A Full Service Service (Cestrian Stocks Bulletin #141)

From “Nothing Like Wall Street Research” to “Nothing Like Motley Fool”

Firstly, a large “thankyou” to you and indeed all our tens of thousands of readers, followers, subscribers, contributors, community members, the whole cabal, for spending your time and in many cases money with us.

From humble beginnings a couple years back we’ve grown our business to become a very well respected independent research provider. These days across our various services we cover growth, value, commodities, ETFs, market direction, the whole nine yards. We do so using fundamental analysis, technical analysis, look-out-the-window-analysis, and plenty of views askew from the options market, FX and other sources of opinion about whether stonks be going up or down.

We’re happy to take credit ourselves for some of this success but in large part it’s due to the community itself. In investing and trading matters we hold a very firm view which is that the guru approach to life is doomed to fail. Doubt that? Take a look at Hedge Hogging, a wonderful book by the longtime successful investment manager Barton Biggs, in which he details the blow by blow serial blowups of single-strategy hedge funds who had their day in the sun when their strategies were on point, and then plenty of days out in the cold when their principals found that they could not be a member of any country club that they wished to join. (With apologies to Groucho Marx).

In pursuit of our no-guru-no-FURU model, we’ve been delighted to welcome as members a wide range of both professional investors and highly skilled nonprofessionals who for some reason choose to have occupations and/or hobbies that don’t involve staring at screens all day. Many now contribute to our oeuvre to the benefit of all.

The upshot of all this is … when the market is slowly bleeding out, when all around us, stock services are losing members … we’re growing faster than ever. Right now we run the second-fastest growing service on Seeking Alpha - out of around 180 of the things - we’re as flattered as we are delighted.

We take this as a sign that we’re heading in the right direction, and we’re taking the next great leaps forward soon. Of which more in a moment.

We’ll return to the above section with a so-what at the end. For the moment let’s turn to Public Frenemy Number One, the Stonk Market.

The market is tough right now and has been for many months. If you’re long the market you’re wondering when the bottom will be confirmed and things move up again; if you’re short the market you’re wondering when to pack up the positions, take your profits and move on. Both sides are stressful at present because we are at a point in markets where the decline has slowed, maybe arrested, but a sustained move up is yet to begin. Which means either side, long or short, could be right or wrong. You can construct a narrative from looking outside the window, from company earnings, or from stock charts, that easily confirms …. either argument. Urgh.

Although the headline-grabbing Fear/Greed indicators are flashing bright red - signalling RUN FOR THE HILLS which is of course a bullish sign - we are in our house view yet to see a complete emotional collapse in sentiment akin to the bottom of the 2020 Covid crisis or the 2008/9 financial crisis.

At the trough of both of those periods even the most calm observer had a little voice in their head at night saying “but what if this is actually the Ende of Dayes”? In both cases, the factoid motivating our own in-house grinch wasn’t stock prices - which wave around in the wind as everyone knows - so much as credit; specifically the actual (2008) and potential (2020) evaporation of credit.

In 2008, credit risk mooned as a result of rapid deflation of levered asset valuations and the erosion of counterparty trust as regards the artist formerly known as collateral.

In 2020 the possibility arose that the cessation of cashflows due to physical lockdowns could cause debt to go unserviced and leave the whole world with a default problem.

In 2008 this was solved by central banks collectively pretending that assets were worth more than they were. Or to use a term more acceptable in polite society, monetary easing.

In 2020 there was a period where some obligors were under big pressure - plenty of landlords not getting paid by their tenants who were not getting paid by their employers who were not getting paid by their customers who were not getting paid by their employers who were not … you see the problem. Anyway, this was solved by the federal government pretending that it cared about poor people and evidencing it by sending them a few bucks to splurge on crypto scams.

So, no complete capitulation, does that mean the correction isn’t over?

Well, in our view, 2022 is not Q3 2008 nor is it Q1 2020.

This present equities selloff has been caused by either (1) inflation and rates fears or (2) stonks had just gotten a bit silly and had to sell off. You choose. Our own view is very much the latter. We do not think the Ende of Dayes Approacheth. It’s possible that Russia expands the frontier toward other Baltic states and/or Poland; it’s possible that China invades Taiwan causing the US to have a second proxy war with a superpower all at the same time in order to accelerate the inevitable decline of the West; it’s possible that inflation reaches a level where mass poverty is the norm. All these things are possible. But we don’t think they are the most likely course of action and we don’t think that in truth these things are the cause of the present stock market correction. And in fact if you just sit back for a moment, the stock charts will tell you that.

What we think is, stocks ran up to a level at which they ‘needed’ (because of the emotional stress in the market about prices being extended) to come back down.

Allow us to explain.

Here’s the S&P500 in its SPY ETF proxy form. (You can open a full-page version, here).

