Megacap
Netflix Descending Triangle BreakoutThank you everybody for dropping in on this trade idea setup in Netflix. Bullish descending triangle continuation pattern developing here looking like it's about to burst for next week or maybe this Friday as long as the market keeps going up. I want to make sure that I'm getting into these mega cap stocks because that seems to be the only thing that's really on an uptrend and making plays that are multi day uptrends. Another stock I'm looking at is Amazon because it seems to be basing out but I want to wait a little bit until after I get into Netflix before I jump into any other trades since I have a good amount of position size already allocated in my entire portfolio.
SPY overview - Jan 19Yesterday after gapping up, the market tested the Jan-17 High/Close. Then broke through 8EMA and closed strong.
Now the nearest support level is the short-term moving average - 8EMA.
The nearest resistance levels are now at 478.60, together with TRL.
It's important to note that yesterday's move was driven by strength in the semiconductor sector as well as the leadership of megacaps.
The big question for me now is which other groups of stocks the cash will flow into and whether it will flow anywhere else besides megacaps.
Two hidden problems with the recent mega-cap tech layoffs Disclaimer: I have never worked in investment banking in any capacity, and the following ideas are merely my speculations
Current Macroeconomic and Technical Context
Inflation and interest rate hikes cooling down are common knowledge. As such, the market has become more bullish over the past weeks, creating rounded support and strong support on the NASDAQ around the 0.618 Fibonacci retracement level. There have also been rallies across tech companies, like meta, unity, grab, and para from their lows. However, now the NASDAQ has formed a descending triangle and so it remains possible that there will be a sharp breakdown through support.
Why mega-cap tech rallied off layoffs
Massive layoffs have occurred in mega-capitalization tech firms in recent months to respond to the current recessionary economic environment, with firms like Google, Microsoft, Amazon, and other tech companies laying off more than 70,000 employees in the last year. Under the typical theory of firm economics, this is efficient behavior for the firm, decreasing variable costs to respond to reduced demand for products, thereby increasing profits for shareholders.
Problems which some have not considered
There are two important problems with the layoffs, which are summarized as:
Firing tech employees results in unfinished projects and unpatched bugs
Former employees may need to sell their shares to cover living expenses
Firstly, unlike in a factory, or place where a smaller of employees is a feasible solution to cutting costs, these technology companies are not small and are instead mega-capitalization companies, they have thousands of employees working on projects and addressing security issues. Logically, the remaining employees can't easily take over the role of the thousands of fired employees, so there will be less work done to maintain the systems, and the big projects which fired employees were working on are likely to be abandoned or take a long transition time, meaning there will be a slower rate of growth for tech companies. This issue of losing valuable employees was shown most clearly with Twitter, which almost immediately started losing functionality after it had layoffs, and even needed to rehire employees.
Secondly, it is well-known that the retail investors who put their money in stocks are mostly individuals with high salaries, since they have the money to put into stocks without worrying about expenses in the short term. It is also well known that tech employees in the USA have an incredibly high average salary, averaging above six figures in 2021, according to SHRM. For these tech investors, who are now no longer employed, many of whom are living in costly areas of the United States like Washington, California, or New York, they no longer have the income to put into purchasing stocks, and rather they may have to sell off their shares to cover their high costs of living. In other words, tech layoffs are likely to cause a significant drag on the stock market in the coming months caused by a decrease in income investment and increased selling pressure.
Mega Cap Growth Stocks - Stick a fork in itShort of a miracle, it sure looks to me as if the mega cap stocks that fueled this 2 year rally have lost their fuel and are head down, and possibly in a big way this year. The trading channels are very clear for this ETF. You can see where they lost the steeper bull channel, retested it, and now has lost it (likely for good).
1W
1D
4h
AVGO - Underrated titan in vulnerable spot
Three lower lows and lower highs ---
below VWMA (early) -
Decreasing volume --
Bearflag setup on daily ---
Good volume in the demand zone ++
IF market shows strengths next week, possible that it tests 625 zone, where it runs into big supply. Breakdown there could slide this to recent low near 500.
MegaCap ComparisonThe biggest firms in America are referred to MegaCap because they have mega capitalizations all hundreds of billions. These are often referred to as safe investments because their technologies and ecosystems are deeply embedded around the world. Interesting to see their returns over the past months. $SPY
100sma is being tested for the 10th timeMSFT has tested and bounced of the 100sma 9 times, since September 2020.
