My Boy Jack

My Boy Jack is a 3 year old race horse who finished 5th in the Kentucky Derby.

Mendelssohn is a 3 year old race horse from Europe.  He finished last.

It is not the results that interest me the most, it is the back stories which happened the day of the race and peoples reactions to these stories before the race even started.

The main story was the weather.  Not only did it rain and was raining for the race, but Kentucky had about 3 inches of rain.  That, is a lot of rain.  And the track was very wet and very muddy.

FYI, Just in case you do not know who won, it was Justify.

This is what one looks like when leading in a muddy field.

My Boy Jack is an experienced race horse who had won some races; including one in the mud.  His owner and trainer were all smiles during morning interviews and publicly stated that they were really glad to see all those rain clouds.  They felt good about their product and their chances of success in these conditions.

The day before the derby, before their statements and all that rain, My Boy Jack was sitting at 30:1 odds.  By race time he was 6:1.  That my friends is a huge swing.  This is like Warren Buffett saying he is buying more and more Apple Stock because he likes the product and the favorable conditions for success.  People tend to pile on the Buffett bandwagon.

Between a good earnings report, conference call and Buffett’s endorsement, Apple rose nearly 8%.

This is what one looks like finishing last, behind everyone else in a muddy race.

Mendelssohn on the other hand was not a race horse with a lot of experience, he has won, but has never even ran in the rain or raced in the mud.  He also is a European horse, and I don’t even know how one can transport a horse across the pond without totally stressing him out.  His owners and trainers were very much subdued in their interviews and even said they did not even know if he was going to win or not.   They did not like the rain, nor the mud and really did not want to talk to the media about it.

This is like Elon Musk not wanting to talk about boring financial and economic stuff like cash flow and debt.  You know the muddy, dirty side of running a business that is burning through cash.

Tesla’s stock sank nearly 10% after his horrendous earnings call.  People, and Wall Street, tend to jump ship if you ignore the messy stuff and refuse to answer key questions.

Interestingly, Mendelssohn’s odds did not change that much.  Probably because he was still getting hyped by the media.  For some reason, people were still believing the expert commentators instead of looking at the research.  I even heard one commentator state that the only reason My Boy Jack was gaining in popularity was because folks liked the name.

The moral of this story is that one should follow the money but do your research and don’t always buy into the hype.  After all, there was a reason why Jack was rated at 30:1 at one point.

My wife and I are not big gamblers, but we do enjoy the occasional horse race.  In fact, we have a bit of a tradition of going to Charles Town each year for our anniversary.  We avoid the one armed bandits and even the card tables and instead head to the all you can eat buffet, grab a bottle of wine and watch the races for the evening.  And yes, we place small wagers, usually a $2 across the board bet.

Our method is just as good as anybody else.  We look for consistency in both history and odds, who the rider and jockey are, and of course the horse has to “look” good and have a catchy name.  😉

So this year when the Kentucky Derby rolled around, we did essentially the same thing.  Ordered pizza, grabbed a bottle of wine and placed our bets online.

My wife has a soft spot for “greys” but since there were no grey horses, she looked at the names and the jockeys.  Ultimately she picked Good Magic (9:1) but thought that Audible (7:1) sounded familiar.  I told her that it was the name of a company which published and streamed audiobooks.  I liked her suggestion but in the name of competition, I chose Audible.

How did we do?

My wife’s horse came in second, and mine in third.  Our $12 of wagers returned $21.60.  An 80% return on our money.

The moral of this story, always listen to your wife.

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Is The Stock Market Setting Up For A Fall?

One thing every investor should do is look at current market conditions.  Our investment club starts off each meeting doing just that.  We look at a lot of different charts which track trends and patterns.

Some are in confirmed uptrends.

–          The momentum players see this as strength in the market.

Some are indicating possible over bought conditions

And others are close to inflection points with percentage of stocks hitting new highs, or above their 20, 50, 200 moving averages, etc.

