Building long term wealth: The SMA approach

Hi all – this is an important post that summarizes how we think about our long-term picks. If this interests you – please subscribe to our premium newsletter at https://seattlestockpros.com. For less than a $1/day, you will get immediate access to investor education, our detailed perspectives on the market, and our top long-term ideas!

You can also check out and bookmark our linktree for more free resources: Seattle Market Analytics | Linktree.


Team,

Long-term investing takes a clear approach to identify the best stocks and discipline to manage your folio over long periods of time and volatility. Please take a moment to review our approach as a guide. We expect that you will incorporate this thinking into your approach but we expect each person’s timeframe, risk appetite, and discipline will be slightly different.

How is our analysis different?

We want to take a clear, actionable, and practical approach to our investments.

  • Getting to the point: While we find the fundamentals of the company important, our stock picks will not contain long diatribes on WHY we are excited about the stocks we are going to accumulate. We believe that our readers need access to the appropriate amount of information to take action on adding to their folio. This method has worked well for our investments to date.
  • Ongoing technical analysis: We differentiate our position picks by providing clear and ongoing technical analysis of the stock from multiple time frames.
  • Trading around our core: Our technical analysis will enable long-term investors to anticipate mid-term tops and bottoms and potentially trade around their core positions. While a long-term perspective is important to hit multi-baggers, we believe it is important to be aware of these tops and bottoms as a way to manage risk.

How do we select our long-term positions?

  • Follows a macro trend: We believe there are a number of major trends that will influence the way we live, work, and interact. At the center of these trends is the shift to digital and the implications for corporations and Society. There are a number of trends that we are interested in, including, but not limited to: Cord Cutting, Remote Work, Gig work, Ecommerce, mobility-as-as-service, cybersecurity, data analytics, and digital ads. We will also pay special attention to the crypto market and the implications for decentralized finance/commerce.
  • Relatively undiscovered: Where possible we want to find stocks that are still emerging and relatively undiscovered. That said, we may pick a subset of stocks that are well established as a way to stabilize our portfolio during volatile periods.
  • Fundamental and technical analysis: We will apply a balanced view of fundamental analysis and technical analysis on our stocks. We are ideally looking for stocks that are 1) positioned to capitalize on the macro trends, 2) have a strong management team, 3) have a potential platform or could be a “picks and shovels” play, 4) can show rising earnings and 5) shows a trend in price (ideally rising prices).
  • CANSLIM: In addition to the above fundamental criteria – We also will look for stocks that ideally follow CANSLIM criteria. More on CANSLIM can be found below.

How do we categorize our positions?

We categorize our picks into 3 different types of positions within our portfolio:

  1. Core Positions: These are the strongest stocks in our portfolio, and typically have a 5-8% allocation in our portfolio. These are stocks that have established moats, platforms and are leaders in their space. Within this list, we may have 1-3 “Conviction Core” Picks that may be more than 10% allocation of our folio. A “Conviction Core” pick is rare.
  2. Explore Positions: These are emerging leaders, that typically have a 2-4% allocation in our portfolio. These stocks are typical “sisters” to our core picks that are undervalued or are still under the radar. Explore picks tend to be a bit more volatile to hold, and we manage our risk by allocating a smaller amount at first. Explore picks may “graduate” to Core status once they prove their platform, or have a significant series of earnings events that give us confidence in their future growth
  3. Stocks on the radar: The beauty of the market is that it continues to produce new potential winners every day. At SMA Pro we will identify these stocks for our community. We may not add them to our folio unless an existing core/explore position pick drops off, or if a significant event triggers a buy for us. That said, this is a great way to surface ideas for the community to invest in based on their interest, timeframe, and risk appetite.

How do we manage the SMA investment folio?

Our portfolio will likely consist of up to 20 positions and some cash reserves to strategically buy dips.

About 70-80% of our portfolio that is not in cash will be made up of core positions. The rest will be in explore positions.

When a specific explore position “graduates” to a core position, we may rebalance from some of our core positions or our cash to increase our position size in the explore position.

We firmly believe in dollar-cost averaging or “averaging-in” to your position over long periods of time. The stocks we identify will present multiple opportunities over long periods to add on dips.

When a stock has a strategic dip, we will provide updates via our blog with specific technical analysis, dip scenarios, and buy points.

If you are investing – you need to make sure you either have cash available to buy the dip AND/OR have a DCA strategy!

Selling: At some point, we may eventually close our positions. We will sell if the following conditions are met:

  1. When a stock is fully valued or overvalued.
  2. When the long-term technical indicators for a stock signal a significant warning.
  3. When the company can no longer capitalize on a long-term trend – could be for multiple reasons, lack of execution, the share of wallet dilution from the competition, etc.

A word on CANSLIM

CANSLIM also referred to as “C-A-N-S-L-I-M” or “CAN SLIM,” identifies a process that investors can use to pick stocks poised to grow faster than average. Each letter in the acronym stands for a key factor to look for when purchasing shares in a company.

The seven criteria that comprise CANSLIM are as follows:

  1. C: Current quarterly earnings per share (EPS) has increased sharply from the same quarters’ earnings reported in the prior year. Generally, investors using CANSLIM want EPS growth of over 20%, but the higher the better.
  2. A: Annual earnings increases over the last five years. Again, annual EPS growth should ideally be in excess of 20% over the last three to five years.
  3. N: New products, management, or new events/information that push the company’s stock to new highs. This type of headline news can cause short-term excitement, propelling a surge of optimism within the market, and subsequent price appreciation.
  4. S: Scarce supply coupled with a strong appetite for a stock creates excess demand—and an environment in which share prices can soar. Companies acquiring (re-purchasing) their own stock reduces market supply and can indicate an expectation of increased demand, along with insider confidence in the firm.
  5. L: Laggard stocks are preferred within the same industry. Use the relative strength index (RSI) as a guide. The RSI is a momentum indicator that measures the magnitude of price changes to determine whether the price of a stock or asset is overbought or oversold. The RSI ranges from zero to 100. An RSI reading below 30 suggests that the stock is oversold and could be undervalued—creating a buying opportunity (bullish). Conversely, an RSI reading of above 70 signifies that a stock could be overbought or overvalued and could be a chance to sell (bearish).
  6. I: Pick stocks that have institutional sponsorship by a few institutions with recent above-average performance. For example, this could be a recently public company, still supported by a small handful of well-known private equity firms. Be cautious of stocks that are over-owned by institutions as you want to get in before the big money is fully invested.
  7. – Determine market direction by reviewing market averages daily. A market average measures the overall price level of a given market, as defined by a specified group of stocks, such as the Dow Jones Industrial Average. CANSLIM stocks tend to be over-performers in bull markets.

Advantages and disadvantages of CANSLIM

CANSLIM is a bullish strategy for fast markets, so it may not be for everyone. The idea is to get into high-growth stocks before the institutional funds are fully invested.

All the elements of CANSLIM can be read as a wish list for fund managers seeking growth, so it is a matter of time until the buying demand increases. The catch is that stocks that fit the CANSLIM strategy can be among the fastest to drop if the market direction shifts and funds prioritize safe havens.

In short, CANSLIM is a good fit for experienced investors with higher risk tolerance. These stocks cannot be bought and simply held as much of the value is being priced in for future growth, meaning any slowing in the growth trajectory, or the market as a whole may result in the stock being punished.

Trade wisely,

Les

Daily Market Recap: July 19, 2021

Hi all – this is an abbreviated FREE version of our market recap. For the full version including guided videos and focus lists – please subscribe to our premium newsletter at https://seattlestockpros.com. For less than a $1/day, you will get immediate access to investor education, our detailed perspectives on the market, and our top long-term ideas!


Hey Team – wow, what a reversal today.

