Weekend Rebel Review Nov 18th, 2023

Nere comes Santa Claus, here comes Santa Claus, Santa;s on his way............

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, although 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) ?

Subscribe for free here: 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, although 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 the fab run continues and since Nov 29^th that’s a 3 week stint fully invested and up 16%+.  I’m jogging along in 7^th in this month’s UKStockchallenge up 12.6% so I hope those above me are well invested too because that’s a cracking  month they are having.  If you have never entered, give it a go. It’s free, run by Typo off my old chatroom, there’s no spamming, phishing or email harvesting, it’s just honest fun. Pick 5 stocks to go long or short on for the month. No prize, just cred.  Click ‘entry form’ at the top. 

http://www.stockchallenge.co.uk/

Starts at the end of the month usually, keep an eye on the site for the date to have your entry in by. There’s other interesting stuff on there too like FTSE ranking data and divi dates.

I stuck my neck out last week with the sub heading:

“Let's get ready to Rummmbbbllleee!

 It was clear to me the market was going up based on the news in the prior week and the US reaction together with the S&P reaction on the Friday

“With most of the macro out of the way there’s not much there to worry me. This doesn’t mean some event cannot happen but the indexes look and feels like the markets want to break out seriously here, and are going to rise quite firmly imo, possibly 1-2% on Monday and likely more through the week would be my anticipation.”

I’m not prone to making wild promises about where indexes will go and always qualify with an ‘in my opinion’ but last week it was dead easy to feel this week coming.  As it happens the real rally never started till Tuesday, with 3% on the FTSE250 followed by 2% next day for over 5% in 3 days – apologies for being a day out.  The UK market and the US were right on chart resistance lines then and traders here in the UK sold off.  All traders are interested in are the charts mainly.  They got a bit of a shock tho because the US kept rallying.  That is one of the best bull signals you can get. Continuous day after day moves up when pull backs look likely in normal markets.  What is happening when that happens, in my opinion, is lots of cash on the sidelines looking for a pull back to buy on but the very bullish know the dip, if any, won’t be long or protracted so they know at this stage ‘just buy the ‘**** dip’ is the mantra, because if they wait they just can’t build a position of the size they want.  As it happens, some great inflation numbers came out of the US followed by great numbers here and once we had got the news here in the UK the traders sold the news.  The problem is that when you are at a real, significant bottom the market doesn’t sell the news, so we carried on up.  Now you start to get investors questioning is this the real deal bottom again, following on from the one last October which hasn’t been breached yet.  Here’s the 3 year chart of the FTSE250

There you have what most technicians would call a ‘double bottom’. This is a powerful bullish signal.  Up until a week or two ago and even now, many will be watching to see if the 250 goes through that bottom again, which would be bearish.  I’d say I’m pretty much sure that won’t happen, in fact I’d say the 250 will see that line at 1900 get broken which will be the first ‘higher high’ on the chart this year. Technicians will see that as a very bullish chart reversal for the year, in the lead up to Christmas, often one of if not the best time for stocks that there is.  Consumer cyclicals tend to be the stocks that are most sought at these bottoms too as they are often the most oversold.  What will also happen on that break out, if it happens of course, will be FOMO (Fear Of Missing Out) kicking in and all those funds and individuals who have rushed to fixed interest in one or two year lock ins, or gilts which are paying circa 5% perhaps will now have seen the FTSE250 rally 5% in 2 days this week and will be getting seller’s remorse.