–          The contrarians look at the last two groups as signals for a correction.

I’m going to mention one more indicator group which is not usually mentioned.

The IBD50 list of stocks contains a list of growth oriented stocks with good fundamentals and positive chart patterns and setups.

In the latest weekly issue of the IBD paper, half of the stocks, 25 of them, have one or more of the following comments associated with them.

  • Extended from last breakout.
  • Late stage base.
  • Take profits.

Stock

Extended

Late Stage

Profit Taking

OLED

X X

LAM

X

X

NVDA

X

X

ALGN

X
AMAT X

X

WGO

X

X

TRU

X

CGNX

X

TEAM

X

THO

X

X

PYPL

X

CBO

X

X

RHT

X

ON

X

X

CAVM

X

SUPV

X

MA

X

X

ADBE

X

PLNT

X

MNST

X

SITE

X

CBG

X

AVY

X

FLT

X

MSCI X

 

Four of these stocks I am either currently invested in or have been within the last couple weeks.  Five others I have on watch lists and or have been invested in within the past year.

Interestingly enough, AMAT, which is listed as in a risky late stage base and in profit taking zone is also listed in an article, in the same paper, as a possible upcoming earnings call option play.   I wonder if these IBD analysts spend much time talking to each other or reading each other’s work…

Are we due for a correction?

–          The contrarians would say that the risk is higher with so many IBD stocks over extended and in profit taking zones.

Are stocks and the market in full acceleration mode?

–          The momentum traders would say that hitting new highs and either continuing momentum or hitting new buy points is a strong growth indicator.

Regardless of the market direction, it pays to do your homework and look at risk reward ratios.

One possible strategy would be looking at the IBD50 again but this time at the other 25 stocks.  The ones not over extended, in a risky late stage base, or in profit taking zone.  Do any of these show signs of weakness and failing?

Yes, there are a couple which are showing sell signals.  So this is a definite sign of weakness.

Others are testing support which can be a sign of showing possible strength (if it bounces off of support) or weakness (sell signal, if it fails).

Here is the breakdown as I see it.

Testing 10 week line: 

IBD views this inflection point as a test of support and confirmation of upward trend of a growth stock.  Often viewed as a possible secondary entry point if it bounces off of this supporting trend line or a possible sell signal if it falls below the trend line.  I would put these into a watch list:

ICHR, YY, HTHT, PAYC, MCHP

Failed Breakout but still testing 10 week line:

This is a subset of the previous 10 week support line indicator.  These stocks pulled back after passing a buy point and are now testing the trend line.

GWRE, ESNT

Flat Base: 

An IBD consolidation pattern which can signal strength if the lower support range holds and or the stock bounces off of a trend line or passes top level resistance (a buy point).

FIVE

Base on Base:

Another upward trend IBD pattern which investors can view as another secondary buy point.

COR

In Buy Zone: 

IBD defines this as within 5% of a breakout buy point.

FB, MFGP

Double Bottom:

IBD version of a potential reversal pattern and or test of support before a breakout.

VEEV

So of the remaining 25 within the IBD50: 14 are in noteworthy patterns

–          5 stocks are is possible strong buy point patterns:

–          2 are showing weakness but still showing support

–          5 are testing support and at a possible inflection point.

–          2 have flashed sell signals.

So, do you see the market at an inflection point?

Setting up for a correction?

or

Confirming strength and momentum?

Regardless, it is good to do your homework and be ready to action no matter what happens.

 

The Amazon Effect

Amazon is, and has been, transforming the way we do business.  They have been doing this for years.  At the core of this transformation is what I will say is the Online World.  Yes it is a generalization, but from being able to buy books online to a cloud service provider to a mobile payment platform and even a one click buy it now system to most recently high profile deals with NIKE, SEARS, and Wholefoods; Amazon is transforming the way we do business from traditional brick and mortar to online.

According to Millennial Marketing, Amazon rates highest in satisfaction and experience not only with Millennials, but across other generations because of “its consistent ability to reduce friction in the consumer journey and stay at the forefront of market innovation.”