We saw a volume-selling climax event today and a reversal to the upside in specific sectors and growth stocks. It also didn’t take too long for the S&P to tag its 50-day moving average. With Fear and Greed at “Extreme fear”, and the specific indexes and initial support, we may have the makings of a rebound. The jury’s out right now on whether this is a short-term rebound or a sustained uptrend. Let’s take it one day at a time. Not all stocks are going to rebound equally (our eyes are on QQQ and SPY). Small caps are beaten up and also may have a short-term violent upside bounce.

Market recap

The markets were uniformly hit today with the Dow leading the losses. Remember – non-tech stocks have been outperforming tech/growth for most of the year. For the latter part of the year, we could see the reverse happen (growth outperform value, tech outperform non-tech)

S&P 500 tags the 50 Day Moving Average: This level has been held since November. Our only concern here is participation in the rally which has been anemic. We will continue to keep a close eye on price. A rebound over 425 is bullish.

Fear and greed at extreme levels (contrarian bull signal). It’s interesting that we are at the highs and the market is at extreme fear levels. I haven’t seen this action in a long time.

Volatility peaks and reversals: One study I did not cover in the video is how volatility ($VIX) peaked today. When this peaking action happens, we are usually near the bottom for the market.

Trade wisely,

Les

Daily Market Recap: July 13, 2021

Team – checking in on our key market movements as we are seeing some potential action to the downside and need to be prepared for volatility ahead.

This is an abridged version of our daily market recap – for the full version, including guidance on market volatility, please subscribe to our newsletter on Seattle Market seattlestockpros.com!

Market recap

  • The indexes finished in the red after posting both a bull trap intraday.
  • This was likely attributed to the Consumer Price Index numbers coming in at the highest levels in 13 years amid supply amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels.
  • The Fed and White house officials still believe that these inflation numbers are transitory. They cited a continued drop in forward prices for lumber and other goods that experienced sharp increases as a result of supply chain bottlenecks. Steel capacity had also risen substantially over the past few months, they said.
  • The 10 year yield briefly shot up as investors concluded that the U.S. central bank would likely maintain its ultra easy monetary policy stance for a while. We’re monitoring for the 10 year yield and its rate of change. Spikes in yeild can can negatively impact growth stocks in the near term.
  • We’re on watch as additional events this week could further rock the markets:
    • Producer Price Index Data (Wed, Jul 14, 8:30 am ET)
    • Jerome Powell Speaks (Thu July 15, 9:30am ET)
    • Options expiration (OPEX Fri Jul 16)

We should continue to stay on high alert for a dip in the indexes. The QQQ and the SPY are starting to put more bearish candles at the top, and running out of steam. That is a cause for concern in the short term.

Trade wisely,

Les

Market Check: July 1, 2021

Team, this is Les writing. This is part of an ongoing write up that I share with my SMA Pro team on a weekly and daily (as-needed) basis to keep track of market movements.

Interested in receiving these updates on a regular basis? Check out a link to our SMA Pro site and sign up for our “Foundations” service! Seattle Market Analytics | Linktree

Market check

We’re officially now in July and heading into a long weekend. For the most part, the indexes have been somewhat resilient over the past month, with the S&P closing to new highs and the Q’s getting within an inch of their highs.

That said, if you looked at investor sentiment, you would think investors are jittery. Why? One indicator is Fear and Greed. We have been well under greed levels for the past month, despite the indexes grinding to new highs. You could chalk this up to the market climbing the wall of worry, which is intrinsically good overall – what we don’t want is a euphoric market.

Even though the indexes finished barely green today, there was still some relative weakness in growth stocks (compared to value). See the performance barometer below:

Image

Sector check

No surprise, the Technology sector finished close to last today. That said, on the 1-week and 1-month timeframe, tech is still a leading sector.

Rotations, rotations, rotations

Can Tech continue an outperformance in the coming weeks? Initial signals look like tech may need to pause – based on our sector rotation chart, we are now seeing tech starting to weaken and relation plays starting to strengthen. We will need to keep an eye on this in the next couple of days/weeks as it will provide indicators on what to play next.

If the reflation plays do end up making a move, we think Industrials, Financials, and Materials may move first. Energy is not far behind. See the relative rotation graph for a view into what may coming next.

We also need to be cognizant of seasonality.

There’s a chance we top out in mid-late July and either pause till September or head lower. September and October are especially less than desirable months to be trading, so it’s best to have cash on hand to hit the dips before we enter into the Santa Rally towards November-December.

Does this mean tech stocks are in trouble? Not necessarily – remember, there are a few growth stocks that are only now starting to create the next side of their bases. See my video for some of these examples. We want to keep an eye on a few good tech stocks that are dipping in the short term so we can obtain them at discount prices.

Trade wisely,

Les

Stock Chart Blitz: April 22, 2021

Team – this is a video I shared with our premium members on a few charts.

Note it is 24 hours old, so treat accordingly!

  • 1:32 Market conditions
  • 5:16 Index Check
  • 8:23 Advanced Micro Devices (AMD)
  • 09:46 Docusign (DOCU)
  • 11.00 Fastly (FSLY)
  • 13:10 Nvidia (NVDA)
  • 15:52 Magnite (MGNI)
  • 16:08 Cloudflare (NET)
  • 18:17 Taiwan Semiconductor (TSM)
  • 20:10 Twitter (TWTR)
  • 21:50 Twilio (TWLO)
  • 23:03 Mohawk Group (MWK)
  • 24:12 NIO Inc (NIO)
  • 25:22 SKillz Inc (SKLZ)
  • 26:35 Futures and conclude

Trade wisely,

Les

Market Recap: April 22, 2020


Team – this is a subset of a daily trading recap that I send to our premium subscribers. Given all the crazy action – figured you could use the recap as a mental stabilizer.

Market recap

  • The indexes were moving fine today and reversed to the downside on reports that Biden is planning a capital gains tax hike to as high as 43.4%. The proposed increase would nearly double the current rate for wealthy Americans.
  • From the market carpet, the sell off was broad, including defensive sectors – which indicates that the reaction is potentially a knee jerk.
  • Related, ETH and BTC also dipped on tax news (as this would affect larger traders/crypto whales).
  • SnapChat reported positive earnings after market close. Stock is up ~5% after hours. Twitter and Pinterest moved up in sympathy.

Our take

  • Yet another reminder that the market is new driven. But in this case, remember, Biden’s tax plan is NOT IN PLACE YET. So we aren’t going to unnecessarily react.
  • When in doubt, step and and remember what you own. Remember the trading plan. This is likely a opportunity to buy, not sell.
  • For once, while we don’t like Cramer – we agree with him:

Key Trades posted (For members only)

A word on Bitcoin

  • There is going to be a lot of posts on social media and mainstream media about how this is broken.
  • In reality, a run like this requires time to base and breathe before the next move.
  • The daily chart below offers some clues. 100DMA offers support at 49369. Stochastics and Money flow are oversold. Price tends to pounce when these internal indicators are oversold.
  • That said – zooming out you should be ready to buy dips to 45K.
  • Assume this is a multi-month hold – Institutions are still adopting Bitcoin, so the fundamental story has not changed.
  • Related note…if Ethereum falls – and we see an opportunity – we will increase our exposure again.

Trade wisely,

Les

Stock Chart Blitz!

Team,

Lots has been happening these past few months as we have been getting our site and content up and running. We will likely do a full launch of our site in the next few weeks.

In the mean time – enjoy this chart blitz that we are putting out on a weekly basis. Note: this was recorded on April 7,2021.

Trade wisely and have a great weekend,

Les

SMA Pro Daily Market Pulse: January 6, 2021

Note: This is an excerpt of a more detailed market pulse sent on Jan 6th, 2021.

Crazy action today as the markets reacted positively to the Senate runoff results, and then pulled back sharply on news of protests on Capitol hill.

A few things have become IMMEDIATELY CLEAR:

  • “Bluewave” Democrat control has implications on domestic and foreign policy, spending focus, and regulations.
  • Focus is now: China relations, Clean energy (+clean auto), Infrastructure spending, corporate tax increases, additional relief bills, Increased potential tech regulation.
  • Sector rotation is now in process: Financials, Industrials, Materials, Healthcare and Energy are moving. Tech is starting to lag as a sector.
  • Small caps have confirmed its leadership status by breaking to new highs.