The financial crisis was the worst bear market I have lived through as an investor.  I can’t remember how much I gave back in that fall from mid 2007 to Feb 2009, I think it was around 30% I gave back and that was after dashing to gilts just before the Lehman collapse and making 10% while the market plunged another 20%. I got off pretty light, some were down over 50% and sold out at the bottom more or less, The 250 had fallen from roughly 12200 to 6100 – it had halved basically (I mentioned on here before how common it is for shares and indexes to bottom once they halve). I started buying in heavy in February 2009 at the bottom and I was fully invested by the April.  Even not having been fully invested for the whole of that time I had made up all my losses from the 18 month fall within 3 months.  It was a fantastic learning process and with hindsight it was worth every penny I lost.  Investing is a lifetime apprenticeship imo, you never stop learning.  This bear market has been worse in many respects, it has been longer drawn out.  In many respects it is easier to lose your money big and fast like many did during Covid, it’s like ripping the plaster off quick - t is a shock but it’s over fast, you can get your head back together in a reasonably quick pace.  When bear markets are drawn out it becomes a war of attrition, you get gradually ground down, especially if you have been highly invested in the weakest sectors.  When the bear market is in it’s death throws most investors just aren’t match fit, they aren’t prepared to invest until they have solid proof the market is going up and who could blame them?  Unless you have experienced two or three bear markets you are never going to know the feeling. I think 25 years doing this for a living I have only been really confident of my ability to get through whatever was thrown at me in the market in the past few years – you never ever feel certain, you just know you’ve got through these things before and how to get through them again imo.

One thing I have learned that has been different about this bear market than any before is broker forecasts.  Personally I think many brokers have reneged on their duties.  Forecasts for many companies are hideously below where they should be.  We have got to this point where even big FTSE 100 companies are guiding way too low because they don’t want to ‘over-promise and under deliver’.  You can simply work out where this has occurred to some extent by breaking apart broker forecasts.  Well if investing is a lifetime apprenticeship, every week is a school day. After M&S last week, this week has seen a raft of broker upgrades

GOLDMAN RAISES MARKS & SPENCER TO 'BUY' (NEUTRAL) - PRICE TARGET 330 (255) PENCE

RBC RAISES MARKS & SPENCER PRICE TARGET TO 275 (250) PENCE - 'SECTOR PERFORM'

BOFA RAISES MARKS & SPENCER PRICE TARGET TO 330 (300) PENCE - 'BUY'

JPMORGAN RAISES MARKS & SPENCER TO 'NEUTRAL' (UNDERWEIGHT) - PRICE TARGET 260 (170) P

Watching the results presentation, Archie Norman made it clear that they wanted to under-promise and over-deliver.

Earnings forecasts consensus have risen nearly double since last November, look at the forecasts steepening.  20p is the consensus EPS forecast for this year, nonsense imo, they have already done 12p EPS in H1 and earnings are normally weighted to H2. The company has said weighting will be weighted to H1 this year but that looks like low barring the forecast imo.

Last year they did £11,931m sales for 2023.  In the trailing 12 months they have done £12,527m. That’s sales up £842 this year over last year. They have done £595m more sales in H1, up 10,8% on last year.  Forecasts suggesting H2 will only be £247m up on the trailing 12 months – with the ‘golden quarter’ to come? I think they’ll beat that by £400m+ in H2 with better margins too. They have already said trading is strong and with all the larger better refurbed stores the sales should have grown better too. That’s all in my humble opinion but I expect 25p eps+ this year and 30p+ next year and I’m not taking broker forecasts set in stone.  I expect with M&S and others, there will be some serious upgrades, especially for retailers, once the Jan trading updates hit the wire.

This week’s stunning news must have been Hotel Chocalat receiving a bid from Mars at 194% above the current share price – in cash!  I know the yanks have deep wallets but this just shows how cheap some UK small caps are imo. I doubt we’ll see a premium like that again in a long time but I expect a lot more UK co’s are going to get taken over unless share prices re-rate. Many of these companies have seen earnings continue to grow, all we have seen is a PE contraction during earnings growth, leading to some of the lowest PE’s and highest yields I can remember – that will reverse as FOMO drives buying – remember the Covid bottom?

There are currently some great indicators around.  The S&P has rallied a pretty straight up 10%, gone through the first resistance and set to test 4540.  I expect a small retreat about there and then head on up, taking out the high at 4600. 4800 is the all time high and that’s roughly 5% higher.  Unless the middle east drags on and expands, it’s hard to see what stops a new high being hit before Christmas and if so we are likely going to get a big Christmas rally imo.

