Weekend Rebel Review 7th October 2023
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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Well it has been a difficult week without doubt but it hasn’t come as a surprise to me, I did subtitle My Weekend Review on Sep 23rd (two weeks ago with “Market warning signs?”
I posted the roll over on the S&P Chart which had picked up over the recent week and a trendline I was watching:
The S&P fell through the horizontal support and has spent recent days hanging onto that long term trend line - a short term cart below shows where we stool Friday close.
The constant bouncing off this line says the market likely bounces here imo, for a decent bounce. It will need to break 4340 to give investors real confidence. How far it bounces cannot be guessed at, this could be another short term thing but it is bouncing from a line where we are likely to get a longer term bounce.
Another thing to note are the declines in a longer term rally. I’ve noticed the S&P, on longer term rallies has natural retraces of 7-10%, points traders deem a good point of short term weaker sentiment often kicked off by say a bad weak bit of data. In the rally over the past year this has been the third 7% fall. So here I think it’s a point to be ready for a next major leg up but it needs confirming by making a decent few percent upside. You never know if you are right without hindsight but you never know if you were wrong without hindsight either. That’s why I try to pick chart lines and bowls or roll overs as a guides to to better entry and exit points.
I’m surprised the FTSE250 has gone through the June low and double bottom but there was no major bottom there really. It now remains to be seen whether this line holds. Meanwhile Aim has lost nearly 50% in 2 years. This is the most speculative area where novices looking to get rich quick most often hang out in some risky stuff so little wonder this has behave the worst.
My advice would be if you want to get rich quick, try getting rich more slowly and safely.
It’s important to look for these support and resistance line. The likelihood is that a chart will bounce from one of these lines simply because so many chart technicians track them. It’s far better to look for these and be wrong half the time than just randomly decide major buy and sell points in your mind, ad hoc. I know a lot of the time the chart supports I spot will not hold. I get people online or on Twitter say to me ‘Cockney Webble, you were warther wong about the chart!’. It doesn’t matter if you are wrong, you at least are looking for where charts may change and giving yourself a better chance of buying and selling at a more opportune moments. Sometime you can be more confident than other times. I was 100% invested just before the bounce in October because I was very confident. I’m fully invested here too but I’m far less confident than last October.
The current issue is that a few data points in the US have been weak. When markets get towards highs, investors tend to look for bad news. They often look for a reason to sell. If you have a few bits of poor data that can become a good excuse to sell. The same news can be good or bad depending on the investor psyche, glass half full or half empty. Good news can be bad news and bad news can be good news. In most cases individual stocks are not seeing their fortunes change much just because GDP comes in a basis point light but investor sentiment can change dramatically. In a couple of weeks time we get US inflation data again, in fact PPI is out next week. If these come in better than expected you will be amazed how fast sentiment can change. For this reason I’m not a fan of selling up big time unless I genuinely feel a broad range of data is going to deteriorate. Friday’s jobs data in the US showed a lot more jobs made than expected on the face of it, good news for the US but the market sells off for fear rates will stay higher longer. Nonsense, the US needs another 10m jobs to get their huge debt pile down. Lots of those jobs are coming from onshoring – watch HILS presentation, they are confident in the US due to increased onshoring. It’s good news but the market falls when the punters are bearish. Let’s see what happens if inflation data comes in lower than expected.
Fear in the market is high – that is usually time to be a buyer rather than a seller imo. Fear Greed touched 16 this week, it has rebounded a little to 29
The VIX has risen to the highs of May but not broken them, that is a positive. There is a possible bigger bowl there on the chart going forward that I’d want to see break down or it may indicate bigger market turmoil going forward in a few months imo As it is it failed to breach the May highs and has fallen to 17.5. The market climbs a wall of worry as the saying goes.
All of these are just graphics of a wider market weakness, but a couple of good inflation prints and the market can turn on its head imo.
Looking at the indexes, while the major indexes including the FTSE Small Cap have traded sideways for a while the Aim Index has had a drubbing. The main indexes are nearly all up from a year ago still but Aim is off 10% in a year and 50% over 2 years. There is so much dross on Aim these days that this is little surprise but there are a number of very good companies that have sold off too. Every fall drags down the good stocks with it, it is just a matter of identifying them.