In all of the 9 tests, RSI was in the 30s, but not oversold. It is currently at the same level.
Besides the multiple tests of the 100sma, we have three tests of the bottom of the horizontal range (drawn with purple horizontal lines). We could potentially see a fill the gap situation short-term.
I think it is a great place to buy.
Placing layered stop-exits to preserve gains.
Risk-reward-ratio is over 4, for a better understanding of the trade, check the Long Position projection to the right of the chart.
Good luck.
Still in a bullish trendWhen we see a moving average with an upward trend with higher highs and higher lows, the bull trend is confirmed.
Every test of the moving average should be seen as a potential buying opportunity, especially when adding from a long-term perspective.
We also see a test of September highs as support at the same level.
Risk-reward-ratio is over 3 when targeting current all-time highs.
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For people wondering about the Santa Claus Rally:
The trading days are 5 days of 2021 and the first 2 trading days of 2022.
AMZN the no-brainer stock.In today’s post, I will be covering Amazon($AMZN). I am sure you all have heard of the company due to do its reign in e-commerce. However, that is just a drop in the bin. I believe that cloud computing, AWS, is the main driver of its net income. I will not get into specifics but they are powering big-name players like; Netflix, Twitch, Facebook, LinkedIn, Twitter, etc. Along with their e-commerce and cloud computing, they offer one of the best streaming services that will soon be broadcasting global events such as NFL, Premier League, and more. Additionally, they own a large market share in gaming and audiobooks through Twitch and Audible. Did I forget to mention they own Whole Foods, an outlet for retail distribution?
They are revolutionizing everything they do while providing low prices to consumers, one of the main reasons I think they will not be broken up. However, today’s headline, “Biden Weighs New Executive Order Restraining Big Business” (WSJ), brings some skepticism. Regulation in various facets is their biggest headwind. Nonetheless, even if they are broken up, you would still want to own the previously mentioned businesses in isolation.
As seen in the image, the company has been trading in a range from 2900-3500 (Red/Blue horizontals) for about a year now, while the rest of Mega-Cap Tech (Microsoft, Apple, Google, Facebook) has steadily made all near all-time highs. I think it is on the verge of a technical breakout (breaking out of the previous trading range) as they continue firing on all cylinders and growing the business vertically and horizontally.
In the world of finance, I often do not like to make decisions in isolation. That being said the conjugation of all previous factors provides a decent investment thesis. It is currently around $1. 74T. I think it will, sooner than later, cross the $2 trillion market cap, (+12%) that competitors Microsoft and Apple smashed. Could you imagine a world without Amazon? It wouldn’t be better in my opinion and I do not see that changing in the near future. In the long run, the companies growth will slow and the company will transition away from reinvestment to shareholder distribution (dividend).
Con: Regulation + Tech Drawdown + Treasury Rate Increases
Pro: Businesses + Technical + Smart Money
TITAN - 5G - Lumen Tech. $LUMN - The 4th Industrial RevolutionI am ultra bullish on Smart cities, AI, edge computing, 5G/6G telecommunications, cybersecurity and AR/VR. Lumen Technologies (CenturyLink) seems to be a sleeping giant that checks all those boxes. Lumen is facing a similar situation as Nokia and Blackberry as value company which is about to enter a second growth cycle, and like Palantir Technologies, it is facing a situation of massive short selling pressure during institutional accumulation. The ruthless manipulation after earnings beat signals to me how bullish institutions are on the company, and the overwhelming (unreasonable) bear sentiment signals that the shakeout is upon us.
FA:
Highlights: "Lumen Technologies is the only company to win Frost & Sullivan's prestigious 2021 Global New Product Innovation Award".
Who are they?
- "Lumen brings together the talent, experience, infrastructure and capabilities of CenturyLink, Level 3 and 25+ other technology companies to create a new kind of company—one designed specifically to address the dynamic data and application needs of the 4th Industrial Revolution." - Company website.
- Already is the global leader for fiber network. Lumen has the largest ultra-low-loss fiber network in North America with 3.5 million miles of high-capacity.
- Owns the world’s most-connected CDN (Content Delivery Network).
What do they do?
