Ready to continue your financial literacy this weekend?
First up – did you buy the dip?
Or did you listen to all the fear mongering around a “tech bubble” at the start of the month (when tech stocks had sold off around 5-7%)?
In a moment we will update the charts for both the S&P500 and XJO… but first another trading tip…
Below is the chart for the tech-index QQQ I shared July 4th (click to enlarge)
At the time, mainstream were talking about another tech-bubble – warning folks money was rapidly shifting out of tech and into dividend paying stocks.
Was it? We were not convinced.
Our post was titled “Why the FANGS are NOT out of Favour“… it flew in the face of what they were trying to tell us.
Today I want to update this chart and show what was happened shortly after…
And whilst we didn’t see the dip all the way to the 35-week EMA (which doesn’t always eventuate) – on the week we wrote the article – the “Q’s” caught a bid and took off!
This week – we saw an all new high for the index (which is what I suspected would happen).
As of this week, the market has had a chance to absorb the latest earnings for Google, Facebook and Amazon. And guess what… in each revenue growth (YoY) was 20% or greater.
Repeat: Revenue growth YoY 20% and greater!
Now we are not talking about some (tiny) sub US$10B company… or even reasonably sized outfit at around US$50B… we are talking about companies with market caps in excess of US$300B.
I say that because it’s very easy for small companies to grow earnings at double digit. But once you hit the scale of these giants – it’s a challenge.
What’s amazing is they are still growing revenue at 20% plus.
And whilst some folks will say their “earnings missed forecast” or “high costs pressure earnings” or some other rubbish… look at the revenue growth and more importantly cash flow.
This sector (or more specifically these stocks) are in terrific shape.
Earnings are strong and growing. They continue to increase head count and geographies. They invest in disruptive product lines. Revenue is incredible.
The lesson: continue to buy the dips when they present.
S&P 500 Weekly Update
So that’s tech… a market you should have exposure to.
As I often to folks – buy a portion of Amazon, Apple, Facebook, Microsoft and Google… and see where they are in 20 years.
At least one of these names will be at least 10x.
Perhaps each (if not all) of these names will continue to disrupt everything you do… which to me is opportunity.
Okay… that’s tech.
Before we get to the charts – take a look at what we see with US GDP and payrolls:
Notice the strong correlation… something to watch going forward.
Nominal GDP for the US in Q2 improved to 3.71%, measured annually.
Real GDP, after adjustment for inflation, also improved, to a 2.1% annual rate.
From mine, GPD is not great but it’s not bad either.
We have been watching it muddle through around 2% for about 6-7 years. But that’s about as far as she goes.
And whilst many like to talk slowdowns and recession – there is nothing to worry about here.
S&P 500 – New Highs
Despite the week being quite “flat” for the S&P 500 – earnings continued to impress for the most part – and another record high was made.
That’s now 70 straight weeks for this weekly bullish trend – remarkable.
And as I have been saying the past few weeks (months?) – even a pullback to levels of say 2350 would be healthy.
It’s difficult to know when that will happen – it could be next week – or it might be next month.
We don’t pretend to guess.
For example, something I am watching is the negative divergence with the weekly-MACD. That fact that it’s not making higher highs at the same time tells me it might be getting closer.
For now, the trend in the weekly intermediate remains bullish so stick with it. It’s paid dividends for 70 weeks (for those willing to trust it).
Whilst the past couple of months have been a real struggle for the XJO… the weekly bullish trend remains in tact (just)
What’s interesting (to me) is the 35-week EMA has been the line of support for 10 weeks.
You can see the selling pressure with the bearish weekly-MACD. It’s relentless which tells me the bulls are not willing to step up to the plate…
Put another way – downside from here is becoming increasing likely…
The point marked “B” (the bottom of our structure) is 5600. That’s the line-in-the-sand for the bulls.
If that fails – expect the weekly trend to be over – and a quick trip to 5450.
As an aside, let’s keep an eye on the iron-ore price. It caught a bid this week to US$70/t – expect resistance in this zone (in turn which will pressure the AUD)
Putting it All Together…
Given the fragile and uncertain state of the Aussie economy – it’s not surprising to see the XJO stalling.
The outlook is not great… there’s far too much unproductive debt holding us back… as wages stall and business investment sags.
To be fair, it had a terrific run to almost 6,000, a great area to take chips off the table. Anything from here is a bonus.
And whilst I expect the weekly trend to fail – there’s every chance things pivot and it shoots higher.
With respect to the S&P 500 – it goes from strength to strength.
Most companies smashed expectations with respect to earnings. And with GDP muddling along around the long-term average of 2% – there’s not much to worry about.
Above all else, forget the noise from Washington DC – it matters little to our trading. Donald will be Donald and that’s not going to change. Who will he fire next week?
Tomorrow we will take at the high-flying Aussie dollar and gold. Both are benefiting from a much weaker USD… how long will that last?
… trade the tape
When investing in shares, you can lose you some or all of your money. The potential gains on my blog are based on investing in Australian and US markets and don’t include taxes, brokerage commissions, or other fees. It’s important you seek independent financial advice regarding your particular situation. For any investment, never invest more than you can afford to lose, and keep in mind the ultimate risk is that you can lose whatever you’ve invested. If in doubt – always seek independent financial advice.