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Help! I Don't Know What To Do! (Cestrian Stocks Bulletin #33)

Help! I Don't Know What To Do! (Cestrian Stocks Bulletin #33)
By Cestrian Capital Research, Inc • Issue #33 • View online
Stonks be crazy right now.

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
Charts Say Up, Fundamentals Say Up, J-Po Says Up
But Janet Yellen and James Bullard be saying down. What to do?
If you care to look up from your brokerage screen and sit back for a moment, you may find yourself in a conundrum as regards where next for stocks. To our jaded, cynical and tired eyes, here’s how we see the moving parts right now.
One, any grownup you care to speak to will tell you that, “this must all end badly, for this time is not different”. In your youth you would have protested, saying, OK Boomer, safe in the knowledge that your generation had this money thing nailed, unlike those old dudes. Er, until 2007. When the old dudes proved that that time was not, in fact, different. And then, irritatingly, went on to enjoy the most banzai growth in their already-inflated home prices since the invention of the home. All the while telling the youngsters to not be so greedy demanding a raise and all. Those same old dudes and their successors in title are now saying, this will all end badly. Saying, you can’t go gonzo-monetarist, print money and rack up debts for a decade, then all of a sudden go methamphetamine-Keynesian, gathering up money and throwing it at poor people for votes and giggles. It’s going to end badly, they say. Inflation, they say. So what, you say. So what? they say? Inflation! Bad! Rates up! Stocks down! Sell everything and run to New Zealand as fast as your G-650 will take you!
Two, J-Po. We didn’t catch his pep talk today but our brokerage screens sure liked it. J-Po clearly considers his job not to manage the money supply, keep liquidity flowing through the system, keep banks out of trouble, any of that stuff. No, his job must in his mind be to Talk Up Stonks To Da Moon. Well, until his reappointment term is up for grabs anyway. If you listen to Mr Powell, any bad stuff like, you know, inflation and that, well, yes there is a little here and there but it’s going to go away, you see. It will just go away. It’s like a miracle.
Hm. OK. So, Boomers be Doomsters and J-Po be J-Pump.
Next. Three. Stock charts. Now, we are partial to a chart or two and worse, we have a growing predilection for Elliott Wave charts. Which if you put the deliberately obscurantist lingo aside, basically work on the basis that human emotion moves to a regular cadence of five steps forward, three steps back. If you do it right, Elliott Wave charts are a wonderful lens through which to look in order to avail yourself of some of that lovely Free Money From Stonks. They care not for valuation multiples, good news or bad news, nothing. They abstract all that away into catalysts of sentiment. Schooled in deep-dive working capital and cashflow analysis, we still love IRL measures. But secretly we know that IRL is simply one of a number of catalysts to spark the real driver of stock prices. No, Boomers, not DCF models. Emotions. Feeeelings. And if you look at the wave charts of a whole bunch of growth stocks right now, they will tell you that these growth names might be going on a tear for the rest of the year. A good tear. Upwards. (We use these a lot in our pay services and rather scarily, they work quite well. When Cloudflare (NET) was languishing recently, we called a conservative Wave 5 price target of $97, which it just beat. We have an aggressive Wave 5 price target of $130, which we don’t quite believe, so have been selling down some of our NET holdings of late).
Finally, four, The Secret J-Po Pawn Army. If the miserable musings issued by Janet Yellen and James Bullard were not sanctioned by the Fed or by the Administration, one or both would have been spending a lot more time with their families of late. That they have not been fired tells you that J-Pump is telling you one thing to your face, then having his minions tell you the ugly truth by way of oops-silly-me-I-forgot-to-turn-the-mic-off leaks.
This is a very difficult place to be as an investor. Lean into stocks and you could be handed a very unpleasant lesson if you are wrong. If a correction comes it may be fast and sharp and all wrapped up in a margin call. Switch it all into cash and not only could you miss out on another major up-leg but you could also see it eroded away as inflation ticks up. Other asset classes? Bonds lol, Crypto, yikes. They offer scant comfort.
We don’t know what to do either. So here’s what we’re doing in our staff personal accounts. One, in those hot growth names we are gradually selling out as the stock moves up. Today we trimmed a little Crowdstrike (CRWD) and a little Fastly (FSLY). Two, we have diversified into some Grump-pa names like American Airlines (AAL), Delta Air Lines (DAL) and Microsoft (MSFT). (You don’t think MSFT is Grandpa Tech? Then you be the Grandpa). Three, we have dialed in some metals in the shape of gold and that now-most-fashionable of unstable isotopes, uranium.
So far this has worked quite well with bad index days seeing our screens down just a little and good index days seeing our screens up more than a little, since we overall lean long growth. But as we say in our Cestrian Fundamentals service, whenever we have a hot streak we invite anyone in the service to holler a “We Got This!” alert. Because as we all know, just when you think, I Got This, is right when you realize that you Don’t Got This.
What next? We haven’t a Scooby’s. We’re taking it day to day and we’re poised to either load up on margin-fueled, triple-levered TQQQ, or sell everything and buy tinned water for our New Zealand bunker. Or anything in between. So, Boomers, J-Pump, Charts … have at it! We’re ready.
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Cestrian Capital Research, Inc - 22 June 2021.
DISCLOSURE - Cestrian Capital Research, Inc staff personal accounts hold long positions in each and every stock named in this note.
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