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Talking Technicals - November 12th
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My next deep dive writeup will be out tomorrow or Monday — the company we wrote about this week reported Q3 earnings a couple days ago so we needed to update some numbers, listen to the conference call and wait for the 10-Q to get filed.
I hope everyone had a great week. The last two days were absolutely insane for the equity and crypto markets. The equity markets had their two best back-to-back days since the March 2020 lows (thanks for a better than expected CPI numbers on Thursday morning) and the crypto markets had a complete meltdown (thanks to Sam Bankman-Fried (SBF) and the unraveling of his crypto exchange called FTX). Details are still coming out regarding FTX and SBF but it appears his crypto quant fund (called Alameda Research) was losing tons money as crypto prices hit new lows so rather than shut it down and/or reduce the leverage he kept taking on more leverage until the losses were so big that he made the horrible decision to “borrow” somewhere between $5-15 billion from his FTX customers. He was probably hoping he could generate enough profits trading this “new” money that he could replenish the Alameda balance sheet (fill the hole) and then put that $5-15 billion back into FTX accounts before anyone could notice. The entire saga is still hard to fathom but I’m sure we’ll know more in the coming weeks. I just feel horrible for anyone that had a significant chunk of their investable assets at FTX — it’s now quite obvious why the crypto industry needs more regulation and transparency, otherwise they’ll never regain the trust of customers. Since we’re all trying to figure out how to make more money in stocks, it’s possible the collapse of FTX will be good for companies like (COIN) in the long-term but there’s almost definitely more pain in the short-term as crypto investors around the world have now lost confidence in the entire ecosystem however as that confidence gets restored I think (COIN) has a chance to become the market leader and gold standard.
Even though I consider myself a long-term investor I still pay attention to the technicals/charts which can show me where I should managing risk (setting stop losses), starting new positions, adding to positions and trimming positions. Whether you’re looking at trendlines, moving averages, bollinger bands, Fibonacci lines, price/volume areas, MACD, RSI or a dozen other technical indicators — knowing how to do some basic technical analysis can help you generate better long-term returns. Even as long term investor I will still trim positions if it looks like they’re getting extremely overextended/overbought on the charts and then I’ll consider adding to those positions ie buying back those shares if the stock pulls back to the 20/50/100 day moving averages. Not every long-term investor believes in this strategy but it works for me so I’m sticking with it.
Going forward I’m hoping to publish a weekly newsletter (typically on the weekends) for my paid subscribers that will highlight some of the charts I’m watching the closest. Over the course of a week I probably spend 30-40 hours looking at charts which includes the 20-30 stocks in my own portfolio plus another 60-80 companies on my watchlists. I also spend lots of time looking at the charts for the major indexes (SPY, QQQ, IWM, etc) because it’s important to know where the indexes might find support or resistance and how their behavior could impact my stocks; meaning if I’m mostly investing in growth companies and the (QQQ) (IWM) and (IWO) are getting rejected at a major trendline or moving average then it’s likely my stocks will run out of steam around the same time. We saw this almost exactly 12 weeks ago when the $SPX (S&P 500) got rejected at the 200d SMA. Over the next 40 trading sessions $SPX declined by 19% when it made a new 52-week low on October 13th. If you look at the chart below you can see all of this.
Since we’re talking about (SPX) already I’ll start there — it’s certainly possible the 200d EMA provides some resistance but I think that’s unlikely. Most investors will be paying closer attention to the 200d SMA (still trending lower) which is around 4081 or 2.2% higher from yesterday’s close. If the (SPX) can’t get through the 200d SMA then I’ll be looking to raise cash and/or add some hedges because that could mark the end of this current bear market rally (if that’s what this is). If the (SPX) pushes through the 200d SMA then the next area of possible resistance would be the downtrend line from the all-time high earliest this year through the rally in March and the rally in June. That line would provide resistance between 4100 and 4120 (2.9% higher) depending on which day it happened. Once again, if (SPX) can’t push through that downtrend line then I’ll be looking to raise cash and/or add some hedges which could be (SPY) puts or a long position in (SPXU) which is the 3x inverse (SPY) ETF or perhaps some shorts on individual stocks that have rallied the most over the past few days and therefore could be due for the biggest pullbacks. I’d be looking at companies that rallied despite posting disappointing Q3 earnings. Perhaps if $SPX does get rejected at the 200d SMA or that trendline I’ll do a writeup on which companies I’m planning to short as my hedges.
