Ivanhoff Capital

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Warren Buffett continues to sell. After selling his entire stake in airlines, his last 13F shows that he has decreased his position in financials (GS and JPM). And this from a brilliant guy whose favorite holding period is forever. What is he seeing that the rest of us are not?

Another legendary money manager, Stanley Druckenmiller said the current levels for SPY offer terrible risk/reward for the bulls.

David Tepper chimed in with “ I haven’t seen the market so overvalued since 2000”.

And yet, the dips continue to get bought. The number of stocks making new 52-week high is increasing and so is the number of long setups. Biotech, software, gold, and silver have been notable leaders for the past few weeks and they are likely to continue to shine in a strong or even neutral range-bound tape.

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The Nasdaq Composite is only 10% away from hitting 10,000. Less than 2 months ago, it was at 6600. The velocity of the correction and of the recovery has been of epic proportions. Something future generations will talk about and study.

The main story from last week is the notable shift in market sentiment. Look at the crazy reaction to ordinary earnings reports. The earnings season started slowly with banks bombing and large-cap tech stocks line NFLX, AMZN, and FB either gapping down because of their big pre-earnings rally or slightly gaping up and getting faded. Then it came last week. Not only we saw stocks like AYX fully recover after guiding lower but we also witnessed some of the most epic short squeezes that led to 20-30% daily moves. 

The sentiment has basically shifted from people getting scared from each 1% down move and running for the hills to feeling extremely comfortable buying dips. Maybe this is the time when they pull the rug underneath everyone’s feet but I would not hold my breath for it. The price action is currently constructive and there’s no wisdom or glory in fighting the tape. I can change my market view quickly when the facts change.

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The price leads the news. When stocks rise, the news says that the market is discounting a better future. When stocks fall, the news says that we are in the midst of a severe recession. Last week brought a little bit of both. First, the small caps had a face-ripping rally led by the worst-hit stocks during the February-March selloff – retailers, airlines, casinos, financials, homebuilders, etc. Then the week finished with heavy selling forming numerous reversal formations. 

The more companies report earnings, the more clear it becomes that some of the Q1 numbers still look good only because they don’t reflect the new normal – the lockdowns, the cost-cutting, and the lay-offs started in mid-March. The next quarter will be the one that will provide a reality check. 

Surprisingly, Amazon missed earnings estimates. Bezos said they will spend the entire operating profit of $4 Billion to protect their employees from the coronavirus. This is a big wake up call for the market. Not only are many companies’ revenues under pressure but their operating costs might have risen substantially for the foreseeable future.

Try my new subscription service which includes a private Twitter feed with option and stock ideas, a weekly newsletter with concise market commentary and actionable swing and position trade ideas, the Momentum 50 list of market leaders, and much more. My members have been really happy.

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Here’s a Google spreadsheet tracking all closed option and stock ideas shared on my private Twitter stream and emails for subscribers.

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