When it comes to investing, the first thing I do is try and place a company’s product / service into one of the 4 quadrants displayed on SG’s diagram below.
1. High Want & Low Price: For consumer products like Heinz ketchup, Wrigley’s gum, or apps that are fun to use. It must be cheap because it won’t be perfect.
2. High Need & High Price: In the other corner, maybe you produce pacemakers. Your profit per unit is large, but it needs to be because the margin for error is ZERO. You won’t sell a lot, but each item needs to work perfectly.
3. High Want & High Price: Maybe you offer luxury goods that are NOT a matter of life and death. You won’t sell many $5,000 scarves or $15,000 handbags, but the profit margin is great on each one.
4. High Need & Low Price: Finally, there’s the difficult quadrant of low-priced, mission critical goods ‘n services. It includes everything from vials of insulin to web services that back-up data in real time. Your customers are always happy to pay less, but it’s a dangerous road because if you fail to keep your promises – everything falls apart.
Investing is not trading – and in trading:
1. Trading small will allow you to be the biggest winner in the long run.
2. Trading mechanically will give you AN answer, and often answers are as important as wins.
3. Being ‘certain’ is more important than being right. With new information and insights arriving frequently – ‘certainty’ allows for flexibility and change.
4. ‘Accuracy’ beats ‘certainty’. Science is a process not a result, and changing your point of view is a virtue – not a flaw.
A Market Flippening is coming…
Crypto is the first asset class that started at retail and went institutional. Institutions (like Morgan Stanley) that are embracing crypto by pitching it to their ‘Wealth Management’ clients continue to be the biggest investing story of 2021.
I first heard the term ‘flippening’ when my son talked of the possibility of Ethereum (ETH) overtaking Bitcoin (BTC) as the biggest cryptocurrency. Recently, I used it to explain the change in my portfolio as my digital assets surpassed my personally held stocks. Now, the flippening is happening in my investing life as I spend more time reading, learning, talking to crypto investors, and understanding DeFi – than any other investing homework I do. It’s been over 10 years since my son uttered those words and all I can say is: “Investing and learning take time.”
This week the FED continued to tell us that they are not worried about inflation, but the market continued to have a different opinion. SPAC valuations came down dramatically – approaching the magic $10/share level where they ‘IPO’d’. The NFT and crypto spaces continued to flourish as people spent crazy money on digital art and virtual collectibles. That is either a sign of froth (too much money in the system), or the dawn of a new Internet. Momentum is spilling over into these tickers rising in sympathy: TKAT, OCG, ZKIN, JFIN, YVR, HOFV, IMTE, MSTR, SOS, MARA, and RIOT.
For next week, watch the $300 level in the Q’s (QQQ = $316). If we break below $300, a considerable number of tech leaders will break down. But, if the Q’s manages to retake their 50-day and then clear $325, we are back to a FOMO market. Clean energy is tightening as oil remains above $60/barrel – which are good signs for a rally. The market is consolidating, choppy, and indecisive – which rewards flexibility.
- Catching the Toronto to Mexico City train… as the Canadian Pacific Railway acquired Kansas City Southern for $25B last week. This connects Canada, Mexico, and the U.S. with 20,000 miles of rail network and $8.7B in revenue.
- Take me to your Lidar... Lidar is the tech that allows self-driving cars to ‘see’ their surroundings. Luminar is the company that develops Lidar, and recently announced a partnership with one of China's largest carmakers: SAIC Motors along with Volvo.
- The Supreme Court will hear the $15B lawsuit against Facebook… accusing the company of illegally tracking the activities of their users when they are LOGGED OUT of Facebook. WOW.
- Peloton recently acquired three companies… adding expertise in wearable devices (Atlas Wearables), artificial intelligence & digital voice assistants (Aiqudo), and interactive workout mats (Otari).
- The IRS predicts that the top 1%’ers… fail to report about 21% of their income, partly due to sophisticated strategies that audits don’t detect.
- Robinhood, the popular trading app… has filed for an IPO.
- TuSimple, the self-driving truck company… backed by Volkswagen’s heavy-truck business and freight company U.S. Xpress – has filed for an IPO.
- Prince Harry got a job… as Chief Impact Officer at BetterUp – a coaching and mental health firm located in Silicon Valley.
