Sugar, We’re Goin’ Down
Is the market more than you bargained for yet?
I’ve been dying to tell you anything you want to hear … but that’s not who I am this week.
You likely want to hear that every little thing is gonna be all right. (Singing don’t worry about a thing.)
Unfortunately, dear reader, I wish I had more reassurance on that front … at least from a financial headline perspective, that is.
European countries are on the verge of another round of lockdowns and restrictions amid rapidly rising COVID-19 cases. In the U.S., we’re fast approaching 200,000 COVID-19 deaths, with cases spiking in five states in the past week.
And since the Fed decided against ramping up dopamine production last week, Wall Street finally started to take notice.
Furthermore, this is a particularly bad time of the year for the market — if you believe the Stock Trader’s Almanac. Citing the good ol’ Almanac, Barron’s dubbed the next couple of months the markets’ “Most Treacherous Season.”
Risks include market declines related to the week of Rosh Hashanah, the autumnal equinox and historical market declines and collapses, such as the 2008 financial crisis and 1987’s Black Monday crash.
The icing on the cake for 2020’s “Most Treacherous Season” are new documents from the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department.
According to leaked FinCEN documents, banks such as JPMorgan Chase, HDBC and Deutsche Bank engaged in $2 trillion in suspicious transactions — i.e., money laundering and the like — even after warnings from regulators.
Now, that’s a lot to take in on a Monday. But I’ll let you in on a little secret that’s sure to help you navigate this storm. Two words of wisdom every trader and investor need to know:
Every little thing may not be all right, but you’re a Great Stuff reader. You’re already prepared for market turmoil. I’ve been lax in reiterating our stance on the market in recent weeks, so let’s briefly recap what your portfolio should look like right now.
The majority of your investments should be in stable, safe havens such as gold, Treasurys, currency funds and solidly run blue-chip companies. The rest is your “play money” used to take advantage of the unhinged market rally.
Now’s the time to consider taking that “play money” and profits off the table — before this sell-off gets any worse. Let me reiterate that: Consider taking profits now. Keep that powder dry so you have capital to work with when the situation finally levels out.
The market may be going down (down) in an earlier round than expected, but sugar, we’re going down swinging. Great Stuff is your No. 1 with a bullet. A loaded market complex … cock it and pull it.
It’s not just us prepping for the coming spike in market volatility either. Just see what former forex, commodities and futures trader Adam O’Dell is doing no matter which way the market moves.
The Good: Screamin’ Streamin’ Peacock
It’s been a while since we last touched base with Great Stuff Picks holding Roku Inc. (Nasdaq: ROKU). But rest assured, I’m no less bullish on the company.
In fact, after today’s Peacock news, I may be even more bullish on Roku.
You see, Roku and Comcast Corp.’s (Nasdaq: CMCSA) NBCUniversal reached a deal on the Peacock streaming app. For NBCUniversal, that means access to more than 40 million Roku users. Peacock currently sports roughly 16 million subscribers, so this is a huge deal for NBCUniversal.
For Roku, that means more revenue and yet another major content provider in its stable.
But this could mean even more than just adding Peacock to Roku’s streaming app lineup. According to Deutsche Bank’s Jeffrey Rand: “The ad sharing agreement in the Peacock deal could be a benchmark for others.”
Others? Yeah, we’re talking AT&T Inc.’s (NYSE: T) HBO Max. Currently, HBO Max isn’t available on Roku. However, the Comcast deal will likely put pressure on AT&T to get a deal done. Lord knows HBO needs the help, and a Roku deal would go a long way toward boosting streaming users on the service.
And it would mean more revenue and market penetration for Roku. ROKU shares jumped about 15% on today’s news; imagine how much it’d jump if AT&T finally came to its senses?
Finally, Great Stuff Picks readers sit on a 106% gain on ROKU since we recommended the stock in May 2019. Keep holding, and congratulations!
The Bad: No Snow on This Summit
Last week, cloud data specialist Snowflake Inc. (NYSE: SNOW) went public in one of the biggest tech initial public offerings (IPO) since the dot-com era. SNOW shares were initially priced at $75 to $85 per share, got bumped up to $110 to $110 on IPO day and then went on to soar north of $270 in its Wall Street debut.
The stock has moderated a bit since its IPO, but SNOW still trades at more than double its original IPO range. And that, says Summit Insights Analyst Srini Nandury, is a big problem:
For the stock to work from the current levels, Snowflake needs to execute flawlessly quarter after quarter, and have to live up to lofty expectations and grow into its valuation. While Snowflake’s management is stellar and is known for its execution, the odds of Snowflake’s stock faltering are high.
Nandury initiated SNOW with a sell rating and a $175 price target — a 27% downside to Friday’s close but more in line with SNOW’s IPO price range.