It even beats out other brand names such as Apple and Netflix in customer satisfaction and both Apple and Netflix do an excellent job with online marketing and innovation.

And how has practically the whole retail sector, and investors, reacted?

The retail sector has taken a nose dive.  Both investors and publicly traded companies have stuck their heads in the ground and proclaimed that Amazon is taking over the world and the end is near.

Grocery stores such as Kroger and even Walmart took a dive when Amazon bought Whole Foods.

Blue Apron IPO took a beating because Amazon now has a potentially huge food delivery network.

Home Depot and other similar stores took a dive when Amazon agreed to sell SEARS Appliances.

Even NIKE has agreed to add Amazon as a delivery channel for their product.  But NIKE is smarter than some of the other retailers.  Part of their agreement is for Amazon to crack down on fake NIKE knock offs.  Not only do these cheap imitators take revenue away from NIKE, but they also damage the NIKE Brand and the NIKE reputation.  So the NIKE deal with Amazon is actually a good thing for them.

Home Depot does sell appliances.  So does Lowes and Best Buy.  HHGregg went out of business because they failed to adapt and could not compete.  But stores like Home Depot and Best Buy are more than just appliances and they happen to have good online presence and customer loyalty.  A fellow blogger recently wrote about this here.  Check it out.

I think the entire retail sector has over reacted and the recent Amazon effect on the retail industry has created some good potential bargains.

The key to retail success today is how well do you market to and retain the mobile online consumer?

A company basically has three options.

  • Agree to be bought out by Amazon.
  • Develop a successful one stop shop and buy mobile campaign and customer loyalty program similar to Amazon.
  • Or join Amazon to make your product and your brand stronger and more available to the online world making it easier to buy.

I’ve already mentioned how NIKE has taken advantage of Amazon.  Here is another company which I have written about in the past and has done remarkably well recently.

GRUBHUB.

They make online ordering, and reordering, quick, simple and easy.  It fits the millennial mobile mode of online shopping perfectly.

However, on the surface, their business could appear to be threatened by Amazons move into the food and food delivery business much like Blue Aprons.   But they too have “joined” Amazon in a very interesting way.

You can use Alexa to order food from GRUBHUB.  They have taken advantage of the Amazon effect and incorporated it into their business model with hands free ordering.   This is not without possible risk.

Amazon has been accused of poaching sales from retailers.

“A study by Upstream Commerce, a retail intelligence firm that tracks pricing, suggests that Amazon will use the pricing data from outside merchants who sell through it to ultimately compete with them.  In women’s apparel, 25 percent of the top products initially offered by marketplace vendors were sold by Amazon within 12 weeks, according to the report.”

Other retailers have directly and indirectly acknowledge “competition” as a future risk and as a result, many good quarterly reports have sent stock prices down instead of up solely because of this “competition” in the market.

GRUBHUB reports this week.  They had an outstanding report three months ago.  It will be interesting to see if the Amazon effect is viewed as a boost or a bust for their business.

Disclaimer:  This post is meant for informational and conversational purposes only.  It should not be viewed as a recommendation to buy a particular stock or fund.  As always, please do your own additional research before buying stocks.

Will Prime Day Be A Good Day For Amazon Stock?

What is Prime Day?

Amazon started Prime Day in 2015.  It is typically a one day special event of deals and discounts on just about everything available to amazon prime members. This year, It will be held July 11th.

However, as it is with most special commercial celebrations, and yes – Prime Day was started to celebrate the anniversary of Amazon, this year Amazon Prime Day starts at 6pm the day before, July 10th.

Of course the real reason for Prime Day is to generate more Prime memberships, to build a base of consistently returning customers and, therefore, reoccurring revenue. Amazon is even expanding their event to more international customers to the count of 13 countries around the world.
Many consumers will use this day to test Amazon’s Prime service, and many of those customers will remain Prime members once their trial membership is done.