- 50% of Y Combinator’s latest batch of 350 startups… (for the first time) are based outside the U.S.
- Microsoft is in talks to buy chat platform Discord… for around $10B.
- The SEC just opened an inquiry into SPACs… and is seeking information on how underwriters are managing the risks involved.
- GM appointed tech veteran (and former CEO of Quibi) Meg Whitman… to its Board of Directors – which is now majority-led by women.
- 1st time Jobless Claims came in at 684k… our lowest post-pandemic number.
- Apple may launch a new Apple Watch with a rugged casing… for athletes, hikers, and others – dubbed: “Explorer Edition.”
- ThredUp, a clothing resale marketplace… IPO’d this week and closed the week up 43%.
- WeWork agreed to a SPAC merger with BowX… valuing the company at $9B – dramatically down from the $47B valuation a year ago by Softbank Group. Both parties are rushing to get this done BEFORE Hulu airs its documentary on the boom and bust of WeWork – later next week.
- Coinbase moved its IPO… to April.
- The Central Bank of Nigeria has clarified a previous stance… that shut down all accounts associated with cryptocurrency – to NOT being an outright ban on crypto. Huh?
- Bitcoin trading volumes in Morocco… have increased during the last three years despite a long-standing ban. India, be careful what you wish for.
- FTX (the crypto exchange) has agreed to a $135m naming-rights deal… for the Miami Heat’s basketball arena. This is the first time a crypto-company has made a deal of this size with a professional sports team. Come on Satoshi Stadium.
- Elon Musk tweeted… that Tesla vehicles can now be purchased using Bitcoin – which Tesla intends to hold rather than convert to fiat.
- Bitcoin is “Armageddon Insurance”… as it is more secure than fiat currency, property (real-estate), and gold (precious metals).
- Blockchain.com just raised $300m at a $5.2B valuation: It's the third-largest fundraise ever for a crypto company.
- NFTs could revolutionize the creator economy: There are marketplaces that allow people to buy and sell NFTs (non-fungible tokens). NFT creators can enable a feature that gets them paid each time their work changes hands. The NFT market quadrupled to $250m in 2020, and is soaring this year. While buyers don't get paid from views, they do get the knowledge that somewhere in the blockchain their name is written in permanent crypto Sharpie on an asset. And they might be able to re-sell their NFT at a profit.
Monday: The market is struggling. With 20 appearances by FED heads this week, they're going to try to jawbone things. But consider these words recently spoken by the Russian Foreign Minister: “Russia & China are considering reducing U.S. sanction risks by moving away from the U.S. Dollar.” Well, every country that tried to get away from the U.S. dollar – we’ve found an excuse to bomb. I’m liking TDOC over $195.30, BOX over $23.90, and POWW over $6.75.
Tuesday: There's a major war going on. In a few days the Quarter will end, and there is a ton of portfolio rebalancing going on. Remember a year ago we had a 20% market correction. Fund managers that base their risk parameters on time-based market highs and lows, are suddenly trapped because of that wicked (one year ago) dump. That ‘low’ is behind us, so their 365-day trailing average will improve every day until month end. That means that their risk range will tighten up on the low side and expand on the high end. So, expect some dumping and some buying with both hands over the next 3 days, and that’s reason enough for more chop.
Wednesday: Funds that are selling are at war with funds that must buy – so things will remain lumpy for another week’ish. Watch the NASDAQ, and specifically the IXIC. We set a high on Feb. 16, had a big drop, ran up about half the amount of the drop, and then fell again. We could be looking at a series of lower lows and lower highs. Be careful with the techs – it’s lumpy and they bite hard. Energy (OIL) is up because over in the Suez Canal they got a monster container ship stuck, which is blocking all traffic both ways. A ton of oil goes through those straights, so energy should do well and then fade when they move the ship. Maybe some SLB over $28?
Thursday: Today we opened red, battled back to green, rolled over with the DOW falling 300, the NAS falling 200, and the S&P plunging through its 50-day. Then in came the PPT – right on cue with trumpets blaring and flags waving, and up we went. So, was that the extent of the pullback? Hard to say. Why? Because the NASDAQ would have to have fallen another 150 points to test the March 5/6 low. I don't think we're out of the woods. Had the NASDAQ tested it's early March low, then I'd be all aboard the "we're going higher" train.