Now let’s look at (QQQ) which is just as important as (SPX, SPY) and although it didn’t get to the 200d SMA this past summer like (SPX, SPY) we can look at the prices on August 16th and then draw a line from the all time high in November 2021 through the March rally and the summer rally to come up with a possible resistance area at 306-310 which is also right around the 200d SMA (310.28) which is approximately 7.6% higher from yesterday’s closing price.
Based on this chart and the (SPX) chart we know that (SPX) is closer to their 200d SMA and the downtrend line that could provide resistance. If (SPX) got rejected at either it’s likely that (QQQ) would follow however the (SPX) is more diversified across the different sectors like financials, technology, industrials, energy, etc whereas (QQQ) is mostly technology so if investors truly believe that inflation is coming down and it’s time to start buying longer-duration assets ie growth stocks then perhaps (QQQ) doesn’t need to pullback just because (SPX) is pulling back or got rejected. Maybe (SPX) getting rejected at the 200d SMA or the trendline would be an opportunity for investors to sell some of their value stocks (which have held up much better this year) and rotate into some growth/technology stocks which have done much worse this year. Stocks like Amazon, Meta, Nvidia and Tesla are down an average of -48% YTD versus stocks like Proctor & Gamble, Johnson & Johnson, McDonalds and United Health which are actually up YTD or at least barely down — 2022 has been the year to own high quality dividend paying large cap value stocks while stay away from everything else. At some point the tide will turn and investors will begin to shy away from the current P/E multiples on these large cap value stocks while finding better opportunities in the beaten down growth stocks. For instance (PG) is trading at 24x earnings with mid single digit revenue & earnings growth, does anyone reading this think that (PG) will provide double digit annual returns going forward? I certainly don’t whereas some of the higher quality growth stocks could certainly provide shareholders with double digit returns over the next 3-5 years and I think most investors will realize this one the Fed/FOMC is no longer a massive headwind ie we’re getting towards the end of the rate hiking and inflation is finally coming down and hopes for a soft landing (for the economy) are still within reach.
For this first “Talking Technicals” writeup I’ll be focusing on the stocks that I currently own (in my personal portfolio) but going forward I’ll mix it up and try to include more stocks that are on my watchlist where I’m seeing compelling setups for entry points and trades.
CELH is still my biggest position, they reported phenomenal earnings last week (revenues were 16% above estimates) and now we have the tailwinds from the Pepsi distribution deal that was announced a couple months ago. CELH has been trying to breakout the past couple days but running into resistance at the volume weighted average price(VWAP) from the all time high (ATH) from late August. If you don’t own CELH yet I think you can buy it here with stop loss below the 21d EMA or the VWAP from the May lows which is where the stock bounced on Thursday. Or you could wait for CELH to get back above the VWAP from ATH with stop loss just below that level because once it clears that VWAP it’s probably heading back to the ATH in the $118 range.
Shockwave Medical (SWAV)
SWAV is still one of my largest positions, it has been all year long, the stock is still up 38% YTD and continues to post incredible quarterly results, showing triple digit revenue growth as the companies expands internationally and introduces new products. Valuation is rich but no other medtech company on the planet has fundamentals as strong as SWAV. The stock pulled back yesterday on no news. I think you can start a position here and use that 150d EMA as your stop loss because that’s where the stock found support on Thursday — if $240 doesn’t hold then $230 at the 200d EMA looks very likely.
