I’ve been saying the average investor who watched their portfolios get crushed in March when the COVID pandemic took hold and lockdowns were enacted have a painful memory fresh in their minds and won’t have a lot of patience if they start to see the miraculous bounce back start to fade with a second wave and/or new lockdowns. Let’s just say the current investor is Quick Draw McGraw and will pull the sell trigger little hesitation… perhaps everyone also will at the same time.
As I mentioned yesterday there is a battle at “SPY 300” or S&P 3000 as it was a level when broken to the upside people felt the market was in some sort of escape velocity on it’s way to 4000. However, if you look at almost every chart of the large US indexes and many of the sector ETF’s look like they could do the “Acapulco Cliff Dive” as Paul Tudor Jones famously used the phrase for the markets ahead of the 1987 crash. I’m really afraid of heights by the way. Hard pass no matter the amount of money offered to me to jump off this cliff.
So perhaps we are close to having Quick Draw going over the cliff? S&P 3000 is the edge of the cliff and until it breaks people will stay in the market. Please note this is a Photoshopped picture and no horses were harmed while writing today’s note.
On the Trade Ideas Sheet: Selling COG at a loss and will wait for energy stocks to clearly bottom perhaps with a buy Setup 9 next week.
US MARKET SENTIMENT
S&P and Nasdaq bullish sentiment bounced a little yesterday and still under the day moving averages
S&P daily shows the edge of the cliff at 3000
SPY 60 minute 13/34 MACD tactical still on a sell signal
NDX daily holding up better longer term vs other indexes. A break of the 20 day for more than a few days would break the trend from March
QQQ 60 minute 13/34 MACD tactical followed the other indexes with a sell signal
Russell 2000 daily another Acapulco Cliff Dive candidate
IWM Russell 2000 60 minute 13/34 MACD tactical on sell signal still
Dow Jones Industrial Average 60 minute 13/34 MACD tactical on sell signal still. 25,000 is the edge of the cliff
RSP Equal Weight S&P has been dropping for weeks while people are focused on other indexes that are biased with the mega cap stocks. Right at the 50 day and starting to break support from the last drop two weeks ago. The weekly chart below is making a 5 week low
Could the SPY with the mega cap names start to drop relatively to the equal weight S&P? The Hedge Fund Telemetry Apex screen found a sell signal today
TODAY’S FOCUS – IS tesla the next wirecard?
Neil Campling of Mirabaud Securities who is best known for being the only analyst to correctly have a price target of zero for Wirecard put out a note titled the next “Big Disaster” and which lists 20 warning signs. People have asked me who will be next just as it was first Enron and then others with challenged businesses and balance sheets started to appear. When I spoke of the Wirecard I said the pressure would soon be on the big accounting auditing firms as they will no doubt get nervous believing they could be at risk (extinction risk like Arthur Anderson) with corporate clients who pushed the boundaries of proper clean accounting. I do believe Tesla has massive warning signs within this list. Keep in mind it took quite a while for Wirecard to fall and it might too (or has) with Tesla. My thoughts in CAPS
1. Massively promotional CEO who actively looks for publicity and spends a lot of time courting Wall Street/investors etc and is very media savvy. YES THIS IS OBVIOUS WITH ELON
2. Huge CEO/Senior Management compensation package NOT tied to cash flow or Earnings but just to Sales and/or the stock price, creating the possibility of egregious wealth creation if the stock goes up a lot. Huge pledging of collateral by the CEO in return for margin loans to fund a billionaire lifestyle. YES THIS IS OBVIOUS WITH ELON
3. Management compensation generally way out of line with peers despite notably less profitability. YES ESPECIALLY SINCE TESLA HAS NEVER TURNED A PROFIT WITHOUT BENEFIT OF SUBSIDIES AND TAX CREDITS
4. Glossy future projections that have a habit over a long period of being proven to be too optimistic YES THIS HAS BEEN TESLA FROM DAY ONE
5. Questionable product quality, ie defects (boon??) or debatable technological leads over similar products YES TESLA DOES HAVE A LEAD ON EV MARKET HOWEVER THE QUALITY ISSUES HAVE BEEN NOTABLE
6. Some evidence of self certifying, whether it be through strange international subsidiaries or not having an Auditor or experiencing unusual and slightly sudden end of quarter surges in revenues, up to and including the last day YES TESLA HAS NEVER HAD IT’S FULL SELF DRIVING APPROVED AND THEY TEND TO BE PROMOTIONAL LATER IN THE QUARTER AND THERE HAVE ALWAYS BEEN A RUSH TO DELIVER IN THE LAST WEEK
7. Unusual or unverified and large Receivables in a business where the product is exchanged for cash up front YES TESLA HAS HAD FOR TWO YEARS A LARGE ACCOUNTS RECEIVABLE BALANCE EACH QUARTER WITH VARIOUS EXCUSES. DAVID EINHORN HAS DISCUSSED THIS OFTEN