Friday: Why did the market go higher yesterday late afternoon? Well, FED head Evans said @ 2:06pm: “I suspect that it might be 2024 before we actually raise the interest rate target.” There it was, a voting member of our FED saying it might be 3 MORE YEARS of zero interest rates / free money. The market loved it. There were big moves in chip land. The SMH (the ETF for the chips) is up huge along with AMAT. In retail I could be tempted to take: DLTR > $112.20 and in tech: CSCO > $51.50.
Marijuana’s Coming… and Big Tobacco / Big Alcohol know it!
It seems that Mary Jane’s coming to Manhattan. This week New York announced that they’re ready to legalize marijuana – thanks to Cuomo’s deal with the state’s legislators. Cuomo’s bill legalizes cannabis use for ages +21 with a 13% sales tax - 9% of which goes back to the state and 4% back to localities. Regulators could additionally tax THC as high as 3 cents per mg. Classic New York. They’re going to price it ‘higher’ than the illegal stuff, and then wonder why nobody’s buying the legal stuff.
New York is proof that political opinion is being swayed by the deep pockets of Big Alcohol / Tobacco. Big Alcohol / Tobacco have infiltrated the marijuana scene, and are working with lawmakers to help shape policy geared toward state and nationwide MJ legalization. Several heavy hitters from the alcohol and tobacco trade recently launched a federal lobbying group to sway politicians on favorable marijuana legalization. In other words, existing alcohol and tobacco companies are currently figuring out who to partner with on the implementation / last-mile side.
Last year alcohol and tobacco lobbying groups contributed over $60m to begin their political persuasion. There’s no consumer organization out there that has that kind of clout. The fact that these two business sectors have banded together to ensure marijuana policy is drafted to benefit their businesses is like a bunch of professional, heavy-weight boxers showing up at a schoolyard brawl – it’s not much of a fight.
Opponents of MJ legalization, frustrated by the growing number of MJ victories, are increasingly trying to rein in the industry by proposing state-level caps on THC potency. The push involves at least 6 bills introduced in four state legislatures: Florida, Montana, Massachusetts, and Washington. It could mean a return to prohibition, since many of the proposals would cap THC lower than what’s currently available in their markets.
How’s alcohol doing you ask? Not well. Last week alcohol sales declined. Seltzers were the only positive category. Some spirit categories are growing: Tequila up 31%, RTD (ready-to-drink) cocktails up 147%, Cognac up 26%, and Japanese Whiskey up 23% - but total whiskey declined 2.5%, and even Vodka and Gin were down 14% and 10% respectively.
Big Tobacco & Alcohol are quietly trying to capture the marijuana market – before MJ captures them. Consumer demand and Gov’t legislation are moving faster than the Tobacco & Alcohol infrastructures can respond. Watch the infrastructure plays here, because a better mousetrap doesn’t matter if you can’t deliver the last mile.
Next Week: Are BONDS still running the show?
Friday’s last-minute upside gamma squeeze: The chart above shows how quickly the S&Ps moved in the last 20 minutes of trading on Friday. It was almost mesmerizing in size and speed, and was a result of an amazing Gamma Squeeze. Last week we almost touched the SPX’s lower bound of the $75 expected move on Thursday and the upper bound on Friday. Now that’s volatility.
Are Bonds still running the show? YES! A lot of trades have been executed as a result of the fast-moving bond market. Interest rates have moved energy and financials higher, and were also responsible for the sell-off in the high-flying tech sector. Don’t be surprised of you see interest rates move slightly higher in coming weeks – almost daring our FED to step in. Our FED would likely cap rates at 2% on the 10-Year by putting a floor under the 10-Year Treasury around the 149 to 147 level. In a longer timeframe (April - May), I believe bonds (/ZB) will rally higher forcing rates back down.
Correlation finally kicked in on Thursday / Friday: Something happened near the end of last week that triggered capitulation and a corresponding relief rally. Per MC, it was Goldman Sachs finishing selling $10.5B in stocks – which lifted a huge overhang from the market. Correlation then kicked in – allowing 90% of the S&Ps to move in the same direction. With correlation came a selloff in the financials and energy. Factually:
- TLT: The Bond market (TLT) is at one of its highest levels of implied volatility over the past year.
