Mile High Market
184: The Weekly Selection (From Denver)
Introduction
Hello all and welcome into another iteration of The Weekly Selection. I’m out of town this weekend in Denver, CO and my laptop appears to have given up on me, so this week’s article will be sent from my phone.
Fear not! In the time that I have spent trying to fix said computer, I have been fiddling with the article and think I can deliver a strong thought piece despite not having any visual aids to assist me.
let’s jump in!
Context
Before we jump in: If you missed my piece “the mechanics of a lockout”, I suggest going back and getting an understanding of how exactly this market got to where it is with the strength it has.
The market has been strong lately, of that I think we can all agree. However, I still continue to see commentary surrounding the legitimacy and longevity of the run. In my eyes, this type of commentary comes from 2 different types of people:
-Those who are not positioned in this market, and currently experiencing “the lockout”
-Those who are inherently bearish and whose minds will not change no matter what.
The former struggles to wrestle with the reality that they missed the best opportunities, and instead of buying higher, they choose to question its legitimacy as a coping mechanism for failure. the latter will always post this commentary, and I think these people are generally pretty vocal and easy to identify. I do not find a bear who has a full portfolio of high quality leadership stocks that are all performing well, and I think there’s something to be said about that.
When we read commentary from these camps it’s important to understand the context of the authors personal situation and goals therein. I’d hate to see someone follow another blindly into positioning that they only advocate for to achieve the opposite result. Like say, if I said the market looked bad so I could get lower prices to buy. Someone may follow me short into that idea, not knowing my goals, and inevitably get fleeced on misinterpretation. Context context context. it’s the name of this chapter in the newsletter every week after all…
Earnings Season
With earnings season upon us, let’s talk a bit about what I’m looking for and what to avoid doing this quarter.
1) Estimates
Do not, and I repeat, do not measure the success of a business on the estimates analysts had for it and whether or not they beat them. Most times, these are extremely vague and blanketed estimates for earnings and EPS and generally do not actually impact the success of the business, regardless of the fact that trading platforms make it seem like a big deal. Instead, turn your focus to guidance and remember, stocks are forward looking. Delivering a great quarter and raising the next quarters guidance is the best-case scenario for a company, and these are generally the stocks that I see continue to rise after a quarter is up.
2) New Leaders
Earnings season after a long period of draught for the indexes is where new leaders are born. Stocks move for all kinds of reasons, but they generally only go up when the expectation of their future is getting brighter. Earnings is when this discovery is usually made, and I’d be willing to bet there are tons of stocks that are ignored and waiting to reveal their success to the market. This sudden realization will kick them into high gear, and we want to be on top of those names. I know it seems like all the good stuff is gone right now, but I promise there is always value out there just waiting to be unleashed.
3) reaction =/= quality
I think it’s in our thoughts that a stock falling down means the report was bad. Earnings are a binary event, and stocks can go up or down regardless of the quality of the news. This is a common misconception for new traders. For example, over the past week, key datacenter names reported. SNDK, CLS, GLW and WDC all gapped down, and STX gapped up. In my opinion, all of these reports were stellar. SNDK was the best of the bunch and even it gapped down.
Additionally, this is why it’s so important to know the implied move of your stocks before earnings, and measure if you’re comfortable with a gap down to that level or lower. BE reported this last week as well, and the implied move was 15. I only had 13% open gain on the position, so I sold it. This rule protects me from big losses more than I miss on gap ups, so it’s all good.
Looking forward
Again, I don’t have access to my computer here in Denver, CO. So my commentary on looking forward will be more about structure in some of the indexes and individual names I like and you guys will have to make the references on your own.
let’s start by talking about software, and other beaten down stocks. There is a common misconception on my commentary in these 2 groups, and I want to clear it up. I think some of these software stocks are being misjudged as AI losers based on their downtrends, and there is value to be found there. That being said, I don’t own them because I would rather own stocks in the top themes and uptrends the market has to offer.
My goal with my trading portfolio is to turn over capital and maintain positions in key leading stocks and themes, which generally doesn’t include buying beaten down losers without a proper thesis as to why I should have it. This isn’t because I already own leaders and don’t have to find value, and I would encourage those out of position to maintain this thought process instead of dumpster diving for gems. It’s a lot easier to find chickens on a farm than in the forest.
Lastly, stocks making highs are more likely to do so than not, and generally price action gets more linear the further out of the muck a stock gets. That’s where I want to buy them, and don’t mind doing it at highs if there is good reason to do so. utilize pivots, the 10/20sma, or search through my how to enter stocks article to learn more about my strategy there.
One such name I’m looking to get Involved in is NVTS Navitas. Currently making a small flat just below the all time highs, is in a top theme (semiconductors) and reports earnings soon. Ideally what we see here is more sideways into earnings, a strong report and large gap up over the previous highs, then a strong open to buy into. I wouldn’t gamble this through the report itself as I don’t think I can get enough cushion to make it worth it, but maybe after.
Next is AEHR. Same idea with semis, but this one is more to do with wafer level testing. Do reference, AEHR moved to $60 a few years ago when the biggest chip demand was for EVs. The datacenter market TAM is significantly larger, estimated to be in the 3-6x range. This means that even 50% above previous highs there is still meat on the bone to be had here. I owned it a couple weeks ago and was stopped. Ideally this gives some kind of flag or undercut of the pivot that is forming around $80.
Outside the semi ecosystem, I am looking at POWL. POWL is a name I’ve owned numerous times and have never gotten truly right. Recently, Trump announced yet another bull piece for US grid stocks, of which POWL is a contributor towards with its equipment. It reports this week, and I’d love for it to gap down so I can buy it (see how I’m not involved so I want it to do poorly on earnings so I can buy it).
In any case, earnings season will produce great winners, and I hope to
be involved. I will keep my channel updated on new buys, and I will be back in office on Wednesday with an article titled “Watt are we going to do” which explores the power problem in the US and expands on my piece Electric Feel from last year.
Good luck out there everyone, see you soon!
Enjoy your time in the Rockies, Tanner!