Studies have shown that Prime customers spend more than twice what nonmembers do, so it’s no wonder Amazon is trying to spread the Prime love as much as it can.

I’m sure Jeff Bezos would say it is a “Win + Win” deal.

How popular is it really?

Amazon doesn’t disclose precise numbers, but some analysts estimate that Prime Day 2016 may have generated $525 million in sales for Amazon, up 26 percent from Amazon’s projected sales of $415 million in 2015.

According to Amazon, the company sold more than 90,000 TVs, over 1 million pairs of shoes, 200,000+ headphones, 23,000+ iRobot Roombas, and more than 14,000 Lenovo laptops on Prime Day alone. That beats the number of sales the retailer generated on Black Friday, which for most retailers is considered to be the biggest shopping day of the year.

How easy is it to find deals, shop and buy?

This year, with the added global access and even greater push for trial access to Prime, the Amazon App (which is always free) and Amazon gadgets (Echo – Echo Dot w/Alexa, Kindle, Audible, Dash, etc) there promises to be yet more Prime Day records broken. Amazon will be running specials not only online but through their mobile channels (Echo, Kindle, Audible) with specific deals targeted for users of these devices.

How easy is it? Just ask Jeff Bezos . . .

Just kidding, but it is getting easier and easier to purchase not only what you need for day to day living but for all those impulsive moments as well.

The power of ecommerce has even forced the worlds largest sport and leisure shoe manufacturer, NIKE, to re-think their strategy and start selling directly to consumers thru Amazon and Instagram. It’s an online world and most consumers have mobile devices which they care with them for instant online access.

Mobile ecommerce only makes sense.

I wonder if NIKE will be “online” in time for Prime Day? As of this writing (July 4th) I did not see their direct link listed on Amazon yet.

Are there Prime Day issues?

Yes, with this popularity there have been issues with finding good deals on products you actually want as well as general supply and demand. There have been many instances of consumers complaining that many of the special deals are not always on things they want, or are of cheaper quality than they expect, and for the items they are searching for, difficult to find and then when they do find them the deal is either over or sold out.

This year Amazon is helping you out by suggesting to download their app from which you can look up the schedule of daily deals and place a watch on the ones you want. This way the app will alert you when the special is about to start.

You can even download an Amazon Assistant to your desktop to help you stay up to date on your wish lists and orders.

How does Amazon stock react to Prime Day?

This one is a bit more difficult to answer. For one, this is just the third year that Amazon has hosted Prime Day. And two data points, or data sets, does not a pattern make – other than a straight line.
However, in 2015 the stock price increased the week before and kept increasing the week after.

In 2016, the stock price increased the week before but then went down the following weeks.

So what will happen this year?

Lately tech stocks, including Amazon, have been beaten down by the market. Will Amazon’s stock price continue its downward trend or will prime day provide the opportunity for investors to look at Amazon stock as another online bargain and reverse the trend?

My personal opinion is that Amazon, as well as many other tech stocks, has a bit more to fall. There may be a few fake reversals but to date the stock is only down 5%. Hardly the correction needed to inspire investors to scoop up a bargain.

What are your thoughts?

Time Travel

I don’t usually do a lot of traveling for work, but lately I have been playing the role of part time road warrior.  All of my travel has involved long flights to the west coast.  Strangely, jetlag doesn’t bother me too much.  The biggest issue I have with the time difference is the fact that the markets open just when I am waking up and close by 1 pm.  Which is often one of the busiest or most time crunched periods of the day for me.  I’m used to reading up on investment news while having a leisurely breakfast, having all day to see if I get any alerts, or not, for possible trades at the end of the day.  This traveling between time zones has totally thrown off my routine, changed the way I follow the markets and even the way I post on my site.  I am using the wordpress android app for the very first time.  

My question to readers is this.  Are the any road warriors out there who actively follow the market and their investments?  If so, what tips, tricks and tiolsbof the trade do you have in your arsenal?