I think it was Peter Lynch who said something like ‘long shots rarely hit the target’. Aim is full of long shots’. I think if you invest in Aim you need to do extreme levels of research to make sure you not only understand the business you invest in but also the competition your investment faces. All very well some monkey telling you this or that stock has a product that is fantastic, but if some big US co has developed something even better and with early stage businesses it’s often about having more cash than your competitor to develop it. VHS put Betamax out of business even if Betamax was better – it was the size of VHS’s wallet and faster to market. I think if you are constantly taking a beating then go through your investments and ask yourself how well you really know them inside out and how you understand the competition. I tend to stick with stuff that is easy to understand, retail, manufacturing, industrial, house builders etc. I don’t understand AI, what the competition is like for AI companies, nor cloud computing, or pharmas, or resource co’s and I bet 90% of investors in them don’t either. You can know the face and like it but you need to get right into the underwear to know if it’s marriage material. I dare say a lot in Aim have capitulated here, 2 years of attrition takes it’s toll mentally but if you have stuck in here or watched from the sidelines you can be far more confident than the beaten up novices. Others who have held on and not done thorough research will be on the internet listening to ‘Monkey1’ or whoever is an ‘expert’ for guidance and hand holding but nothing beats good old leg work for yourself and knowing more than the Monkey1’s and most others. You won’t always be right but you’ll get through the periods of volatility much better imo. 90% of ‘investors’ are too lazy or don’t have the time to do the research that throw up life changing investments, the market rewards a grafter imo. If you are sat there thinking that you can’t heavily research 30-40 stocks then try reducing the number. 40 stocks is like having a fund. If you aren’t well researching all of them then you are trusting to luck. In a falling market, luck rarely works, and for every winner you have then you are likely to have 2 or more losers. I have reduced my core holdings down to about a dozed shares that I know well. I’ve got about 8 small punt’s going on but they aren’t any size, they just give me a position. If one of those 8 come out with a strong report and excite me I might increase that position, do a lot more research and it might make the cut for my long term holds. If it’s average or poor it will get sold. 20 is more than enough to make good gains from well researched stocks. The more shares you have the more the punts dilute the gains of your best core holdings imo
Action this week
I did an interview with Paul Hill on Vox on Monday, you can watch it here:
It was great to do.
XPP, dreadful trading update, covenant breaches, divi cancelled and an almighty straight line fall. Worth watching for a bounce only when you see the chart really firm and only if you are prepared to lose everything you put into it.
SDRY, doing a licensing of £25m in India. My view is sort out what you’ve got before going of with new ventures abroad. Will be another fire to fight down the line or another creditor eventually, imo. The spike on the news has nearly all been given back.
BOO – I watched the presentation – unconvincing, especially with the CFO saying he wants to get to 6-8% margins and the chairman chipping in saying 10% - the CFO was looking as much to say – ‘really?’ Looked like a lot of blagging going on to me but that’s just my opinion. Mike Ashley has bought another 3% so perhaps he has a plan, can’t see what it is tho other than to monopolise the entire retail sector.
JDW had result on Friday. Bumper eps but a lot of it came from ‘separately disclosed items’ which included interest rate swap gains. Underlying they were a smidge light by 1p. Sold off through the day but have had a great run, I sold some to buy more MKS.
DLAR had a trading statement on Friday, Operating profit and debt to be better than expected. That’s two trading updates that have been inline or ahead in a row – almost unheard of. Lovely little bowl on the chart imo.
One stock I have been buying this week is MRK
This is a great little company run by founder Mark Smithson. At the last trading update they said
They have one central hub in Leicester and extremely well run. All their own delivery staff and fitters is one differentiator but their USP is that they deliver free, next day, to nearly all of the country with fitting too (which you pay for)
They target higher end electrical like Bosch, Siemens, Miele.
Compare with AO.
AO. PE22, net debt £76m, no divi, sales forecast to decline
MRK PE 19.4, net cash £8,5m, 1.12p divi, sales growth 30% at the last update.
They should have a trading update soon – this company is a breath of fresh air on Aim – just watch this 15 min video. I have to say he comes across too sincere for an Aim CEO:-)
After watching that I had to re-watch this presentation to Equity Developments
One last point
CARD – I was looking through their past performance this week. Looking back can give you a good idea where stocks could go when it comes to recover plays.
In April 2016 - they did PBT of £81m on £381m sales.
They will do £530m sales this year, circa 35% more. No dilution (tho tax is higher now) They will also have around £100m less net debt. They grew sales £28m on the previous year back in April 2016 and it increased profits by £16.7m - Operational Gearing. Remember, they will do £530m sales this year, 35% more than back then and no dilution.
Cardfactory shares traded at £4 back then - do your research as ever.
Bank holiday in the US on Monday – Colombus Day.
One very last thing – try to remember it’s only money. Health is wealth. This game is all a bit of fun but you go out of this planet as wealth as you come into it – zero basically. Money oils the wheels of life but that isn’t real happiness. Friends, family, love, laughter – these are the riches. It’s always worth reminding yourself that now and again, especially on those tough days.
Enjoy the weekend
Rebel