The Russell2000 has risen 10% off that bowly bottom

The Dow Transport is up around 12%

And the Vix has gone sub 14

Fear Greed has moved into Greed

All of these indicators are screaming buy equities imo, I’ll will be surprised if we are not in for a great rally to the New Year from here. It’s quite amazing how punters can find every excuse not to buy shares then suddenly find every opportunity to ignore bad news and see through the negatives.  This will likely see positive reactions to statements that will be even stronger, together with PE expansion from some of these hideously low ratings imo. Of course I’m only a private investor and not a paid expert so all what I say may be complete codswallop so take care, know your risk and only invest with money you can afford to lose.

In the UK the market doesn’t even feel like it has got going but surprisingly the FTSE250 is 10.5% off the bottom. The FTSE Small cap index is up 8.5% and Aim up up 7.5% - I did say  I thought Aim would bottom @ 640-650 but have to say I think the bottom is in now and I might have been a tad too pessimistic.  Is Aim the place to invest?  If it’s a stock that pays a dividend and has a good track record then perhaps yes.  Will it see some big bounces on individual stocks for a trade?  Yes, but for a trade only for me.  Long term, is it a great place to be invested, considering the yield on Aim is so low?  No, I don’t think it is until something changes. Here’s the long term chart

.There will be some great companies on Aim but you have to rake through an awful lot of manure to find your lunch imo.  Aim is up just over 2% p.a. compound from the low of the financial crisis nearly 15 years ago. Something needs to change there imo, the odds are weighted against investors and in favour of short term trading rampers to push some bag of carp to the greater fool and move on.  The FTSE Small Cap Index on the other hand is up 350% since the Financial Crisis low and pays a 3.8% yield, that’s twice the capital growth you get on Aim without any share price increase.  I’ve found it increasingly difficult to find good, reliable shares on Aim, the best being the ones that had a good divi track record.  Is this the best kept secret of the stock market?  Here’s the FTSE Small Cap Index.

The FTSE Small Cap Index even beats the FTSE250 on capital growth and on yield as the 250 only produces 3.6% yield.  The FTSE Small Cap Inex is the place to be where your odds are stacked most in your favour as far as the UK goes imo,  For this reason, over recent months and weeks I have ditched all Aim stocks other than SHOE which pays a very healthy divi and I have a small trade in TUNE ahead of their trading update on 28^th. This is also a divi payer and may become a longer term hold if I like what I read on the 28^th.

Having said all of that of course, Hotel Chocolat is on Aim.  There will always be the odd dream maker on Aim but will you be holding the winner?  I didn’t know any holding them and unless you bought them in the past year you are likely still down on your investment, despite the pay day. What is your chance of finding a real winner on Aim with so many co’s that are destined for doom?

Stuff to look forward to for me this week will be Avon (AVON), results on Tuesday. I did a Substack on Avon a few weeks ago, if you want to know more and do your research, you can find it here: https://cockneyrebel.substack.com/p/avon-protection-plc-avon  The last results presentation is here: https://stream.brrmedia.co.uk/broadcast/63d788811874497653f33c76/653e740460419d1d649d20cf   I think this could be a very exciting hold,

Cardfactory (CARD) should have a trading update imminent.  They have been a bit more lively this week and closed Friday night on a near 4 year high. There’s CARD covered by me on Substack  If anyone has missed it. I’ve posted enough about it I’m sure.

That’s about all I have for this week, it has been a quiet ‘buy and just hold’ market for this week. A few good trader bowls showed up late this week, among them two old favourites,

 AML and OCDO, not things I’d hold but if you like a trade they might be worth watching as they do get up momentum in these markets and both making a bowl.

Have a good weekend – I’m off to do some hands on research in an M&S Food Hall – rotten job this investing lark!

Rebel.