8. Evidence that the company is existing on a shoestring, not paying Suppliers, Employees, Landlords etc YES TESLA HAS NOTABLY HAD ISSUES PAYING SUPPLIERS (LIENS), EMPLOYEES (RECENTLY TAKING AWAY COMPENSATION BONUSES WHILE ELON JUST GOT A $700 MILLION BONUS)
9. Unusual margin progression, with SG +A going down over time despite a rising global footprint, or GM’s staying flat despite much lower ASP’s over time, for instance. YES SG&A HAS GONE DOWN ODDLY WHEN BUILDING OUT FACTORIES AND NEW LAUNCHES, WHILE MARGINS HAVE BEEN FLAT PERHAPS DUE TO TAX CREDITS
10. High levels of Gross Debt. Cash balances not matched by notable Interest Income thereby suggesting they are fraudulent YES TESLA HAS A LOT OF DEBT AND HAS ROLLED OVER SHORT TERM DEBT. INTEREST INCOME DOES NOT MATCH REPORTED CASH LEVELS
11. High employee turnover, especially in the LEGAL and FINANCE areas. Co-founders or Board members leaving. YES THERE HAVE BEEN MANY GENERAL COUNCILS AND FINANCE EMPLOYEES AND CFO’S IN THE LAST FEW YEARS. BOARD MEMBERS CAN’T LEAVE
12. Aggressive pursuit via paid third parties and/or “heavies” of any critics or people who have too many questions, which in any case are “boring” YES THIS HAS BEEN HAPPENING AGAINST ALL CRITICS AND RECALL ELON TELLING AN ANALYST ON A EARNINGS CALL THAT HIS QUESTION WAS BONEHEADED BORING
13. Dislike of Hedge Funds YES ELON CONTINOUSLY TAUNTS HEDGE FUNDS
14. Possible Narcissistic Personality Disorder on the part of the CEO. Additional points if he/she uses Twitter a lot YES THIS IS QUITE OBVIOUS AND HAS GOT ELON IN TROUBLE WITH THE SEC BY LYING ABOUT A FAKE TAKE PRIVATE
15. Large cabal of outcasts/weirdos/bloggers/Twitter groups who have been saying for years that everything is amiss but just get a lot of criticism because the stock keeps going up ergo they must be idiots YES TSLAQ
16. Slowing top line growth rate despite all the hoopla and supposed “growth stock” status. Evidence of competitors rapidly eroding unsustainably high market share. YES THIS IS VERY TRUE
17. Loss making. Ideally never made a profit but likes to pretend it did or failing that, that it will for sure in 2-3 years due to highly questionable new products. But the 2-3 years gets pushed out constantly YES TESLA HAS NEVER HAD A YEARLY PROFIT AND THERE ARE STILL PRODUCTS THEY TOOK DEPOSITS FROM CUSTOMERS THAT HAVE NO TIMELINE WHEN OR WHERE THESE PRODUCTS WILL BE PRODUCED
18. Extensive use/exclusive use of NON-GAAP Accounting and occasional bridging to get from a Net Loss to a (small) Net Profit via poorly explained one-offs/Other Items/unusually large Credits of some kind in a desperate attempt to get into an Index by illicit means YES THE EMISSION TAX CREDITS HAVE 100% MARGIN AND HAVE HELPED TURN A PROFIT FOR SEVERAL QUARTERS
19. Weak Board, preferably also small and ideally in hock in some way to the CEO, who therefore do his/her bidding. Helps if some of them are related physically to the CEO. YES ELON HAS HIS KOOKY VEGAN BROTHER ON THE BOARD AND BOARD MEMBERS HAVE SEEM TO HAVE NO CONTROL OVER ELON’S ANTICS
20. Gullible media, gullible analysts and dozens of paid bloggers who produce Price Targets out of nowhere based on “Option Value” or put another way products that are at least 5 years away from having any material impact. YES THERE ARE EV FOCUSED SITES, YOU TUBERS, SELL SIDE ANALYSTS (MS, WEDBUSH, OPCO, PIPER, JEFFERIES, NEW STREET) AND BUY SIDE ARK’S CATHY WOOD ALL OF WHICH PUT VALUATIONS ON TESLA THAT ARE NOT IN REALITY ESPECIALLY WITH PRODUCTS AND FEATURES THAT DON’T EXIST OR LIKELY WON’T EVER.
Tesla’s daily chart has support at 900 and that’s the edge of the cliff. I still like the August 800/650 put spread as a way to have downside exposure
Tesla’s short interest declined again and has the lowest total number of shares short. More importantly the short interest ratio is only at 1.28 days to cover
FACTOR AND PPO MONITOR UPDATE
Factor monitor very red today and on the 5 day rolling period. The 1 month rolling period is seeing some red and the big gains are slowing. When that happens it makes people less excited to keep buying and more likely to sell if some big levels break with negative news
The PPO monitor (percentage price oscillator) force ranks ETF’s by percentage above/below the 50 day moving average. This monitor is offered to Hedge Fund Telemetry subscribers who are on Bloomberg. A red day and a lot of new 20 day lows (on right side in red)
Within the S&P the DeMark Sequential and Combo Countdown 13’s and 12/13’s on daily and weekly time periods. Quiet times with the DeMark screens. CLX did get the sell Sequential Countdown 13
The Nasdaq Summation Index weekly is topping and will put in a reversal red bar this week. The momentum measures below are also toppy
The S&P percentage of stocks above the 20/50/200 day is reversing lower
credit spreads starting to widen
It’s early still but spreads might be starting to widen.
COVID story today worth reading. Here’s the full story. Happy to see CT decreasing but that won’t last if you know my state
Ed Hyman from ISI today. What is highlighted is consensus right now