The Weekend Rebel Review August 19th-20th

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, Everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.Well the rain has killed any hope of doing anything meaningful outside today so time for a weekend review again this week.  There’s a fabulous feeling about the market currently imo, tho many may not feel it. When investors/traders sell off just because they cannot take anymore, when they just want ‘pain relief’ or 5% guaranteed from gilts looks attractive compared to fluctuating equities that may fall at times and not even pay a yield, you know there’s a lot not participating long in this market.  So why do I feel bullish (apart from the fact that I am always optimistic and often get called a perma-bull) ?

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Another pretty quiet week again with low numbers of RNS and a week that has seen the FTSE250 decline day after day.  I had thought the S&P had a good chance of bouncing off the 50 day average, but like too many of my ‘hopes’ and ‘expectations’ around moving averages it wasn’t to be.  It was definitely a week where being long was swimming against the tide. Personally, with CARD being over 30% of my portfolio and MKS being over 10%, I have had an up week despite the market trend.

There wasn’t much that stood out this week but the main highlight was the trading update from MKS, earlier than expected to catch the traders out and another blow out.

The interesting thing as far as the market goes is the charts.  The FTSE250 is at a great level of support around this area. This week we had inflation drop a sizeable amount and most of the numbers inline or beating.  Two interesting charts caught my attention.

This is the CPI chart

And this is the Core CPI

A lot is made of Core CPI but I find it interesting that CPI has fallen from 10.9% to 6.8% while the core has risen.  There is something amiss there imo.  Either non core is falling at an astronomical rate or we are seeing a bit of a divergence. If core starts to fall here (and food and wage rises are now weakening) Then we may see stronger falls than expected ?  I don’t know but it’s interesting.   CPI is a big rolling top, the opposite to a bowl so I’m expecting good weakening going fwd.

Other chart indicators of interest

The bowl on the VIX has carried on up so I’m expecting that to firm to 20 as a maximum, it may have topped here tho imo.

The Russell 2000 has come off a lot after hitting resistance, 8% off the high

And the Dow Transport has also rolled over about 5%

Pull backs can make great buying opportunities. 

Another interesting chart is Fear/Greed

The indicator is back into fear.

Charts are very important and I never ignore them.  The amount of time I have had people say to me something like ‘Hey CR, you said the chart was doing this and you were wrong’.  It isn’t a matter of being right or wrong.  If charts were 100% reliable this game would be easy.  What a chart is, is a guide.  Instead of just guessing when to buy or sell a chart gives you possible indications of points where you have a better than average chance.  Last week I was watching the 50 day average on the S&P for a likely support point.  Charts rarely change direction where there is no previous support or trend simply because traders look for those places to buy or sell.  If you look for those you increase your odds.

Think of it like crossing the road.  You can cross the road without looking each way and you may get across fine.  But if you look both ways you have a far better chance.  With that in mind Friday was interesting as the S&P and FTSE250 both bounced off trend lines.

The RSI’s are much lower too.  Another thing is that recently the S&P has opened up then lost strength to go negative through the day. On Friday the S&P opened down after Europe had sold off the rallied to close pretty much flat.  Days that close at or near the highs are signs of strength a lot of the time compared to limp closes. The Dow Transport actually closed up 0.4% last night.

The Dow Industrial is also pretty much on a nice trend line and a nice bowl. So while last weekend may have been premature another short term bottom looks imminent possibly.