If the market continues to behave:

  • We will be shifting calls more deliberately to non-tech picks.
  • TECH HOLDINGS: We may selectively hold conviction tech picks like SE, ROKU, CRWD, SHOP, PINS, FSLY. Mid-cap tech growth stocks in general may face pressure this year. It’s a bit early to tell, so we will monitor.
  • Crypto will continue to be a core holding as a hedge against the fed monetary policy.

Futures look healthy as of 9:30pm EST.

Trade wisely,

Les

——

Enjoyed this preview? Sign for SMA Pro, launching soon!

——

COVID-19 COMEBACK FOLIO: DEC 30 UPDATE

Team,

I am a bit tardy in updating the COVID-19 comeback folio results for the year.

My previous folio results can be found on the COVID-19 Folio tab. November 2020 results can be found here.

As of November 30, the COVID-19 Comeback Folio is up a whopping 275.51% YTD. This DOES NOT include the Livongo position that we closed at $140 for a net gain of 572%.

Image

Top five performers:

  1. TSLA claims top honors with 761% – #1 stunna with the inclusion in the S&P 500.
  2. ENPH came out of nowhere with a whopping 608% as solar got tailwinds post election
  3. SOXL as semi’s got super strength, my supercharged 3x levered ETF brought in 591%.AMD, NVDA and a few other names will bust out in 2021.
  4. PINS slipped a few spots but still a beautiful move to 474%.
  5. FSLY at #5 finally starting to show signs of life off the lows at mid-60s. Now at 470%. We called the reversal off the low.

As a reminder: this portfolio was constructed as a static folio with no dollar-cost averaging over time, no options, and no leverage. This was a simple buy and hold. As you can see from the folio above, even if you did absolutely nothing, holding on to the right names can make a huge difference. This portfolio is a testament to buying and holding a set of strong names in the market.

We are officially closing the portfolio for the year and will be working on a brand new folio for 2021. Congrats if you are still holding these names!

Trade wisely,

Les

Weekly Market Pulse: Week of January 3, 2021

Team – below is an excerpt of the weekly market pulse that I prepped earlier this week. We will be sending this to all SMA Pro members once we launch.

Like this report? Get ready for our launch by signing up here.

What you need to know

  1. All indexes finished near their all time highs at the end of 2020.
  2. Market Futures are flat as we start the new year.
  3. Volatility expected to ramp up as Georgia Senate race looks close.
  4. COVID-19 vaccine distribution is slower than usual while cases continue to surge.
  5. Bitcoin, Ethereum and Alt-coins continue to rally to new highs
  6. Key economic data points this week may provide clues on potential recovery (ISM, Jobs report)

Market sentiment, Indexes and Internals

  1. Overall Sentiment: Bullish trending neutral
  2. Market is in a confirmed Uptrend (Bullish, with caution)
    1. All indexes constructive, above 20 and 50 MA (Bullish)
    1. SPY LT breaking out megaphone on weekly(Bullish)
    1. QQQ forming a wedge on daily (Bearish)
  3. IWM is outperforming SPY, but has pulled back from a key resistance point (Neutral)
  4. Fear and Greed Index (51 – Neutral/Positive, Previous Reading 54 – Neutral)
  5. SUPHLP (Percentage high/low line for stocks in the S&P 1500) is intact (Bullish)
  6. SPY outperforming the 30-year US treasury bonds (Bullish)
  7. Stocks Above 50/200 Day Average (86.57 Caution / 91.58 – Extreme caution)
  8. Put / call ratio bouncing off at extreme lows, 5MA reading 0.49 (Extreme caution)

Key takeaways (short term)

  • Market indicators are mixed and tilting towards neutral:
    • Bull thesis: Dovish Fed, GDP rebounding, COVID-relief bill, fear greed sentiment has backed off from the highs, more vaccines in production.
    • Bear thesis: Low put/call ratios, QQQ bearish wedge, Blue wave risk from Senate race, frothy IPOs and explosion of SPACs.
  • We will be closely monitoring the markets over the next 1-2 weeks to determine the odds of a correction in Q1 2021. A correction is defined an 8-15% drawdown from the highs.
  • We have been relatively defensive in the last two weeks, reducing NEW trades, closing EXISTING names, deleveraging, and raising cash.
  • We remain bullish for the longer term and are building up a trade/investment strategy to prep for this correction and beyond in 2021.

Economic indicators this week (Red is an important reading)

  • ISM MANUFACTURING PMI (TUES.)
  • VEHICLE SALES (TUES.)
  • FED MINUTES (WED.)
  • JOBLESS CLAIMS (THURS.)
  • ISM SERVICES PMI (THURS.)
  • NONFARM PAYROLLS (FRI.)
  • UNEMPLOYMENT RATE (FRI.)

Q1 Correction: Supporting Notes

We believe a correction is incoming somewhere in the Q1 timeframe – the catalyst could be the senate runoffs in Georgia.  To be clear: a market correction is an 8-15% drop from the indexes.

Why is this important: A Senate majority is crucial in deciding a range of legislative changes, cabinet appointments, potential presidential impeachments and nominations to the supreme court. Republicans have controlled the Senate since 2014. If Democrats can win both seats they will control the Senate. A Democrat has not won a Senate race in Georgia in 20 years, so the odds of winning two at the same time do not look great.

There is record turnout in early voting and currently a slight edge to the republicans.  if Democrats clinch the two victories needed to let Vice President-elect Kamala Harris cast a tie-breaking vote, markets could be in for an unraveling as investors put more emphasis on the incoming administration’s policy agenda. More details here and here.

Indicators that a correction may be coming

  1. Record speculation in the markets. Put call ratios are at historic lows. SPY short interest is at historic lows.
  2. ARK holdings have been decidedly loading up FAMGA stocks and trimming some of their high growth names. There is a good chance that the mega cap stocks are waking up from their major pennant patterns and likely to break out in the coming weeks. Large caps moving will help propel the market higher, but we can also interpret as a way for ARK to hedge against their high-flying growth names that will be hit with the correction.
  3. QQQ – One of the leading indexes, has been forming a bearish wedge, which could drop 10-15% if it breaks
  4. Most stocks are quite extended from their 50 day and 200day averages, and will likely revert back to the mean in the short term

Our take on the upcoming volatility

  • While our current thinking is the Georgia runoffs is the catalyst for the correction, the reason for the dip/correction ultimately does not matter.
  • What matters is that A dip is needed and healthy in this market. The Nasdaq has dipped over 12 times since the March lows before ripping higher.
  • TIMING THE CORRECTION IS A FOOLS GAME:
    • We must trade what is in front of us. Outside of seasonality, the most important thing in front us is price, volume, and money flow.
    • We cannot try to anticipate or speculate what is going to happen. If we do that, we may sit out of a major bull run.
  • A correction is not the end of the bull market:
    • Once the correction is over, we believe there is further upside for the market in 2021.
    • Cathie Wood (Ark) and several other analysts believe there is additional upside in 2021.
  • When the dip comes, we will follow a specific process.
  • We expect investors and traders will leverage a range of actions based on their timeframe, risk appetite, amount of capital etc. Below are a few sample levers:
    • Reduce margin (i.e., deleverage)
    • Close options (specifically short-term options)
    • Reduce positions in the portfolio
      • Investors may close 10-20%
      • Traders may close 50-100%
    • Put on specific hedges (index puts, or inverse levered ETFs)

DISCLAIMER: Risks associated with trading the stock market

All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual’s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, investment timeframe, and liquidity needs.

Any opinions, news, research, analyses, prices, or other information offered by Seattle Market Analytics LLC are provided as general market commentary and education and does not constitute professional investment advice from a qualified person, firm, or corporation. The blog and its authors will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Please consult the appropriate professional advisor for more complete and current information on any security.

