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Weekly rollup | Jan 30-Feb 05 2023

Stocks Mentioned: NSE:CENTURYPL, iShares Silver Trust (SLV)

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January 30 2023

Factset data:

  • 69% of S&P 500 companies have reported a positive EPS surprise for the fourth quarter, which is below the five-year average of 77%.

  • S&P 500 companies are beating EPS estimates for the fourth quarter by 1.5% in the aggregate, which is below the five-year average of 8.6%.

January 31 2023

The tone has shifted within the Fed. Consensus is now a 25 bps hike tomorrow. The market is going to react to expectations of rate cut/ no hikes when Powell delivers his speech at the press conference.

Lumber breakout looks solid. Notional value of 1 contract is $56.8k, so this is one for the big boys. However, if you do have a warehouse with enough space, that's another way to play it.

Buy Century Plyboards India (NSE:CENTURYPL). That's a nice looking reversal candle off long-term support. Note the triple bottom at this level on the daily chart.

February 01 2023

From a Fitch report:

More Americans are falling behind on their car payments than during the financial crisis. As Bloomberg first observed after skimming the Fitch note, in December the percentage of subprime auto borrowers who were at least 60 days late on their bills rose to 5.67%, up from a seven-year low of 2.58% in April 2021. That compares to 5.04% in January 2009, the peak during the Great Recession, and just a few weeks before the Fed was about to start QE1.

Wild outside day in India's Bank Nifty Index today, following a wild outside day in the Nifty yesterday. If I had a <3 week time horizon, I'd be flat with respect to exposure to both these indices.

Fed hiked 25 bps.

Markets are holding up better than expected, even though they committed to more rate hikes in future.

February 02 2023

Shorting tech this year would have been a terrible, terrible idea. I've consistently been warning against it.

February 03 2023

Went long shares of Adani Enterprises, the Indian equivalent of a Putin favoured Russian oligarch's company, at the close today. They will scramble over the weekend and get the SEBI to issue a ban on short selling or force shorts to cover (for precedent on this, look at what happened to banking stocks in the 2008 crisis). Or, the exchange will call a trading halt while company insiders and investors with massive losses marshall funds to engineer a short squeeze. India is not a market that favors shorting. While the intrinsic share value may well be zero, it's not going to go down there without a fight.

My Prediction: Adani Enterprises rallies next week as they change the PR and hang out the shorts to dry.

I've seen this before with Carvana, Wayfair, Plug Power, Volta, Meta, Tesla, Beyond Meat, Bed Bath and Beyond, not to mention that infamous GameStop, AMC fiasco.

What's risk of going long? The stock gaps below my stop loss and I lose more than intended. Indian exchanges employ circuit breakers so this isn't a real risk, nor is this a thinly traded stock where getting out will be problematic. So it's very much a defined risk.

Why didn't I recommend this before the close? I literally got the idea at 3:28 pm IST and execution was all I had the time for.

Buy SLV. This is the buy point I was waiting for. Stop out at loosely just below the 100 DMA, for a risk of 7%.

Might be a lower risk actually. I expect an island reversal in the next few trading days, failing which I'll cut the trade.

February 04 2023

February 05 2023

Europe’s warmer-than-usual weather has been depressing natural gas prices, seeing Asian spot LNG prices surpass Europe for the first time since January 2022, despite trading around 20 per mmBtu.

NY jet fuel prices are currently 70% more expensive than diesel, quite a contrast to most of last year when diesel traded at a premium and was considered to be the scarce distillate.

People like to make a big deal out of charts like this, using it as proof of overvaluation, but is it really?

A dollar worth of sales in 2000 is not the same as a dollar worth of sales in 2023. The composition of the S&P 500 is different. Here's how the composition has changed over time.

Consumer discretionary, IT and communication services are clearly industries where margins are higher. And the companies in these sectors tend to be more global, as compared to a utility like Pacific Gas & Electric or American Water Works. Comparing P/S ratio from dot-com peak to now is meaningless unless you adjust for the sector composition. It also fails to adjust for changes in accounting rules over this period, and does not account for investor's time horizon (interest rates are far lower, and time preferences are far lower in the present day). Also, the P/S ratio is impacted by perceived stability of the country. You may not pay even 0.1x sales for Argentinian stocks but be willing to pay 10x sales for US mid-cap tech.

When you come across value guys using charts such as these to claim "overvaluation", just ignore them. They're old DNA (whatever that means - ask Cathie Wood).

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