I’m inclined to agree with Nandury here. Sure, Snowflake had impeccable revenue growth in the triple-digits prior to going public. But the company is going up against the Googles, Amazons and Microsofts of the world in the cloud data space.
If Snowflake wants to maintain its stock valuation, it can’t afford even a single misstep. And that’s just not realistic, especially in this volatile market.
My advice is to avoid SNOW until its valuation becomes more reasonable.
The Ugly: The Elephant in the Room
So, let’s talk about Nikola Inc. (Nasdaq: NKLA).
Over the weekend, Nikola Founder and Chairman Trevor Milton announced he was stepping down. We all know why. The short seller-induced scandal was just too much for him to bear:
I asked the Board of Directors to let me step aside from my roles as Executive Chairman and a member of the Nikola Board of Directors. The focus should be on the Company and its world-changing mission, not me. I intend to defend myself against false allegations leveled against me by outside detractors.
I’ll be frank: This isn’t good.
If this were an easy fix and all the allegations were false, Milton would still be at Nikola. Innocent people do not typically resign from companies they founded. I applaud Milton for stepping down in an attempt to save Nikola, but the damage is already done.
That said, I still believe that Nikola is on to something here, and its tie-up with General Motors Co. (NYSE: GM) remains intact. Something good will eventually come from this union, but it may take time for NKLA shares to recover.
For Great Stuff Picks readers, I do not recommend selling NKLA stock just yet.
Never sell in the midst of a sell-off. That’s a surefire way to make sure you receive the lowest price for your position. We’ll officially wait for NKLA to level off and potentially rebound to recoup some losses before we exit this position.
The bottom line: Hold NKLA for now, but be ready to sell when the time is right.
Today’s Chart of the Week is actually two charts in one — a Rorschach test for your technical-trading eyes.
Don’t worry. I know many of you feel your stomachs drop and eyes peel back a-glazed at the mere sight of a jumbled chart. I, too, have flashbacks of glacial-paced statistics lessons, so just tell me what you see in these images, cool?
We’ll take it slow. Nothing outlandish here — these are the major market indices you know and love. All the classics, all the greatest market-representin’ hits.
First up, the S&P 500:
Whoa, that ain’t lookin’ too hot from the start of September.
Yes, but there’s more to it than that. (And there’s a reason why Green Day just wanted to sleep through the month.)
Ooh, I know this one! The long squiggly blue and red lines are trends, right?
Close enough! Those lines are moving averages. Essentially, this shows an average of the stock or index’s prices over whatever time frame you choose.
In both of these charts, the blue line shows the 50-day moving average, while the red line shows 200 days of data. Add them together and we get a good idea of when a stock or index is bucking its recent or long-standing trends.
This is also what we use to spot support and resistance levels in both individual stocks and the overall market — support on the bottom end and resistance up above. When the stock or index you’re tracking nears or crosses over these lines, it’s time to slow your roll and check the waters.
In this case, S&P 500 (and the Dow for that matter) is trading below its 50-day moving average for the first time since April, which is as bearish a sign as we’ve seen since … well, April.
Before you freak out, this doesn’t necessarily mean the end of days is nigh. But … the seal has been broken.
Things are in motion now that cannot be undone. We’ve finally seen the hangover at the end of the brazen bull bonanza. OK now, here’s a bonus shot of the situation, this time tracking the Nasdaq:
The most notable thing here is that the Nasdaq has far outpaced the SPX and Dow in its rebound. But it too now trades below the 50-day moving average. The importance here is that the Nasdaq is tech heavy, so crossing over the moving average line means there might be more risk in tech stocks than people realize.
So what do I do? Sell everything? Get the mattress cash? List my Lego collection on eBay? Execute Order 66?
If this is the first you’ve thought of taking profits off the table, well, can’t say we never mentioned a looming correction that beckons like a growing void. You could follow that old stodgy adage of “sell until you can sleep at night” … and you probably should get some of that “play money” off the table.
But fully getting out of the profit-flipping game wouldn’t be very Great Stuffy of you, now wouldn’t it? Besides following our portfolio of free triple-digit picks — did I mention free? — click here to see how you too can laugh in the face of volatility like a certain Mr. Mike Carr.
Great Stuff: They Call It Stormy Monday
And I hope Tuesday’s not just as bad!
But if Wednesday’s worse, and Thursday’s also bad…
You at least have another issue of Reader Feedback to look forward to. Speaking of, our virtual mailbag has been rather light lately. What’s up? Do you love this ‘Stuff? Are you buying right now? Do you ever get nervous?
I heard you haven’t written to Great Stuff — is it true?
Drop us a line at GreatStuffToday@BanyanHill.com and let us know how you’re doing out there in this crazy shindig.
Until next time, stay Great!
Editor, Great Stuff