Seattle Market Analytics LLC shall not accept any liability with respect to the accuracy or completeness of any information on this site, or by any third party/affiliate. While efforts will be made to ensure the accuracy of the information, we are under no obligation to update or correct any information provided on this website. All statements and opinions provided across all communication vehicles are subject to change without notice.

SMA Pro – Investing/Trading Principles

Team,

Below are a set of rules and principles that I’ve followed throughout the course of my trading and investing journey. The key is understanding and internalizing this process. I know this like the back of my hand. 

Make it a point to read this several times a week until you know it like the back of your hand.

This is a living document and will continue to be updated for our community.

We follow the four Ps of investing: Perspective, Process, Preparedness, and Patience to tilt the odds of success in our favor.

Seattle MArket Analytics

Perspective

  1. We will know WHY we are buying a stock – it could be a combination of technical and fundamental factors or a long-term thematic that the stock will capitalize.
  2. When we invest in a stock for the long term, we recognize that we are making a LONG TERM BET that the stock will rise, despite short term volatility.

Process

  1. We will use a rigorous process for portfolio management, trade management, risk management. Trading is a business, and we apply the same level of rigor. See further notes below
  2. Keep an informal journal of our trades—document what went well, what didn’t go well. We cannot improve what we cannot measure.

Preparedness

We acknowledge that the market doesn’t move in a straight line. Drawdowns are an expected part of investing. High-beta stocks may be amplified during down days.

  1. We will monitor the markets at all times to determine if there are shifts in sentiment.
  2. Stay flexible – the market shifts sentiment, we will reassess our long positions as well our overall cash position and adjust.
  3. Accept small losses as a regular part of trading. It is absolutely OKAY to be wrong. It is FATAL to stay wrong.

Patience

Trading and investing take patience. Wall St. is a world-class disinformation machine.  

  1. We will not constantly second-guess our holdings. Second-guessing is especially TRUE for investors. Once you have a set of core picks – stick to them.
  2. We will not watch every tick of the stock once we are in a trade. 
  3. I encourage everyone to write down plan and targets, set alerts, and remain patient.

Avoid the following behaviors:

  1. Overtrade, especially on volatile/choppy days.
  2. Chase huge gap ups (unless we have overwhelming evidence that there is a macro move happening that we should take advantage of).
  3. Gamble for any reason (i.e., follow random stock ideas, trade triple leveraged ETFs, front sided options, volatility).
  4. Trade against a trend (aka be contrarian). In most cases, it pays to FOLLOW the trend, and FOLLOW the strongest stocks in the market. If we are in a bear market…the opposite is true.
  5. Let our emotions control the trade – emotions force us to break our own rules.
  6. Hold on to losing trades. If the trade fails our criteria, we will escape and aim for small losses. Goal – stay intact to trade the next day.
  7. Overextend ourselves with margin. Margin is only used in exceptional situations and by those who have a very good handle on managing leverage.

Portfolio Management

  1. Always have SOME cash in your folios at all times.
  2. During bull moves, it is acceptable to have 5% cash.
  3. During times of volatility, it may be acceptable to have 10% or more in cash.
  4. It is prudent to increase cash to 50% or during bear moves, especially in our SWING trading accounts. Sophisticated traders may switch directions from bullish to bearish during this time
  5. Aim to have a diverse group of holdings in your portfolio (especially for investors). 
  6. Determine what strategy your portfolio is steering towards (Technology? SPACs? IPO Crypto?). Try to seperate   towards the technology industry as we believe it will outperform the rest of the sectors for the next 3-5 years.

Portfolio/Risk Management – Core Vs. Explore

We will allocate different weights on trades based on our conviction.

  1. A “core” position is one that can potentially take >3% of the folio.
  2. A subset of core positions may be “conviction picks” and can be up to 10% of the folio.
  3. An “explore” position folio is one that is typically <=2% of the folio. We keep “explore”  positions as potential aggressive plays that are underappreciated and may show future potential. These names are higher risk, higher reward.
  4. In general, a folio could consist of 75% core positions and 25% explore positions.
  5. Picks that are “explore” can be upgraded to “core” or even “conviction core” if they show significant improvement and promise from a performance standpoint.

Trade management – general

When to buy a stock: we follow specific criteria to buy any stocks on our list

  1. Set clear rules for your trades: setup, entry, exit, escape in each swing trade.
  2. Ensure there is a setup before entering into aposition. No Setup, no trade. We have to witness the stock in our strong percentile ranks, a strong technical setup and/or a bullish fundamental narrative–Scale into our trades. We scale out FASTER than we scale in.
  3. Always SPACE YOUR BUYS into specific lots. Accept that your first buy may not be the correct one. Buys for a specific stock can be in chunks and based on specific price levels. an example buy spacing looks like the following: Lot 1 (10%), Lot 2 (20%), Lot 3 (30%), Lot 4 (40%).
  4. Once you are in a position, have patience. The stock may not go up immediately. Don’t watch every tick in the stock. You will likely be shaken out of your position.

When to sell a stock: This is typically the hardest part for most traders. 

  1. Simple rules – if you are up big – trim half and ride the rest.
  2. If this is a position play you typically trim 10-20% but hold core.
  3. You always scale out faster than you scale in
  4. CARDINAL RULE: If a stock goes up too far too fast…you start selling no question asked. this is especially true for a stock that goes parabolic in an extremely short period time.

All the best and trade wisely,

Les

Disclaimer: Risks associated with trading the stock market

All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual’s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, investment timeframe, and liquidity needs.

Any opinions, news, research, analyses, prices, or other information offered by Seattle Market Analytics LLC are provided as general market commentary and education and does not constitute professional investment advice from a qualified person, firm, or corporation. The blog and its authors will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Please consult the appropriate professional advisor for more complete and current information on any security.

Seattle Market Analytics LLC shall not accept any liability with respect to the accuracy or completeness of any information on this site, or by any third party/affiliate. While efforts will be made to ensure the accuracy of the information, we are under no obligation to update or correct any information provided on this website. All statements and opinions provided across all communication vehicles are subject to change without notice.

Seattle Market Analytics Pro Details

Alright team, you asked and here it is – below are a few details of our SMA Pro subscription!

  • The Premium website is being built out right now and will be up and running a few weeks.
  • We may have a portion of SMA Trader open (specifically the twitter feed) for select folks much sooner.
  • I will alert when the site is ready and have the site on my Twitter and Stocktwits handles.

Overview

  1. Our service is education-focused first, with specific examples of swing and position plays.
  2. We offer three key components in our offer: SMA Pro Investor, Pro Trader, and the Industry leaderboard.
  3. All three services are offered for one simple price: $99/month or $999/annually (2 months free).
  4. Pricing is discounted for launch, with no commitment. We anticipate pricing will go up over time as we expand our automated industry leaderboard functionality.
  5. Your subscription price remains the same as long as you are a current subscriber, and you will receive all future enhancements for free.
  6. We will provide a 14-day free trial to interested subscribers (there will be an option to sign up).

1. SMA Pro Investor Overview

This is the premium version of our Seattle Market Analytics Blog focused on passive investors, who focus on equities and have longer timeframes. We will provide:

  • Curated position stock pick examples that follow our process (2-3 picks a month)
  • Weekly market commentary
  • Earnings alert review on select core stocks
  • Model portfolio access (e.g. COVID-19,  2020 Post Election)
  • Performance tracker for all position picks
  • Ongoing Investor education content

Sample Blog winners (as of 11/8/2020):

2. SMA Pro Trader Overview

This service is beneficial for active traders and investors who have multiple accounts, more time to trade, and have a mix of long and short timeframes. We will provide:

  • Multiple trade strategies for (e.g., Tech momentum, Crypto, SPACs, IPOs etc.)
  • Curated swing picks that follow our process from the leaderboard (potentially 1-2 picks/day)
  • Access to private Twitter feed channel for Intra-day market alerts  
  • Performance tracker for all swing picks 

Sample calls

3. SMA Pro Industry Leaderboard Overview

All subscribers will have access to our daily industry leaderboard.

