an annualized return of around 30 %).
Check out stocks such as Cloudflare, Hashicorp, SetinelOne, ZScaler, Confluence, Monday.com, Snowflake, Datadog for initiating positions in the enterprise tech/ cloud space.
Medium risk investors: Start buying stocks and prepare to sell calls out of the money - expiration 1 to 2 months, 5 - 10 % out of the money.
Risk-taking investors: Start buying some calls deep in the money with quite far away expiration dates - still little premiums - apply the leverage of 1.5 to 2 at maximum.
To all: Be prepared to see the market sinking further as the next 3 weeks may be quite unpredictable. But calling the exact bottom is impossible. And a crash cannot be ruled out as the mother of all bubbles may be looming.
Beware: The mothers of all crashes may be looming
Real estate and housing markets are about to implode. Actual figures from the US are scary:
US real estate affordability dropped to levels not seen since the 80s- Buyers purchasing a $500,000 house today, compared to last year, will pay a minimum of $265,000 more in interest and a 100% increase in the monthly payment.
In August, 37.6% of homes in the U.S. sold below the list price
Luxury home purchases have sunk 28% - the most on record
Home-flipper Opendoor lost money on 42% of the properties it sold in August
Global real estate is the largest asset class globally - upwards of $300 TRILLION. This is 3x fixed income and equities at ~$100 trillion.
On top, we see signs of liquidity and credit crunches emerging. Capitulation times on the stock market are always times of elevated risks - potential crash times.