Thweis Market Letter #1

Disclaimer: This letter is a personal opinion and does not contain any trading/investing advice and only serves the purpose of identifying the current “mood” of the general stock market. Charts posted here allow to draw conclusions regarding the general market health but are not considered proper investments. The watchlist at the end consits of stocks which can be monitored for proper setups going forward. Actionable setups will only be published via our upcoming stock idea service. This idea service fullfils the requirements of the German BaFin.

Briefing

Window of opportunity is closed! Some serious damage is inflicted in the charts of many speculative hot stocks after two weeks of declines. When the hottest stocks don’t hold up better and correct the magnitude of the broad market decline many times over, we do have a correction at hand no question asked. Stocks will need some time to repair their charts via bullish volume clues first. A first sign would be support of major stocks and the broad market indices at their 50d or 200d moving average. Earnings season is ongoing so Momentum Gaps and Undercut and rallies are the logical setups right now. Don’t overcommit and rather wait for some more bullish clues in the form of strong moves on volume accompanied with quiet and tight pullbacks in the days/weeks ahead. Few -if any- stocks are in actionable positions in my opinion. Some names to monitor for setups are mentioned at the end.

The Big Picture

We left a 16 year long secular bear market and are in the midst of a secular bull market phase driven by the adoption of technologies emerged following the last technological revolution in 2000. As this mass adoption (cloud, automation…) goes on, it improves efficiency world-wide so it is no surprise that the stock market is approaching the pre .com bubble growth rate. There are many major worries right now such as the looming death of FIAT and the rise of crypto. While crypto/bitcoin or decentralization could be the next big revolution peaking in the future it is anyones guess if this prediction based on the last two technological mass adoptions (computers between 1950 and 1990; and Internet between 1995 – present day) will repeat.

During a secular bull phases the corrections/bear markets are typically less deep compared to bear markets during secular bear phases. Corrections typicall don’t exceed -30% during secular bulls. The pandemic crash/correction is a perfect fit in that regard.

In my opinion the next big tech revolutionary peak will show up before the next prolonged bear market. But this big picture only has a minor influence on my real time trading.


The View From Above

Both tech heavy Nasdaq indices $NDX and $IXIC trade below their 50d MA. Nasdaq composite made it gradually lower through support. 50d MA bullish reversal followed by a bull trap off the 50d MA before pulling the rug. Friday saw a rally into the 50d MA and futures suggest a open above the 50d MA right now.

The $SPX on the other hand managed to hold onto 50d MA support much better. This is meaningful as the S&P500 competes with the NAZ for the role of the leading index right now. While tech obviously dominates on a bigger scale we do see a thematic rotation out of big techs into smaller securities which started in September 2020 and is still ongoing. The relative strength of the Russel2000 ($IWM) shows this clear change in character.

While the techs did join the party to a certain degree, the current correction doesn’t look good.

Typically a strong bull market rally needs two or at least one big growth oriented sector to outperform. Currently we actually don’t see it. Energy, Financials, Materials and Industry suggest that traditional “blue collar” industries might see some time in the sun now as a waning pandemic fires up the job market in 2021. Don’t forget that we slipped into this pandemic mess with almost full employment. So while a “blue collar” move is nice and welcome it might not be enough to propel a bullmarket, soaked in FED liquidity, higher from here. We need those techs to either join in or lead in my opinon.

Recall my bold top call in $AMZN from november. Since then this juggernaut tried to rally without success sitting at it’s 200d MA right now. While this is a logical support level, a ATH move is not a certainty as opposed to what reddit wants to tell you.

The elephants in the room are…

A) Looming regulations in the big tech sector just like what happened with $MSFT in the late 90s. This will materialize as governments need to regain control about $GOOGL $FB $AMZN and co. Influencing elections, spreading fake news, collecting strategic data or simply growing into classical conglomerates is serious business for governments.

B) Looming Inflation…much is talked about it since the beginning of QE in 2010. Money supply is growing and skyrocketed in 2021 due to the pandemic relieve packages. At the same time all that money is not moving at all as obvious by the M2 money velocity. This is a simple 1+1=2 affair. Once those funds or at least a part of it starts to move (velocity picks up) and hits the economy, inflation will pop. Double digit inflation numbers are totally feasable. Don’t forget that even the FED itself didn’t understand the low inflation for years as they officially referred to it as “mystically low inflation” at least once. FED in 2020 changed their policy in a way which makes room for a inflation spike which doesn’t violate their mendate… logical explanation is that they do expect this to happen eventually.