This is when the market is more likely to make a meaningful bounce and return to an up trend, when it hits the fear levels and punters are obviously scared.  I’m a firm believer in buying when investors are fearful, you have to do the opposite to the crowd and be brave when others are scared.  At these times, punters will sell anything without thought, they just want pain relief.  A classic mistake many make is to bank profit on the winners and hang onto those where they are under-water in the hope of selling when they are in profit.  To my mind you have to treat your portfolio as a whole.  It doesn’t bother me to sell stocks at a loss. I would much sooner keep my winners and ditch my losers. Imagine you had 5 torches in the draw and when you have a power cut 4 always work and one doesn’t.  You need to get rid of one for more draw-space.  Would you really get rid of one that is reliable and keep the unreliable one in the hope it will work soon?  As my shares progress I tend to ditch losers and increase those that have done well.  What do punters want to buy when markets bounce?  A relentless loser or a winner? In some cases if things have changed with the board or fundamentals you might want to buy a beaten up stock but in general, winners keep winning , especially if they have a good new board recently and things have been improving. Holding onto losers relentlessly, tends to cost money.  It is hard for major funds to switch in and out but as a private investor you have an advantage.  Markets have pull backs, it’s all too easy to sell just to reduce the pain and do that right at the bottom of a normal pull back imo.  Last week’s month on month growth numbers and this week’s inflation data make me more bullish. Always having some Armageddon money tucked away helps you stay more cool in times like this too imo

With little news again this week, few stood out for me bar two.

TRMR – shocking, well not shocking for me because I have refused to buy apart from one rather successful overnight trade a couple of years ago.  I’m sorry, this might sound racist but it’s a fact, Israeli  based companies seem second only to China for disappointing  investors in a massive way.  There was further clues here with directors constantly selling shares because ‘he wasn’t taking an income’ it seems.  It’s aim and if it looks and smells a bag of poo it probably is a bag of poo!  Israeli base Aim stocks should really come with a stonking great Red Wealth Warning imo.  If you want to get rich quick, try to get rich slowly and safely and you might surprise yourself imo.

MKS – well, what a cracker of a statement on Monday and earlier than in recent years so caught out the traders imo!  “There remain considerable uncertainties about the economic outlook, and there is a risk that the consumer market will tighten as the year progresses. Nevertheless, we now expect the outcome for the year to show profit growth on 2022-23, and the interim results to show a significant improvement against previous expectations.

Interim results, for the 26 weeks ending 30 September will be reported on 8 November 2023” 

That was basically a 7%+ upgrade to guidance for the year when the co is only 19 weeks into the year.  You don’t make big upgrades to the full year 19 weeks in, unless you are very confident imo.  When I see a new board creating this sort of earnings momentum, I just want to be on board big.  This will have implications for lower debt, higher divi and ‘success breeds success’ too, positive performance makes the press sit up, catches the eye of the public, they then go and pay a visit, have a good experience and the whole thing snowballs imo.  A 50k director buy shortly after the trading update and more big press ahead as they are nailed on to enter the FTSE 100 in a fortnight too – kudos. Tracker funds will have to buy, other funds will want M&S back in their income funds.

Just my opinion but I think there are some further big upgrades coming by November  - but do your own research as I am very long and likely biased.

We should start getting far more news out soon re results and trading in September.  One good little thing to remember.

When stocks put out news that is stonkingly good news and shares fly 20-30% then watch for the first pull back to buy on imo.  Remember things like M&S, DOM, BAB and RR. etc recently put out huge share shifting updates.  What happens here is many pile in including lots of traders. It often takes time for investors and analysts to fully grasp the picture.  Traders will sell out at some point when they feel the momentum is falling but to the same token many long term investors don’t like buying into a rally, they want to catch the first pull back.  So there is often a second wave of buyers as soon as the next up-leg looks imminent.  If you are looking to buy long term then it is often costly to wait for too much of a dip so in these instances keep a close watch or set an alert. I expect a lot of these in the coming months. First pull backs on big risers are rarely very deep.

Last chart – a lot of small caps are announcing better than expected updates yet the index is stuck in a horizontal trend. Small Caps look fab cheap here and set to fly if / when rate rises end / reverse imo. Index 20%+ off the high of 2 years ago while many have been posting ever better results.

Every day has something interesting or exciting in the market.

The village beer festival today – have a good weekend!

The Rebel.