- "Lumen is an enterprise technology platform that enables companies to capitalize on emerging applications and power the 4th Industrial Revolution". They are focused on the 5G/6G sector, which I speculate will see explosive growth soon.
- "We integrate network assets, cloud connectivity, security solutions and voice and collaboration tools into one platform that enables businesses to leverage their data and adopt next-generation technologies."
- Focused rebranding for edge computing solutions and 5G sector.
- Lumen has partnered with VMware to develop cybersecurity software: Distributed Denial of Service (DDoS) Mitigation, Web Application Firewall (WAF), Bot Risk Management (BRM).
- Black Lotus Labs is their threat research arm, the world’s most deeply peered networks and industry-leading endpoint protection and datacenter virtualization.
Key Products:
- Premises Edge: Tactile Internet, Virtual reality, Augmented reality.
- Metro Edge: Smart manufacturing, Video analytics, POS transactions, Retail robotics, IoT.
- Cloud Core: AI/ML platforms, Big data analytics, Disaster recovery, SaaS, Cloud storage, Hyperscale environments.
Clients:
- Salesforce, Zoom are big customers already.
Financial Performance:
- Growth & Trend shows they are almost profitable: Reported a Net Loss of $1.232 billion for the full year 2020, compared to a Net Loss of $5.269 billion for the full year 2019. Excluding Integration and Transformation Costs and Special Items, reported Net Income was $1.801 billion for the full year 2020 compared to $1.409 billion for the full year 2019. The trend is positive.
- Cash Flow Positive.
- Invested Capital and Total Assets are decreasing, yet total liabilities and debt decreasing, while CapEx is increasing.
- Reduced Net Debt by approximately $1.6 billion and reduced leverage to 3.6x Net-Debt-to-Adjusted EBITDA.
- For 2021, Lumen has debt obligations of $2.4 Bn still.
- However, Lumen had $34.1 Bn of debt in 2020.
- LUMN finished the year with $2.9 billion in free cash flow and a requirement of $1.1 billion to meet its dividend obligation.
- Insiders & Insider Trading: -0.92%
- Institutional Ownership: 79%
- About 659 funds hold LUMN, and interestingly enough, while the stock price dumped, Average 13F Ranking has been steadily increasing. This aligns with the Accumulation Distribution model that I presented.
- Float: 976.12M.
- Short % of Float: 7.51%.
- Valuation: 0.97 P/B ratio and 0.64 P/S ratio. Undervalued, by traditional valuations.
- Financial Reporting: Solid.
- Potential:
5G Market:
Market size value in 2020: USD 41.48 Billion
Revenue forecast in 2027: USD 664 Billion
"The global 5G Applications and Services Market is expected to grow at a compound annual growth rate (CAGR) of 25.8% from 2019 to 2027"
(According to 180+ page research report by Fidelity National Financial)
- Lumen Technologies should benefit from the growth of the 5G market, so we can expect 25.8% CAGR in revenue from their market share of 5G, and factor in growing market dominance.
TA:
- Accumulation/Distribution Phases are rather difficult to predict with Elliot Wave Theory, so Dow Theory will be used instead.
- Expecting 600%+ move up on breakout.
- MACD long term analysis:
- Short term outlook: Fib support level, with a big whale buy. Looks ready to move up.
- MACD short term bullish divergence:
- Stoch RSI indicating possibly one more shakeout:
- Historical analysis showing this is likely, if the same whale is in charge:
- However, Fib levels indicate that it cannot possibly go much lower!
QA:
- Interestingly, it would take 5.7 days for shorts to fully cover. It is likely the shorting was used to take the price down from the previous distribution level. Great short squeeze potential.
- Naked short selling report collected from FINRA shows that naked short volume was massive in the end of Jan. Most likely to suppress the price at the resistance point. Institutions were not positioned for the breakout yet.
- Options flow does not present high gamma squeeze potential, however, the low OI presents a very good long entry.
VERDICT:
- The company is reducing debt and leverage. This is smart, as there is sentiment that a market correction and stagflation is nearing.
- The critical point that investors will need to decide on is if the company can survive such conditions with their remaining debt. At this point, it looks like their debt will soon be eliminated, and they will be profitable.