LNTH is another one of my largest holdings and I remain very bullish still despite some crummy price action in the stock after Q3 earnings which came in very strong along with higher full year guidance. LNTH is not only growing triple digits on the top and bottom line but the stock is now trading at less than 20x earnings. I was adding to LNTH this week because the 65w EMA held up just like it did earlier this year. Not sure why the 65w EMA is so important here but it’s where I’d manage my risk meaning if you buy LNTH this week and the 65w EMA does not hold then there might be more downside since the stock is already below the 200d EMA/SMA. I still think LNTH could be a $120+ stock in the next 12-18 months which is a 25x multiple on $4.75 of EPS in 2023.
DLO remains a top 5 position for me, the fundamentals are still incredible and the valuation is becoming a joke based on their expected growth rates over the next 12-18 months. DLO is growing revenues and earnings at 60-80% through next year yet the P/E multiple is just half of that meaning DLO has a PEG ratio of .5x which is pathetic compared to the PEG ratios of other fintechs like Visa (V) Mastercard (MA) which are both around 1.5x which means they’re 3x more expensive than DLO at current prices. Obviously it’s not apples to apples because DLO is a $6.5 billion company and V/MA are $300-400 billion companies — but hopefully you get my point. DLO broke through that recent downtrend on Friday but then got rejected at the 65d VWAP. I think you can own DLO here but if you want to manage risk, then you could have a stop loss blow that support line — but keep in mind DLO reports Q3 earnings on Monday afternoon and your stop losses won’t work after hours so if you don’t own it yet, then it might be better to wait until after earnings unless you want to start a 1/3 position before earnings and if it rips higher then you’re glad you own some and if it pulls back then you’re glad you only had a partial position — in this case you’d have to decide whether to dump it or average down. Personally I love DLO for the next few years because I think they can keep growing revenues at 40-50% and their 30% net income margins will ensure big profits and free cash flow for stock buybacks and acquisitions.
STEM rounds out my top 5 positions, this is still one of my favorite stocks for the next few years because they have strong tailwinds from the solar revolution as well as the recent infrastructure bill. STEM is another company growing revenues in the triple digits although they’re not profitable yet but should be FCF+ in the second half of 2023. STEM started breaking out this week but then got rejected at 65d SMA however it bounced off that support line from the recent high so I think you can manage risk there (ie stop loss just below) or perhaps at the 21d EMA at $12.70 where the stock found support on Thursday. If you like STEM for the next few years then you probably want a bigger pullback so you can buy the stock at cheaper prices but if you’re focused on the technicals then I’d be looking at the 21d EMA or perhaps the 100d SMA which is just below the 21d EMA at $12.49
UBER is another stock that I remain bullish on, especially after seeing those better than expected Q3 earnings with more proof the company is able to generate FCF. It’s also quite apparent that UBER is taking market share from LYFT and reinforcing their position as the dominant player in ridesharing/mobility. Technicals on UBER look pretty good, recently reclaiming the 200d SMA which also provided support on the pullback yesterday after a failed breakout. If you want to own UBER I think you can manage risk against the 200d SMA where the stock bounced Friday or the 100d EMA where the stock bounced on Thursday. The other option is to wait for a confirmed breakout above $30 and then put your stop loss below that support line.
Xponential Fitness (XPOF)
XPOF is a stock that I wrote about recently and still own in my portfolio. They reported better than expected earnings on Thursday and the stock gapped up then pulled back. There’s very little resistance above as you can see from that volume shelf if the stock is above to get above $23. With Q3 earnings in the rear view mirror and analysts raising their estimates and price targets, I think you can still buy XPOF but use that support line as your risk management. If it can’t bounce/hold that line then wait for a bounce off 5/8/10d EMA before jumping in.
XPEL reported solid Q3 earnings this week, the stock was up 4-5% pre market then faded during the day and closed lower on Friday. A few weeks ago the stock bounced off the 200d SMA but recently it’s been that VWAP from May lows providing support so I think you can own XPEL here but use that VWAP as your stop loss target (60.75). The other option is to buy XPEL on a breakout above resistance in the $68 range.