  • A full description of our industry leaderboard can be found here.
  • The leaderboard provides us with a source for strong tech and non-tech stocks on a daily basis. See link here for a sample play (Farfetch)
  • We previewed the leaderboard with multiple newer and experienced traders and received a ton of great feedback on form and functionality.
  • We are investing heavily in making this automated letter usable and valuable for our trader community.

Interested in signing up?

Share a few basic details and we will keep you posted as soon as we launch!

Disclaimer: Risks associated with trading the stock market

All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual’s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, investment timeframe, and liquidity needs.

Any opinions, news, research, analyses, prices, or other information offered by Seattle Market Analytics LLC are provided as general market commentary and education and does not constitute professional investment advice from a qualified person, firm, or corporation. The blog and its authors will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Please consult the appropriate professional advisor for more complete and current information on any security.

Seattle Market Analytics LLC shall not accept any liability with respect to the accuracy or completeness of any information on this site, or by any third party/affiliate. While efforts will be made to ensure the accuracy of the information, we are under no obligation to update or correct any information provided on this website. All statements and opinions provided across all communication vehicles are subject to change without notice.

Market Prep: Week of Dec 14, 2020

As of 11:30PM Pacific futures are looking steady green. We’re expecting a few events this week:

  • Investors are prepping for a possible stimulus package, at last count was a touch over 900MM (but well under the 1.2Bn called for earlier).
  • Fed will update rate policy decision on Wednesday (12/16) at 2PM ETC – we expect rates to remain unchanged.
  • Jobless Claims and Housing Starts on Thursday (12/17)

Market sentiment: Strong with some caution

  • The Q’s held it together last week staying right over the chop zone.
  • Small caps continue to outperform large caps (see IWM to SPY comparison chart).
  • Growth is still lagging value in the short term, but has not crossed below value on the weekly chart. We continue to monitor this.
  • Sentiment is cooling off the highs, which is a good sign as it was running hot for the last couple weeks.
  • We are in a seasonally strong period – where November and December have been historically strong as the “Santa Claus” Rally takes the market up into the end of the year.
  • If the stimulus bill passes, and we see some movement from the FANG stocks (Tech Mega Caps) – that may be enough of a push to keep stocks for the rest of December.

Takeaway for investors and traders

  • As long as the Fed rates and liquidity injection does not change, we are in a long term bullish trajectory for the market.
  • That said, the market does not go up in a straight line. Dips and small corrections are ABSOLUTELY HEALTHY and needed.
  • The higher the market goes up without a correction, the more likely we are to experience a crash. At the moment we are seeing pause in the Q’s and SPY and that is healthy.
  • I’ll take a 4-8% dip any day. When that dip comes, be ready with your shopping list of strong stocks to add on a dip.

Interested in the Seattle Market Analytics Pro? We provide this review every week, and a set of stocks that we will have on our watch list across multiple strategies. A summary of our new service will be up on the blog later this week!

Trade wisely,

Les

Market and Earnings Week Recap: 12/3

Team,

This week is turning out to be incredible. I need to recap a few things:

Market review

A few days ago, I mentioned that the the Qs were still in the chop zone and we were due for a pull back. Well the Q’s broke over the chop zone today – barely but still worth noting.

We have to respect the move in front of us. That said – I stay cautious and will look for continuation tomorrow and any potential bearish signals.

Futures as of tomorrow look positive:

We have been sitting in the extreme greed sentiment for the last week but this could continue on as mega caps start waking up.

Earnings bonanza recap

As mentioned earlier this week, we had a string of earnings, and some incredible results with CRWD, OKTA, ESTC and PD. Check out the summary below.

Crowdstrike: Crushes earnings

  • Crowdstrike (ticker: CRWD) is turning to a crowd favorite after a string of crushing beats. Check out these numbers!
  • We are up 67% on our current swing pick and continue to stay long from June.
  • We expect this have a clear path to $200 – the sentiment is clearly expressed by Needham analyst Alex Henderson as he boosted their PT to $200.


The CrowdStrike Thesis: Despite being the fastest-growing of the highest-growth cloud names, CrowdStrike didn’t slow. The company reported 87% subscription growth and 86% revenue growth while also showing sharp leverage in margins. This margin leverage demonstrated the velocity which the company can drive margins higher and get to 20%+ levels. Very few companies deliver this type of growth and can drive margin higher at the same time.

Needham Analyst: Alex Henderson

OKTA: Crushes earnings

  • OKTA (Ticker: OKTA) also had a strong quarter with 42% Revenue growth YoY and a full year guidance boost. The stock popped hard and gave back some gains towards EOD as the markets faded.
  • OKTA price targets were raised by a number of analysts after displaying impressive growth.
  • We are up 18% on OKTA from our swing pick July 17. Prudent investors/traders may trim some gains and pile them into Crowdstrike.

Elastic: Crushes earnings

  • Elastic (Ticker: ESTC) is our MongoDB sister strategy play and it has been behaving quite well since we picked up on May 22 for ~$80
  • The stock delivered on earnings again and received a string of analyst upgrades on “marked billings and revenue outperformance”. Upgrades are now targeting a $145.
  • We are up 68% on our swing from May and continue to stay long. The stock is at the top of the major channel – we think this will eventually breakout as part of an acceleration channel.

Pagerduty: Beats earnings (surprise upside)

  • We first mentioned Pager Duty (Ticker: PD) as a longer term position pick on August 31. and re-upped our position on October 8 between $24.6-29.
  • Pager Duty released earnings after market close today and results were surprisingly decent – beating on revenue, EPS and decent revenue guidance.
  • But the key piece of news was this: Customers with annual recurring revenue over $500,000 were up 40% year-over-year. This was clearly an unexpected number.
  • We are up 39% on our position with this earnings result and upgrading our price to ~$50.
  • The stock is up 17% after hours to $37. If the market cooperates – this is going to be another winner.

An important thing happened right before the market close. If any of you were watching – PD dumped 7% in the last hour. A lot of investors were shaken by this move. See the image below – our team caught that move and were not shaken.

Lesson: Follow the money and watch for any moves right up to the minute before close.

I’m looking to close this week on a really positive note. Winner winner!

Trade wisely,

Les

WORK Position Update: Closing position on Salesforce acquisition news

Team,

We first mentioned WORK as a long term position here. Earlier last week Slack popped hard on news that Salesforce had intentions to acquire Slack. That deal will be announced tomorrow after market close, in conjunction with Salesforce earnings.

At this point, we felt it was prudent to close out our trade between $40-42 for ~38-40% gains. Note we had been scaling out of our trade since Friday.

Congrats to all of you who took the gains. This was a bumpy ride, and somewhat bitter sweet for a company that really did not really move much past it’s IPO price.

Trade wisely,

Les

COVID-19 COMEBACK FOLIO: NOV 30 UPDATE

Team,

Customary update on the COVID-19 comeback folio at the end of November.

My previous folio results can be found on the COVID-19 Folio tab. October 2020 results can be found here.

As of November 30, the COVID-19 Comeback Folio is up a whopping 241% YTD. This DOES NOT include the Livongo position that we closed at $140 for a net gain of 572%.

Top five performers:

  1. LVGO Fell off our list for a 572% – we love you and we will miss you. Onward as part of TDOC.
  2. TSLA claims top honors with 597% – #1 stunna with the inclusion in the S&P 500.
  3. PINS not far behind at #2 with a beautiful move to new highs at 509%.
  4. SOXL – Semis are gettin back in style and my 3X levered ETF is doing its job at #3 with 506% gains. Watch AMD, NVDA and a few other names bust out. Semis.
  5. TTD at #4 also claiming new highs as it edges towards being a 5 bagger.
  6. FSLY at #5 finally starting to show signs of life off the lows at mid-60s. Now at 452%. We called the reversal off the lows here.