As you know there about fourteen thousand different charting methods and the beauty of charts is that you can make them say anything you want, if you try. But if you pick a method that works for you consistently, and hone your craft, charts can work to calm your nerves and help you make decisions. Our chosen method is the Elliott Wave / Fibonacci toolkit. High falutin science it is not. We see it simply as a method to track the emotions that drive stock prices. The basic principle being, the stock price next month is an emotional reaction to the stock price last month. The stock price in one minute’s time is a reaction to the price a minute ago. A fractal or at least repeatingly-self-similar model. Now, this system works best for big liquid instruments where the emotion of the crowd can play out. None better example than the S&P500.

In the SPY chart above you see an absolutely picture-perfect EW / Fibonacci progression. The 5-wave-up series starts the last time the Fed decided that all this free-money business was not quite cricket (the market dumped big time in protest before the Fed relented).

We get a Wave 1 up from the 2018 lows, peaking just before the Covid crisis; a W2 down troughing at the Covid crisis lows, a picture-perfect 0.786 retracement of the W1 up; a W3 up peaking at, again, a textbook 1.618 extension of the W1; and right now we’re now in a W4 down which so far flirted with the idea of stopping at the 0.236 retracement (SPY $419) before deciding to inflict a little more pain or gain, depending on your stance, falling to the 0.382 retracement. If you think all this Fibonacci nonsense is just nonsense we would point you to last week where the S&P500 both in futures (ES) form and SPY form bounced right off that 0.382 retracement of the W3 up. To the dollar. Then made upwards like a scalded Yikes Cat. That’s evidence that MAYBE a bottom is in and MAYBE we are in a Wave 5 higher already.

Although that was before LA wunderkind Evan Spiegel just RUINED IT ALL FOR EVERYONE. Apparently a drop in Snapchat earnings expectations just caused … this:

Long equities - DOWN BIG! Shorts - UP BIG! Gold - UP! Bonds - UP! Wow, who knew that the global economy hinged on SNAP earnings??

Or maybe it’s nothing to do with Snapchat, it’s just that the market is so jumpy. We shall see.

House view? We think that 0.382 retracement in the SPY can hold, but we would only bet the farm if we had an agribusiness-sized stop-loss sat just below that retracement level. One still has to be careful since there remains no clear direction right now. Baby steps only at present.

Er … you mean … “where next for markets”, right?

No. Back to some navel-gazing. Here’s where we’re headed.

In recent months we’ve expanded our coverage from a handful of tech and defense stocks to a much more full service service. We now cover the following sectors:

We provide our best work in emailed note format, live members-only chatroom, and - new for 2022! - twice-weekly webinars which include market direction analysis, single-stock deep dives, and open-mic Q&A.

We have authors covering single-stock research, technical analysis, trading execution methods, Federal Reserve policy and outlook, cybersecurity industry insight, and many other critical topics.

Where we’re headed? We’ll be building continuously on the above to become a full-service research provider. A serious, sensible place where you can join a community to get smart on stocks and ETFs, to raise your investing and trading game, to contribute and learn from all the other smart folks that spend their time with us.

The strapline on our website right now is, “Nothing Like Wall Street Research”. Soon it will (probably!) be “Nothing Like Motley Fool”. Not to knock Motley Fool, many of their services are excellent. They can help you go from newbie to accomplished newbie and that’s not to be sniffed at.

We think we can aim higher though. Our aim is, run our services for folks to come to raise their game continuously. You’re a newbie just starting today? Congratulations, great time to start when everything is in the doldrums. We can help you learn your craft. You started three years back and everything is in ruins? Life is long and the only way you lose is to give up. We can help you raise your game. You’re a rock star pro and you want to share your wisdom? Step this way. One, we want you to help others in the group and two, we will fall over if you don’t also learn something useful yourself. All set within the Rules of Chat, ie. (1) Keep It Clean, It’s A Family Show, (2) There Are No Dumb Questions and (3) Leave Your Personal Politics At The Door. These Rules underpin everything we do, and it’s what makes our community very different from other online stock boards.

If you’ve yet to join our Growth Investor Pro service, you really should give it a try. Today nobody wants to spend money on stock services - which means it is exactly the right time to spend money on stock services. In our own work our efforts are going into deepening and broadening our skills and expertise, the better to use them as the market enters its next phase. Fear might be running in the streets today but that’s precisely the time you should be gearing up for the next campaign. Which one way or the other, up or down, just started at that battle for the 0.382.

Join us. $199/mo on the monthly or $125/mo on the discounted annual. No lock-in on the annual - join and wish you hadn’t, quit in month one, get eleven months back.

DISCLOSURE: Cestrian Capital Research, Inc staff personal accounts hold long positions in $SPY.