Procept BioRobotics (PRCT)
PRCT remains one of my favorite small/mid cap medtech stocks, currently growing triple digits and just getting started. As I mentioned in my writeup a couple months ago, PRCT reminds of where SWAV was a few years ago. PRCT reported earnings this week and initially pulled back because they said losses this year will be bigger than originally forecasted but once you listened to the conference call it was obvious those bigger losses are because they’re beefing up the sales and marketing teams in anticipation of a big 2023. PRCT is kind of in no man’s land, if you want to start a position I’d either wait for a pullback to the VWAP from ATH in September or I’d buy it on a breakout above resistance. If PRCT can get back above resistance ($46 range) then we could certainly see a year end rally to new ATHs (low $50s).
TMDX has been one of the best performing stocks this year, it’s another medtech growing at triple digits with improving margins and a bright future. Like most of my medtech companies they beat Q3 earnings estimates and raised Q4 and full year guidance. The stock is having a hard time getting through $60 however the 5/8d EMA are providing recent support. If I didn’t own TMDX here I’d only buy it on a breakout above $60 or a bounce off the 8d EMA. If TMDX can get above $60 then I’m looking for a rally into the $70s where I’d do my next trim. In full disclosure I did trim TMDX yesterday when it got rejected at $60.
DDOG is a relatively new position for me, I’ve liked this company for the past couple years but the valuation never made sense until recently. I started buying DDOG once the stock dipped into the $70s as cloud/software stocks continued to be under pressure. Yesterday DDOG finally broke out through resistance after bouncing off 5/8/10d EMA in the morning. I think you can buy DDOG above the support line but use a stop loss just below in case it can’t hold, then you could wait for the next pullback to the 8/10d EMA.
CROX has been a strong performer for the past few months, when growth stocks were pulling back from the summer highs, CROX held up very well because the fundamentals remain in good shape. I think investors were worried a recession could impact CROX sales but Q3 earnings crushed those concerns. CROX reaffirmed their $10 of EPS for 2022 as well as their 2026 revenue forecasts of $6 billion which could generate $1 billion of FCF. If you throw a 20x multiple on $1B of FCF in 2026 you have a stock that could 3x from here. CROX is not a hypergrowth story anymore but they should be able to maintain 15-20% growth with strong EPS and FCF growth which leads to big stock buybacks and dividends (after they finish paying down debt from the HeyDude acquisition). CROX is now above all the long/short term moving averages, breaking out above this resistance line on Friday then pulling back, bouncing off and settling just above. I think you can buy CROX here but only with a tight stop loss below that support line. If it drops below then it might be a good short term short into a pullback to the 5/8/10d EMA. In full disclosure I also trimmed CROX on Friday in order to take some profits and add to some of my other positions that pulled back yesterday like SWAV and LNTH. CROX is still a cheap stock by all metrics but it’s also up 100% from the June lows so please be careful. No need to rush into buying this one after a big run.
MELI is not only my favorite ecommerce stock with impressive revenue and earnings growth but I love that the stock is sitting just above the 200d SMA because that makes this very simple. You can buy MELI at these prices as long as it holds the 200d SMA. If the 200d SMA does not hold then there’s no reason to own it. Sell and wait for a better entry. 200d SMA is $915 which is approx 6% lower from here, not too bad if you have to get stopped out with a small loss. Personally I hope to own MELI for the next few years so I’d adding on pullbacks. The other option here is wait for MELI to break through resistance around $1000 and then use that support line for your risk management (stop loss).