Other notable moves:

  • ROKU was #14 on the list 2 months ago and is now #9 with 310% gains. Hit a new 52 week high today.

As a reminder, this pfolio was constructed as a static folio with no dollar cost averaging over time. A simple and buy and hold. As you can see from the folio above, even if you did absolutely nothing, holding on to the right names can make a huge difference. This pfolio is a testament to buying and holding a set of strong names in the market.

I will now be bringing up the performance of the election comeback folio soon.

Trade wisely,

Les

Market review: Week of November 30, 2020

Team,

We have been cautious over the last week and a half as the market has been running hot and multiple indicators are flashing sell signals. No matter how you look at it…we need a quick dip before we go higher. The market does not move in a straight line.

  • We continue to stay cautiously optimistic with the market
  • We know that a dip is coming so we look to trim some positions and raise cash.
  • We consider a dip between 4-8%. A correction is close to 20%. Anything over 20% takes us into bear territory.
  • We will follow our process when dealing with volatility.
  • We are agile with any key positions until the dip is complete.

From the S&P chart below – I anticipate one more dip before a longer term rally going into 2021.

Futures are already red as of 11pm PST, so we should expect a rocky start to the week.

Earnings Review

Earnings coming up this week. We have a few names we are interested in:

  • Zoom – Monday AMC
  • Salesforce, Veeva – Tuesday AMC
  • Crowdstrike, ZScaler , OKTA, Snowflake, Elastic – Wednesday AMC (bunch of cyber plays on this day)
  • Pagerduty, DocuSign – Thursday AMC

Trade Plan

  • Traders: Review their existing positions: especially: CRWD, PD, OKTA, and reduce exposure to avoid being caught up in a binary event.
  • Investors: Reduce some exposure and/or add a hedge if needed. That said, be ready to hit a dip on core names – we are playing the long game and need to see beyond a quarter. Now may also be a good time to re-assess your current portfolio and determine if some clean up, rebalancing is required.

Trade wisely,

Les

Happy Thanksgiving!

Team,

Happy Thanksgiving! After all that we have been through this year, I have a lot to be thankful for. A roof over our heads, a job, food on the table, and most importantly, to be alive. 

COVID-19 changed everything for us. With over 61 MM cases globally and over 1.4MM deaths, COVID-19 is the defining event of our year…probably even our decade. 

I’m sure most of you are thankful as I am. At the same time, it is gut-wrenching to see the havoc caused by virus. People on the streets, without jobs, without food, without a bed to sleep on – running out of options. In many cases, rescue shelters cannot house the homeless due to restrictions on space and social distancing. 

As a result, many homeless people will be on the streets this winter. 

Tents outside Union Gospel Mission in Seattle

This Thanksgiving – celebrate the gifts of life, family and good health. I also encourage all of you to continue to support each other, especially those who have less. If you have a few minutes, take a moment to shift some of your winnings in the market and give to a charity of your choice. Whether it is supplies for front line workers, support for local businesses, supporting local families and children, or providing rent support – every small donation makes a difference, and provides hope for those in need. Many thanks to everyone who has already donated their time, expertise and money.

Need to search for charities? See a sample list below:

  1. Charity Navigator
  2. All in Seattle

Making money is nice. Making an impact is what ultimately counts. 

The human race is resilient, and just like every crisis in the past, we will get through this crisis, together.

Have a safe, restful and blessed thanksgiving!

Les 

Market study: Rotations, Rotations, Rotations

All,

There are a few related rotations in progress that are worth monitoring and understanding as we get close to the end of 2020 and enter 2021.

  1. A rotation from growth to value
  2. A rotation between large caps to small caps (aka small caps outperforming large caps)
  3. Related to #1, a rotation between sectors

From Growth to Value

The entrance of multiple COVID vaccines has put growth stocks on a bit of a pause as value stocks catch a bid. The daily chart below down the relative performance of growth to value (IGV:IWD). The chart is invisible and we’ve just displayed the 20/50 Moving averages to track key crossovers. From the chart below. the 20MA crossed below the 50MA on the week of November 9th.

IGV top ten holdingsIWD top ten holdings
Adobe Inc. 7.57%
Oracle Corporation 6.00%
ServiceNow, Inc. 5.55%
Intuit Inc. 5.08%
Zoom Video Communications, Inc. Class A4.47%
Activision Blizzard, Inc. 3.31%
Autodesk, Inc. 3.12%
DocuSign, Inc. 2.27%
Berkshire Hathaway Inc. Class B2.67%
JPMorgan Chase & Co. 2.13%
Johnson & Johnson2.05%
Walt Disney Company1.56%
Verizon Communications Inc. 1.53%
Comcast Corporation Class A1.37%
Walmart Inc. 1.28%
Bank of America Corp1.27%

Remember – this doesn’t mean the death of tech/growth stocks. It just means that there is a relative performance bump for value stocks vs. growth stocks.

From a weekly standpoint – the green line has not yet crossed yet. So we will be monitoring this closely.

Small caps make a bullish move

We’ve observed the Nasdaq outperforming the rest of the indexes for most of 2020. But once we got past US election, Small caps started a major run to the upside, blowing past the rest of the indexes.

We also had another historic move as the DOW captured 30K today.

In my opinion – these are all bullish indicators as the rest of the indexes catch up to the Nasdaq before the next leg higher.

Smalls caps are the canary in the coalmine for risk on/risk off movement. They are typically the first to move up in a bullish market and the first to break down in a bearish market. The last few years have been tough for small caps – as pictured in the relative performance against large caps below. But in 2020 we’re seeing turnaround as IWM breaks out in style, and breaks the relative performance downtrend.

Monitoring sector performance

Connected to the growth/value discussion, its valuable to take a quick look at the key S&P sectors to see we can observe key breakouts or key reversals. Consumer discretionary, Financials, Industrials, Materials have got the look.

Putting it together

It’s important to recognize the movement of growth into value, and the emergence of outperforming stocks in sectors outside tech. It doesn’t mean that tech/digital transformation is dead – we still expect that many macro trends enabled by digital transformation are here to stay. that said, if you have a heavy in tech , it may be beneficial to pick a few leading stocks in non-tech sectors to diversify your holdings (and as a hedge).

Figuring out outperforming stocks in outperforming industries can be a bit daunting. We use an Industry Leaderboard to help identify outperforming stocks in leading industries, every day. Take a look at the snapshot of a few key industries on our radar. The number of stocks within an industry gives us a general sense of money flow trends which we can measure over time. This leaderboard will be available to all our members on a daily basis when we launch our Seattle Market Analytics Pro Subscription for Traders.

Interested in the Industry Leaderboard or our upcoming SMA Pro subscription? Feel free to connect with me at leslie@seattlemarketanalytics.com.

Trade wisely,

Les

SEA Ltd crushes earnings; Get ready for a dip buy

Sea Limited's corporate logo, including the tagline: Connecting the dots.

Team,

We went long SE on the blog on May 7 at $62.5. I’ve been personally long from $18-20s and sizing up as SE continues to move. This is a core position for us and the 4th largest position in the portfolio.

For more information Sea Ltd (Ticker: SE), see tear sheet here and description below:

Sea Limited engages in the digital entertainment, e-commerce, and digital financial service businesses in Southeast Asia, Latin America, rest of Asia, and internationally. It provides Garena digital entertainment platform for users to access mobile and PC online games, as well as eSports operations; and access to other entertainment content, such as livestreaming of gameplay and social features , such as user chat and online forums. The company also operates Shopee e-commerce platform, a mobile-centric marketplace that offers integrated payment and logistics infrastructure and seller services. In addition, it offers SeaMoney digital financial services to individuals and businesses, including e-wallet and payment services AirPay, ShopeePay, ShopeePayLater, and other digital financial services brands; and payment processing services for Shopee. The company was formerly known as Garena Interactive Holding Limited and changed its name to Sea Limited in April 2017.

Tweet on May 18

SE delivers on earnings, again

SE crushed earnings earlier this week with a beat and a raise, but dipped anyway.