- VIX: Tip #1: The VIX closed at one of its lowest points since the onset of COVID. Buying the $35 May VIX Call and selling the $65 Call option is not only inexpensive (under $1), but also a hedge against further downside activity.
Trade Setups- XLF & XLE:
- Financials (XLF): If Bonds (/ZB) move below the 153 level, people will become nervous and tech could sell off – while energy and financials rise. However, if bonds rally then energy and financials will sell off, but questions remain surrounding tech and Tesla. I think the easy money here is being short the XLF and Wells Fargo. Tip #2: If the bonds rally, rates will control the trade and crush the financials from $35 – down to the $26.50 level on the XLF. This is a 60 to 90 day move so manage your shorts / Put options accordingly.
- Energy (XLE): Energy (XLE) will move alongside the financials. So, if you continue to see a bounce in bonds, or our FED rumbles about ‘Operation Twist’ – then: Tip #3: short energy (XLE) along with the financials (XLF).
SPX Expected Move (EM):
- Last Week’s EM was $75.81 and we used every dollar of it.
- Next Week’s EM = $59.65 (4-day trading week). This EM should be easy to tag.
- There is divergence in the various marketplaces. But watch the Bonds – because underneath it all – they are still IN CONTROL!
Did you see it? At 2:50 pm on Friday, the PPT group worked their magic. The NASDAQ, which had just been down 80 points on the day – closed UP by 161. The S&P (which was up just 8 points at 2:15pm) finished the day at +65. But the DOW, from almost dipping red at 2:47pm, soared for a close of +453 points. This is volatility. Is the volatility over – probably not. While most of this week’s ups and downs were due to funds selling about $80B worth of stock and swinging over to treasuries – other funds got the green light to buy more. But, we still have 3 more days until month/quarter end, and then there’s usually buying the week of the new quarter. So, I’m looking for some chop over the next few days, and then a meaningful push higher into the first couple weeks of April.
HODL’s: (Hold On for Dear Life)
- Bitcoin (BTC = $54,900 / in at $4,310)
- Bitcoin Cash (BCH = $490 / in at $170)
- CTI BioPharma (CTIC = $2.79)
o Sold Apr. $3 CCs for income.
- Electramericcanica Vehs (SOLO = $4.60)
o Sold Apr. $5 CCs for income.
- Express Inc (EXPR = $4.24)
o Sold Apr. $4 and $5 CCs for income.
- Ethereum (ETH = $1,680 / in at $310)
- Grayscale Ethereum (ETHE = $15.58 / in @ $13.44)
- Grayscale Bitcoin Trust (GBTC = $46.43 / in @ $9.41)
- Hyliion (HYLN = $11.17 / in @ $0.32)
- Infinity Pharma (INFI = $3.33)
o Sold Apr. $3 and $4 CCs for income.
- Inovio Pharma (INO = $9.02)
o Sold Apr. $10 CCs for income.
- Litecoin (LTC = $198 / in @ $191)
- Opko Health (OPK = $4.46)
o Sold Apr. $4 CCs for income.
- Sandstorm Gold (SAND = $6.84)
o Sold Apr. $7 CCs for income.
- SOS Limited (SOS = $6.09)
o Sold Apr. $7.50 CCs for income.
- VisLink Tech (VISL = $3.20)
o Sold Apr. $2.50 and $5 CCs for income.
- VivoPower (VVPR = $8.60)
o Sold the August $12.50 CCs for income,
Thoughts on Charting: I find my best charting is keeping it simple. I like to first look at a 6-month period. For indicators I use: an 8-day Exponential Moving Average (EMA), a 21-day EMA, a 50-day EMA, and 200-day. I use MACD, stochastics, and often The Squeeze – which is a relationship between the Bollinger bands and Keltner channels. Lately, up until the last month or so, a quality stock will ride the 8-day EMA higher, and if it loses that – will often use the 21-day EMA as support to reclaim the 8-day. It’s a good indicator, but it’s not perfect. I use charts every day, but I’m sure they used charts on the Titanic as well – so just be careful out there.
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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