Cracks in the ice

ignore the cracks

This week felt different. There have been days, within the last week or two, when things went down but they were inevitably met with the Pavlovian buying that has met all drops these past three months. Today felt different. Look beyond the leaders and other stocks are already starting to look like they have either topped out or are trending down. The heat of fundamentals and probable future slowdown, thanks to COVID-19, may finally be melting buying support.

The trend no longer looks up for the S&P 500. It always seems to take the market at least a month to react to certain types of developments, such as COVID-19 (such was the case in January until quite late in February), even though the implications for earnings are obvious from the start. It is in that sense the market feels broken due to central bank intervention: it no longer reacts quickly to facts. Instead, it often ignores them for weeks on end until it becomes overwhelmingly obvious.

Bond traders continue to be a bit smarter and we see a break in the 10 year treasury yield has caused concern (10 year treasuries).

The week ended with a sharp and noticeable drop in BABA from its upper parallel. FB, AMD, BYND, and NFLX also showed sharp moves down, usually from their upper parallel.

But in some sense the downtrend has been going on since early June as names like HAL, XOM, MRO, COP, BP, MS, VALE, MA, SBUX, MOS, COST and of course the SPY, peaked long before this week started. Oil, resources, consumer facing names: they are sensitive to the real economy and actual economic activity. So while ZM or SHOP may continue blasting into unreal valuation land, the real economy stocks have already slowed down, despite all this money printing. What makes Friday so notable is that even these unmoored names like ZM started, even if only intra-day (as SHOP ended up on the day despite its dip), to trade as if they were reacting to the economy.

Which leads to the crowd and its rush into FANG and FANG wannabe names. FB down -7.65% is something not seen since the bottom in March (the move was associated with advertisers finally becoming fed up enough to leave in protest). AMZN at -1.76% might not be as dramatic, but it is down. NFLX at -4.55% also seems to be the largest drop since March. GOOGL at -5.45%, is not only the biggest drop since March but it also breached its lower parallel.

Above the entire market is ZM, holder of the 88 price/sales ratio. It was down Friday at -1.04%, not the biggest move since March, but by the time ZM wakes up it may be a month after the market has already clearly corrected because these ZM traders are not that awake (no, video is not a moat, yes everything from all the tech giants will have video like everything has voice now so why are they paying 88 times sales for this?).

Meanwhile, in addition to LK, we can add WDI.DE, Wirecard, to the list of the auditor’s hall of fame. Speaking of Wirecard, the Financial Times continues to amuse with this succinct summary by Mirabaud Securities:ftalphaville. Perhaps the next Musk child should be named “unusual receivables,” “unusual margin progression” or “high gross debt.” After suffering through several years of TSLA it seems to me that the phrase “gullible analyst” is a tautology.