  • Revenue +98.7%YOY
  • Garena – rev.+72.9%YOY, QAUs +78.3%YOY
  • Shopee – rev.+177.3%YOY, GMV +102.7%YOY
  • Marketplace rev. +163.5%YOY
  • Product rev. +208.4%YOY
  • SeaMoney mobile wallet TPV > $2.1b Raising
  • FY rev. guidance +144.1%YOY
Source: Earnings presentation

Trade plan

  • Prudent traders/investors add 10% of your position now and wait for a dip to 155/160 to further add. SPACE YOUR BUYS.
  • Targets UPDATED: $185-190 (short term), $230-245 (long term)

Trade wisely,

Les

JMIA Breaks out of wedge – Upgrading to core position

Team,

I first noted our entry into JMIA as a a major swing play here.

  • We started this out at an explore position. We are up over 50% from our initial buy.
  • We have been waiting for the major wedge to breakout. That breakout is now IN PROGRESS.
  • JMIA has shaken out of its recent earnings miss as it looks forward as a core e-commerce play for Africa
  • JMIA showed up on our automated newsletter as a top 20% hold.
  • We are upgrading our view and expecting that JMIA can hit $28 and highs at $45-$50.
  • Stay long for now and look to hit dips if JMIA potentially retests the breakout level at $20.

Trade wisely,

Les

NIO: position closed, re-enter on pullback

On September we put NIO on breakout watch with a buy over $21. Original post can be found here: NIO ALERT: BREAKOUT WATCH

  • In that time, the stock rocketed over to $53 by Friday November 13, to give us a 152% gain! This was well beyond our $28.xx targets.
  • I decided to close out long position as well our May 21 25 calls for 600%. The stock was going parabolic and was due for a quick pullback.
  • That said, we will be monitoring NIO closely for a re-entry. China EV’s continue to be hot and this may just be a temporary drop.

Congrats if you went long on the trade with me!

Trade wisely,

Les

Earnings recap – week of November 9: FTCH, U, VIPS, JMIA

Team,

A busy week has passed us with earnings. The sheer amount of earnings in the last couple weeks has been mind-boggling.

Here’s a quick recap on a subset of exisiting names we called out on Stocktwits or on the blog and next steps post earnings. Almost all of our picks beat nicely with Jumia as the only exception.

  1. FarFetch (Ticker: FTCH): Crushes earnings, add to long position (CORE)
  2. Unity Software (Ticker: U): Beats earnings, maintain long position and add on dips (EXPLORE)
  3. VIPShop (Ticker: VIPS) : Beats earnings, maintain long position (EXPLORE)
  4. Jumia (Ticker: JMIA): Misses earnings, requires some work to stabilize – maintain position (EXPLORE)

I’ve provided a write up on on FTCH, U and VIPS in following sections below. I will be providing a separate note on DKNG as it was not previously noted in the blog.

Reminder on CORE and EXPLORE terminology

  1. A “core” position is one that can potentially take >3% of the folio.
  2. A subset of core positions may be “conviction picks” and can be up to 10% of the folio.
  3. An “explore” position folio is one that is typically <=2% of the folio. We keep explore positions as potential aggressive plays that are underappreciated and may show future potential. These names are higher risk, higher reward.
  4. In general, the SMA folio is made up of 75% core positions, and 25% explore positions.

I will be using these designations going forward as a proxy for position sizing.

FTCH: Crushes earnings, add to core position

Farfetch - Senior Product Manager - Logistics Platform

We identified added FTCH as a major swing/position play on Oct 19 at 28.5 after identifying a massive cup and handle. FTCH reported earnings AMC on Thursday and the numbers showed stunning growth.

  • Revenue: $438 million, up 71% year-over-year, vs, $366.94 million consensus. (huge beat)
  • Adjusted EPS: -$0.17 vs. of -$0.30 consensus (beat)
  • Gross Merchandise Value and Digital Platform GMV growth rates accelerate – up 62% and 60% year-over-year, respectively, to record highs of $798 million and $674 million, respectively
  • Gross Profit and Digital Platform Order Contribution up 82% and 98% year-over-year, respectively
  • Adjusted EBITDA improved to $(10) million from $(36) million in Q3 2019

Next steps and updated targets

We are looking to size up our position on FTCH following earnings. Updated targets below.

  • Mid term targets: $55-65
  • Long Term target: $80-100.

Unity: Beats earnings, add to explore position

Unity Logo [EPS File - Unity3D] Vector Free Logo EPS Download | Unity logo,  Unity games, Unity

Unity was a stock we played for a technical breakout of $100. The stock is a recent IPO and has had a choppy start, and the recent volatility has not helped.

Unity announced earnings on Thursday AMC and results were positive

  • Q3 Revenue growth was $200.8M (+53% YoY)
  • Customers generating more than $100K in revenue TTM were 739 vs. 553 in last year’s period.
  • Dollar-based net expansion rate (DBNER) was 144% compared to last year’s 132%.
  • Q4 outlook includes $200-204M in revenue (+27-29% Y/Y; consensus: $194.67M ), loss from operations of $35-40M and a negative operating margin of 17-20%

Next Steps

We are maintaining our current long position and looking for dips to add between $95-100.

Current Targets: Unchanged – $130, and then $150 (30-50% upside).

VIPShop: Beats on earnings, maintain explore position

Our first call on VIPshop was noted on June 19. This has been somewhat of a longer term hold for us as were waiting to see the outcome of the election and the implications for China stocks in general.

The stock dropped to the bottom of the channel and we started accumulating more shares + June/July 20 calls.

The stock rebounded off the bottom of the channel at 17.xx and has continued to move up. Earnings were released last Friday (Nov 9th) AMC and were decent (although not anywhere as good as FTCH).

  • Revenue of $3.4B (+24.1% Y/Y) beats by $150M.
  • Q3 Non-GAAP EPS of $0.30 beats by $0.04; GAAP EPS of $0.27 beats by $0.07.
  • GMV increased 21% Y/Y to RMB38.3B.
  • Active customers grew by 36% to 43.4M vs. 32M in last year’s quarter.
  • Total orders were up 35% Y/Y to 172.8M.
  • For Q4, VIPS forecasts revenue of RMB33.7-35.2B (consensus: RMB32.9B), which represents 15-20% Y/Y growth.

Next steps

We are currently maintaining our long position on VIPS and our $28-30 PT. That said, we may look to reduce our position in case we need to raise cash for other plays.

Trade wisely,

Les

CRNC – beats on earnings, taking profits

Original post on CRNC noted here.

CRNC did well on earnings! We took profits in the morning and closing out the position. Congrats if you were long!

  • Non-GAAP EPS of $0.61 beats by $0.26; GAAP EPS of $0.17 beats by $0.22.
  • Revenue of $90.9M (+9.5% Y/Y) beats by $11.29M.
  • Q4 adjusted EBITDA of $40.3M, compare to $27.8M in last year’s quarter.

Love the stock but must be mindful of broader sentiment and have cash ready for the next set of plays.

Trade wisely,

Les

New Swing/Position Pick: NLS

Amazon.com: Nautilus: Nautilus

Nautilus (Ticker: NLS) has been on our radar ever since we went long Peloton in early May as a connected fitness “sister strategy play”.

For more on NLS, read tear sheet here and description below:

Nautilus, Inc., a consumer fitness products company, designs, develops, sources, and markets cardio and strength fitness products, and related accessories for consumer use in the United States, Canada, and internationally. The company operates in two segments, Direct and Retail. It offers specialized cardio machines, exercise bikes, treadmills, home gyms, dumbbells, elliptical machines, kettlebell weights, and weight benches primarily under the Nautilus, Bowflex, Octane Fitness, Schwinn, and Universal brand names. In addition, it engages in licensing its brands and intellectual properties.

With COVID still rampant, many people are now turning to fitness at home as an alternative. This is the reason Peloton took off in March, while Planet Fitness went into the dumps.