- It is my speculation that in the case of a tech correction, and a rotation into value, tech will still thrive, but it is companies like these - non-speculative, but necessary, will be real winners. A lot of retail excess will be trimmed from unreasonably valued companies. At least some Institutional investors seem to share this sentiment, judging from their accumulation.
- This company checks many boxes for me, and looks ready for an explosive move up, so I assign it an S-tier rating.
STRATEGY:
- Accumulate.
- Entry levels: 7.50, 4.00.
- Trigger for Long: breakout of falling wedge resistance.
- Wave 3 PT: 80.00.
- Wave 5 PT: 130.00.
I think the Impulse wave 3 target of 80 aligns with the MACD signaling a 600% move-up to come. This is a high probability level.
This would put the company's valuation at 86B~, which is not unreasonable, and even still would be undervalued, in my opinion.
GL, and if you like the content, give a like, leave a comment, and follow!
P.S. Trying to take a more succinct presentation model for DD, based on constructive criticism I have been receiving.
COVID Tech vs. RoW Tech vs. Reopening StocksAfter the big drop Thursday, this is a quick 3-month performance review of some of the classic names that fit into each of these 3 groups
We can see that COVID tech (Tesla, Zoom, Plug Power) sold off, reopening trades (cruise lines, banks) rebounded and in the middle were some tech favourites that fared a little better (Alphabet, Twitter etc)
Apple reaching 2 trillion market capThe markets behavior has proven we love to test new highs, and record prices.
Making a calculation, Apple's market cap will reach 2 Trillion dollars around $467. I expect we reach this level to later retreat.
P.S:
Back-data shows the stock-split momentum stocks are best traded from the announcement, up to the actual split.
A trading plan on MicrosoftOn its earnings report today, Microsoft reported better-than-expected earnings and guidance, but issued first-quarter revenue guidance slightly below the Wall Street consensus. The poor revenue guidance was partly, but not completely, offset by slightly better-than expected guidance for first-quarter operating costs. Overall, the magnitude of the earnings beat was much greater than the magnitude of the guidance cut, and my valuation metrics on Microsoft improved today: PEG dropped from 9+ to about 8.76.
Microsoft is still certainly overvalued, however, along with the rest of the FAANG+ stocks. It's about 30-40% above the top end of its traditional range in terms of forward P/E and P/S. For a long-term buy-and-hold play, I would want to see Microsoft drop all the way to my second volume support before I'd want to buy.
In the short term, Microsoft sentiment still looks pretty good. Options traders are net bullish in their positioning, and the Starmine Equity Summary Score for MSFT is 9.9. ESG has mattered a lot lately, and Microsoft earns one of the best ESG ratings I've seen. Thus I think we'll probably see a bounce from 203 either tomorrow or, more likely, Monday or Tuesday next week. A swing trade over the weekend might be a winner as the market holds out hope for vaccine and stimulus news.
In macroeconomic terms, we saw the "recovery" story start to change today. Initial jobless claims turned upward for the first time in 16 weeks. Lots of other indicators I watch are also starting to look a little more negative. Thus, we may be headed into a period of renewed market weakness until the South and Midwest successfully flatten their coronavirus curves and resume reopening their economies. I highly doubt we'll drop all the way to that lower volume support at $135 unless the Moderna, Pfizer, and Astrazeneca vaccines all fail in clinical trials, but a dip to the upper support around $183.50 in August or September after stimulus news fades may not be out of the question, and from there it'd be worth swinging for a bounce. I will target a small entry at $183.50 and a 3x larger entry for $135, contingent on macroeconomic news.
QQQ supported by 20smaWe have seen the test of the 20sma, being bought back with strong volume.
Volume has been decreasing daily for the past 10 days. Today's sell-off is on the lowest volume yet (we are a couple hours away from the close though).
Risk-reward-ratio makes sense placing a stop-loss below $252.
MSFT a buy after product launch close to 1 hr oversold levelMicrosoft announced today the release of a new dual-screen phone that runs the Android operating system (as opposed to the old Windows phones, which were limited in terms of what apps you could get). Since the announcement, the stock has bounced to a new support level and broken a downward trend line that it formed over the last few days. It's just recovered from oversold level on the hourly chart, so this is an attractive RSI to buy. MSFT has a 9/10 Equity StarMine Summary Score and is rated "Undervalued" (76/100) by S&P Capital IQ. This is one of the best mega-cap buys on the market right now.