Meta (META), the former Facebook
META is the dumbest name for this company, huge mistake by Zuck to change the name. The stock has been a dumpster fire ever since they started burning tens of billions of dollars on the stupid metaverse, perhaps it pays off in 10 years but he’s sacrificing the current shareholder base in the meantime. However, Zuck finally showed some common sense and discipline this week when he announced 11,000 of layoffs. I guess losing $100 billion of net worth and force someone to reassess the situation. I hate seeing people lose their jobs but it was ridiculous that META had 88,000 employees at the end of Q3. It was time to right size this ship. It’s no coincidence that META has ripped higher since Zuck announced the layoffs because it shows he’s finally ready to cut some costs and burn a little less money next year. META is still a cheap stock although top line growth will probably be in the 8-12% range for the next few years however if you combined that with 20-30% FCF margins you have a company that still generates a ton of FCF for buybacks, M&A and maybe even a dividend (this is my hope). I think META still has upside to that downtrend line but have to be watching SPX and QQQ to see what they’re doing. If the indexes are running into resistance, especially QQQ. Although META might be slightly de-coupled from the indexes because it’s a special situation around these layoffs and lowering opex/capex spending in 2023. Investors have been waiting for Zuck to admit these mistakes and chill out on the spending/hiring. Even if the indexes go sideways or pullback it’s possible that META acts differently. META has reclaimed 21d EMA although the easy money has been made in the past 5-6 sessions off those insane lows in early November. I had bought some META calls when the stock got under $90 but I unloaded them Thursday with a 150% gain. I still own some META equity which I bought after they reported Q3 earnings and the stock tanked. I loaded up under $110 and then averaged down the next few days as the stock continued to go lower. Once it got under $90 I sold half my equity and bought the calls with that cash. I think my META position is sitting around 2% right now. I don’t have plans to increase until the stock pulled back under $100 or broke that downtrend support around in the $120-122 range. If you don’t own META right now I’d wait for pullback to 10d EMA or wait for the breakout. META is up 28% in the past 5 sessions, don’t chase it here.
TSLA is a relatively new position for me — I started a position a couple weeks ago when the stock dipped below $200 knowing full well there could be more downside especially if Elon has to sell more stock to cover losses at Twitter. Elon kind of screwed his Tesla shareholders by going after Twitter in the first place, which put him in a position where he needed to sell $15-20 billion of stock to cover the acquisition price. Obviously he tried everything to get out of the deal because it’s pretty obvious he overpaid by $20+ billion. Nevertheless I think TSLA at $200 was finally looking good to me so I started a position. I was quickly in the hole because the stock kept going lower this week but then bounced off the VWAP from the March 2020 lows and now I think we’ve put in the lows but I could be wrong. If this VWAP does not hold then I think the next obvious level of support is the 200w SMA at $160. That’s where I’d look to take my 2.25% position to 3.5% or bigger. Just not sure it happens. I like Tesla and Elon but they are both nonstop headline risks. TSLA used to be a super expensive stock but that’s not true anymore. This is a company that could be $200+ billion in revenues in 2026 with impressive margins and free cash flow. In terms of 2023 numbers, TSLA only trading at approx 30-35x 2023 EV/EPS (depending on whether you use GAAP or non-GAAP) with 35-40% EPS growth. This might be the first time that TSLA has ever traded with a NTM PEG ratio below 1.0 — anyone saying that TSLA is overvalued at $195 per share either doesn’t follow the company and know the numbers or believes that TSLA can’t hit these estimates next year because competition is catching up or we’ll run into a bad recession that will hamper auto sales.
Hope you enjoyed my thoughts and comments on these 15 charts — I personally own every one of these stocks and have been adding to them in recent weeks.
Next time I do one of these writeups I’ll definitely cover more stocks on my watchlist but I know lots of my subscribers own some of these 15 stocks so I wanted to cover them first.
If you have any feedback or questions for me, please don’t hesitate to reach out.
As a reminder, if you want to know what I’m doing in my portfolio everyday then I suggest checking out my Stocktwits room at stocktwits.jonahlupton.com
My new podcast “Investing with the Whales” launches next week — our first interview is with the CEO of Shift4 aka (FOUR). The second interview is with the CEO of Celsius (CELH). You’ll be able to watch all the interviews for free on our website or at youtube.jonahlupton.com, we’ll also have them posted on Spotify, iTunes and Google Play.
Jonah Lupton, CEO at Lupton Capital
Disclaimer: The stocks mentioned in this newsletter are not intended to be construed as buy recommendations and should not be interpreted as investment advice. Many of the stocks mentioned in my newsletter have smaller market capitalizations and therefore can be more volatile and should be considered more risky. I encourage everyone to do their own research and due diligence before buying any stocks mentioned in my newsletters. Please manage your portfolio and position sizes in accordance with your own risk tolerance and investment objectives.