Nautilus is not one to be outdone. The company has been on a tear this year with over 1100% in gain as it aims to transform itself into a player in the connected fitness space along with Peloton, Mirror, Tonal, Liteboxer and a host of other connected fitness products.

Nautilus recently hired Gary Wiseman as their Chief Digital Officer to accelerate their digital transformation and investment in their JRNY digital product:

“Garry’s customer-focus and demonstrated success in software development and scaling digital and omnichannel platform businesses will further augment our capabilities to bring innovative fitness solutions to consumers, grow our business through strategic technology investments and accelerate our digital transformation.”

Nautilus delivers on earnings

On Monday (Nov 9) Nautilus announced earnings on and the results were off the charts. This was their most profitable quarter, EVER.

  • Revenue: $155 million, up 152% year-over-year, vs. analyst expectations of $115 million. (HUGE BEAT)
  • Adjusted EPS: $0.87 vs. analyst expectations of $0.37. (HUGE BEAT)
  • Next Quarter Revenue Guidance: $187 million vs. analyst expectations of $131 million.
  • Full Year Revenue Guidance: $550 million vs. analyst expectations of $448.45 million. (HUGE RAISE)

While NLS had a great pre-earnings run to $28, it dropped ahead of earnings with the rotation into value stocks on Monday. The stock continues to hold above the prior break out point and offers a good R/R to buy here (vs. at $28.)

There are important technical considerations/risks when buying this stock:

  • NLS is not a new company…it has existed since the late nineties.
  • Between 2005-2020, the company has oscillated violently between pennies and a high of $28.
  • This time could be different for NLS given their north star shift towards being a connected fitness company. We have to believe that managements efforts will be rewarded with a better future stock multiple.

Trade plan

The SMA Pro team is long NLS from $16 (posted on September 15) and have added some additional exposure post earnings between $19-21. That said, we think there is still a good risk/reward given the company’s digital aspirations and their record earnings results.

  • Current Price: $21.01
  • Designation: Core position (3% or higher allocation).
  • Prudent traders/investors: May add a starter position now and need to see a major break of the $28 level and continuation to size up on their position.
  • Aggressive traders/investors: Initiate positions now and add on dips to $17.
  • Targets: Short term: $28, Mid term: $36. A break of $36 would require us to become super bullish on the stock. We think there is upwards of 500% upside.
  • Risks: There are still multiple variables affecting performance of NLS and tech/growth stocks in general. The broader market is in chop mode. The introduction of a vaccine by Pfizer (and potentially Moderna) is incenting investors to rotate in value/non-tech plays. A breakdown in tech/growth in general will overshadow NLS’s performance.

Trade wisely,

Les

Earnings Risk Alert: U and FTCH

All,

Very quick note. Today two our swing picks are reporting earnings today – Unity Software (ticker: U) and FarFetch (ticker: FTCH).

Both swing picks can be found here:

UNITY SOFTWARE: TECHNICAL BREAKOUT SWING SETUP

FTCH: Swing / Position Play

I am bullish on both for the long term, especially FTCH.

Trade Plan:

  • Traders: Review their positions and reduce exposure to avoid being caught up in a binary event.
  • Investors: Reduce some exposure and/or add a hedge if needed. That said, be ready to hit a dip – we are playing the long game and need to see beyond a quarter.
  • Now may also be a good time to re-assess your current portfolio and determine if some clean up, rebalancing is required.

Trade wisely,

Les

Tech sells off with COVID vaccine news; Trade plan

Team,

On Monday morning, I was hoping to wake up to a green market, led by the Nasdaq. Instead, in the wee hours of the morning, we recieved the news that Pfizer had developed a vaccine that had the ability to prevent more than 90% of symptomatic infections in a recent study.

The market immediately took that news as “We are gonna get our vaccine and everything’s going back back to normal!”. The Nasdaq and most Tech/Growth took a kick in the ass, dropping over 2%. The drop was brutal.

Couple immediate important thoughts:

  1. The news of a vaccine is important for our society and the economy. Eventually we need to get back to some form of normalcy and have a path to reopening our economy – especially for specific sectors hardest hit by COVID.
  2. That said, digital transformation does NOT stop happening just because a COVID treatment/cure is discovered. There are certain social norms that have structurally shifted and pulled forward by 5-10 years. That includes e-Commerce penetration, acceleration of remote work, gig work, e-livery, digital health, connected fitness, remote work, etc. See post here for details.
  3. Human behaviors are hard to change. COVID acted as a massive catalyst to force humans to change their behavior. I now know that I can do 80% of my work from home. I also know I’m more efficient with my Peleton workouts than commuting back and forth to Planet Fitness. Shopping for groceries and clothes is not as daunting as it once looked. Human behaviors are getting wired to interact with the digital world.
  4. The rest of the indexes (SPY, DIA, IWM) have been lagging the Nasdaq for most of the year. They need to catch up before we can go higher.
  5. Some stocks may be worth monitoring for a long term reversal (Defense, airline, cruise lines, mall properties). But I consider this as a bottom-fishing play. Once the pop is done, investors are going to ask “what’s next”?…and shift back to growth names.

What does this mean for the Qs?

  • We needed to break over this volatility “box” that started in August. But we are still in this box.
  • Short term expect that we still range trading in this box.
  • QQQ’s are biased to the downside in the following days/weeks.
  • Growth names are not dead, but get ready for a battering.

Trade plan

  • Remember your process when dealing with volatility.
  • If you have a tech heavy portfolio, Raise cash and/or hedge with QQQ Nov Puts. I BTO NOV 25 265 Puts at the Open for $1.75
  • Wait till till we hit the bottom of the range between $265-$270 before adding any names in earnest.

I had built an election comeback folio but will be revisiting charts and targets given this chop. We have a little bit of time and I may re-post once we are at the bottom of the range for QQQ.

Trade wisely,

Les

Market Review: Nov 8, 2020

Team – just a couple points as we head into another busy week.

Market futures

With the fog of elections starting to get behind us, and Joe Biden now being declared as the presumptive president-elect – investors are looking forward towards earnings and economic recovery. November and December could very well be a spectacular month for investors.

Those looking for initial ideas should look at the Post-Elections Comeback Folio. 

Early look at futures tomorrow points to additional gains, led by Tech. One more reason why our comeback folio is heavily tech weighted.

Earnings bonanza continuation (Week of Nov 8)

The last two weeks have been a maelstorm of earnings reports, many from names that we had been already long. A number of key names from last week had positive results including Big Commerce, Cloudflare, Invitae, Peloton, ROKU, Square, Trade Desk. UBER and Virgin Galactic missed and still drifted higher.

This week, that maelstorm continues, with a few more names reporting across the week. Of particular interests are the following:

Trade plan

I am bullish almost all of these names, but I also recognize that earnings risk is real.

  • Traders: Review your existing positions and reduce exposure to avoid being caught up in a binary event. Plan to re-enter on good news for continuation
  • Investors: Reduce some exposure and/or add a hedge if needed. That said, be ready to hit a dip on core names – we are playing the long game and need to see beyond a quarter. Now may also be a good time to re-assess your current portfolio and determine if some clean up, rebalancing is required.

Enjoy and I’m looking forward to an explosive week.

Trade wisely,

Les

Important earnings chart preview (Nov 5, 2020)

Team,

I want to give you a quick chart preview before we go into a MASSIVE earnings session today.

  1. BIGC – found a floor and stabilizing
  2. NET – in a box waiting to break
  3. PTON – long term upheld; note valuations are at nosebleed level
  4. ROKU – in a  long term channel
  5. SPCE – weekly wedge formation and reversing
  6. SQ – in a long term channel and starting break out on weekly
  7. TTD – in an acceleration channel
  8. UBER – inverted head and shoulder breakout

Remember earnings can negate a lot of technicals.

I have reduced some ROKU, TTD, SQ and PTON into earnings. Holding core on everything and will digest earnings before determining next steps.

Trade wisely,

Les