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Monthly Archives: September 2020

– Out of Chaos Comes Calm

Sorry if this appears to be an equity related article but since that’s where almost 100% of my recent gains were derived it seems like a good place to start.  Let me take you back to late March as the markets gave us not just a bottom but a launching pad.

We moved out of the market in the middle to late January based primarily on valuations; the forward PE of the S&P was outlandish.  COVID-19 was not, as of then an “issue” so for what it’s worth we got lucky.  Where we did not just get lucky was in the composition of the portfolio we enacted in late March.  Most of you were critical of me and for good reason; the markets, if valuation based only were down and headed lower.  The best time to buy is when “they are selling” and everyone was selling.  The best stocks to then buy were those that would benefit most from what I’ll call “the at home” pandemic revolution something that exists to this very day.

We took large, oversized, quite frankly extremely concentrated positions in the following securities.  To the exception of Tesla (TSLA) we continue to hold the following adding additional shares on dips:

  1. AMZN – What can I say, more and more people are using Amazon and once they start they are hooked especially if they use Prime. There’s more but so common-sense rules here. Buy and hold AMZN and if it drops, buy more.

 

  1. AAPL – Same thing but more given the pent-up conversion rate of existing iPhone users is huge; sales of the new iPhone 12 are going to set records. Apple’s ‘relationship’ products are a key to growth as well. Ask yourself (a) do you care about your health and (b) do you want to know where your kids are. I might pass on knowing where my kids are, but I care about my health.

 

  1. PYPL – Is and remains my favorite stock. For it to have grown as much as it did in the 2nd quarter the trending of this 20-year-old company’s future growth (founded by Elon Musk (heard of him)) is unequaled. I also like SQ (Square) as they have entered the ‘payroll’ space which means you have to deposit money into a Square bank account to pay your employees. That means an employee who wants to get paid need open a Square account. I’m sure PayPal will announce a complimentary product soon; they have all the tools and more to do the same but there is room in most portfolios for both.

 

  1. TTD – The Trade Desk is the go-to platform if you want to advertise using streaming media, Netflix, Prime or other like ‘channels’ as well as controlling what you see on your phone. What impresses me is their 95% customer retention rate.  They have no equal and they are eating Google’s shorts. It’s relatively ‘crazy’ when it comes to the daily variance of its stock; in other words it’s volatile. Don’t get scared out if the price goes down, buy more.

 

  1. APTV – Aptiv is a stock to own if you like the new electric cars. They make the harnesses that every single electric car manufacturer needs to transfer power from the batteries to the drive train.  It’s digested its most recent dilution and is poised to ramp in price soon.

 

  1. CRNC – Finally my favorite Cerence. Like APTV they control 100% of the growing electrical vehicle market segment geared toward voice and soon hand motion apparatuses. It has a small market cap which makes it a strong acquisition candidate. This is the primary reason I continually buy out-of-the-money calls; it’s a perfect fit for several acquirers.

 

We continue to hold these securities, adding more on dips as the pandemic still has a few more months to run but it’s time to start looking for value, that’s right value.  In addition, clarity is returning.  Trump will undoubtedly be successful in replacing Justice Ginsberg with a more conservative judge ensuring the Supreme Court is constitutionally biased for quite a long time to come.  Romney’s support of today clinched the deal.

With the pandemic coming to a close, earnings of almost every listed security are poised to increase throughout the 2021 calendar year over 2020’s results.  Think about it, the Russell Index, the small caps have really gone nowhere as all of the other major indexes recovered.  As valuation comes back into the economic forefront these stocks, still down more than 15% from their highs, other than perhaps the banks and financially related instruments, will undoubtedly “catch up” with other indices.

OK Wizard, you’ve taken up enough of our time on equities, what do you have for us commodity traders?  I don’t need to take up your time with the ES or NQ, Danny is doing a tremendous job on that front so let’s look at RTY, GC, HG and NG.

 

Russell Index

As spoken of above, it is “catch up” time for the Russell.  It has pretty much been in this trading range for months.  As shown on the following www.amstradinggroup.com chart there is a lot of resistance overhead.  As market gurus return to valuation models keep an eye on the higher volume histogram.  If breached on the upside this level becomes support and the Russell could be off to the races.

 

Natural Gas

Winter is coming; time for El Nina and the Farmer’s Almanac to take charge.  In this October 2020 chart, provided by www.amstradinggroup.com, it looks like natural gas is trying to put in a bottom.  Remember, water flows from higher to lower points thus we believe there is every chance for this future to trade higher towards the rectangular box shown on the right-hand side.  Keep in mind, although the October chart is shown we trade February.  It might not get cold before Thanksgiving but for certain, according to the above referenced sources, baby it’s “going to get cold outside”.

 

Gold

In addition to the stocks we bought we got into gold and have a sizeable position begun around the 1,700 level.  More recently gold has traded contra to the Dollar with a firming Dollar bringing the prices down.  As more and more of the uncertainty dissipates gold could be under pressure.  The fact that interest rates will be low for years, the cost of holding gold is minimized.  That results in a higher price.  The AMS chart tells you exactly that with lower levels above and below the horizontal histogram graph.

 

Copper

I have been a copper bug for quite some time expecting the metal to recover to the $350 level or higher but not without volatility and heartache.  As economies come back to normal one of the first commodities to react is copper and react is has and more than likely will continue to rise.  In this www.amstradinggroup.com chart copper illustrates ownership of a well-tested base with little to no resistance above.  Like the stocks we own we are buyers of copper on dips . . . and sellers on spikes.

 

Danny’s New Tool

I’ll end with a brief write-up of the AMS tool that Danny has come to like.  We call it Zone Decoder.  If you would like to give it a try for a couple weeks click on the AMS www.amstradinggroup.com and simply ask.  We’ll be happy to get you set up and as time permits show you how we use it.  We are headlighting the MrTopStep trading charts as well.  Need help finding out where to watch ask david@amstradinggroup.com and either Niels or me will guide you.

 

We are here to support you and others on the MrTopStep site.  We can’t help you if you don’t ask so either go to our website amstradinggroup.com and ask for a free trial or email me at david@amstradinggroup.com and we’ll do the rest.

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