While all this is a trend which started with the .com bubble I still see it as meaningful. Be aware that high inflation is not bad for the stock market as the positive and negative effects of it on company earnings cancel each other out. However a pop can cause some serious short term turmoil.

Last week inflation made a first apparence in the form of a higher than expected PPI reading. This is a major stepstone for this QE driven 10 year bull market which must not be overlooked.

C) The ongoing and arguably peaking retail craze which produced the following excessive moves (themes) over the last year:

KODK illustration the vaccine supply theme

GME illustrating the “Retail bros against wall street” theme. This theme is faulty is it is based on the premise that you can manipulate the market to do what you want. The aftermath aka reality check is already ongoing.

One could argue that this gen-Z retail stock market fever pitch will peak once the older “mom & dad” retail traders, as better represented by Ameritrades IMX index, felt the FOMO and plunged into stocks as well. Those guys are very hesitant since the short VIX Implosion in 2018. Data lags a month.

Stock Chatter

Some serious chart damage is inflicted in the more speculative high octane small to mid caps which led the speculative cycle before:

$PLTR $FSLY $DDOG $AI $NNOX $LMND $SITM $ARRY $MILE $PGNY $ONEM $DADA $YALA $HYFM

Signs of topping action in big techs continue to pile up driven by regulation fears. When a market tops the big leaders don’t top at the same time.

$NVDA $AMZN $MSFT $GOOGL $TSLA

$TSLA can easily go on and test the 200d MA for here on.

$MSFT is in the process of failing on the latest breakout on volume.

Most mature and steady mid cap leaders still do fine. So watch those names for signs of breaks as well. If more weakness spills over to those names you want to be aware of it. If those names here managed to find a solid footing it will be a major bullish clue going forward. I will not rub it in that many moves are years old because we are in a secular bull market phase after all.

$CVNA $APPS $TEAM $SQ $SHOP $CRM $TTD $SE $UPWK $PINS $SNAP $PYPL $TWLO $COUP $CRWD $AMD $CHWY $XPEL $GH $SPOT and many more.

$SE is a example which already shows signs of slowing down as the blue volume clues disappear and make room to red volume clues thus showing a gradually shift from accumulation to distribution. Earnings are due so watch the reaction as it can make or break the stock.

$SQ is another one which suddently flashed a large red volume week which pulled price below the 50d MA.

$XPEL also flashes a big red volume week following the clothesline overshot.

$GRWG with a first violation of the 50d MA since the beginning of the move.

$ACMR must be monitored for a breakout failure which would be a major bearish clue.

Not too hard to spot this major bearish topping clue in $SPOT on the weekly chart. Thats a major bearish outside reversal week on volume. Can’t be ignored by any means.

Order of the “week”

Correction is ongoing and proper setups are scarce. Undercut and rally or Momentum Gaps are the natural setups popping up in the current environment. This means that you shouldn’t overcommit to such setups. Carefully test the waters if you can afford it and try to engage with the strongest Momentum Gaps. This earnings season so far is not willing to produce the same strong runaway gaps compared to the last one. Thats major change to 2020 which gave us $SONO $UPWK $PINS $SNAP. This is precious market feedback!

The window of opportunity is obviously closed for a while now. Recall my risk-off tweets around the time $YALA peaked and then went on to violate the 10d MA. You also want to be aware that the opportunity cycle which I use in my market timing (windows of opportunity) has nothing to do with the cycle of the market. Just because we are in a correction with many stocks sitting around logical support levels (50d and 200d MA) doesn’t mean a window will open soon.

A fresh window will open once we see solid bullish clues and idealy some constructive shallow pullbacks into short term MAs which signal that selling pressure is waning. This won’t happen within a couple days given the current damage state of the market.

Bearish clues outnumber bullish clues by a order of magnitude right now. This is obvious by the charts above.

Here some names which are not broken yet and which I monitor for setups. Proper ones or opportunistic ones based on my “feel” (read: proper price and volume action). The only reason I do this here is because my swing methodology including sharp entries and proactive scale-outs allow me to navigate rough waters like this. When you like to short stocks you can always short rallies into major resistance in large to mega cap stocks following a big break. For everyone else cash is a strong position right now.

ABNB APPS OZON VRM BIGC MP ABNB GSX SNOW UBER SWCH

Once a proper setup is live it will be puplished on the website (inside the Dojo!) for members to see in real time. This service will start in Q1 2021.

Interesting Earnings this week

ZM SE MELI SNOW NIO GSX NVAX SDGR MDLA FOUR VRM DDD SWCH LUNG VERI

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