Weekly Update (6/12/2017)

This week brought our Minotaur portfolio to all-time highs, despite one of the worst weeks of 2017 from the NASDAQ.

We booked profits in BLUE (+616%), AMD (200%), YY (350%),  and BZUN (+120%). We are also up significantly in other positions, such as our BAC and ELF July calls. Our members with access to trade alerts hear about these positions first.

Let's dive right in.

"Gotta Get Down on Friday"

The NASDAQ experienced a major sell-off on Friday, leading to concerns about another 2000-ish tech bubble.

The NASDAQ experienced a major sell-off on Friday, leading to concerns about another 2000-ish tech bubble.

After a flat week for the markets, the NASDAQ decided to shake things up Friday afternoon with the largest selloff of 2017 (so far). Tech darlings like AAPL, TSLA, AMZN, and NVDA took the brunt of the selling, dropping anywhere from 3-8%. Our portfolio had very minimal exposure to tech at the time, and more exposure to financials, biotech, and energy, which were rallying throughout this tech drop.

Let's examine why selloffs like these happen: Many people say that equities "take the stairs up, and the elevator down," meaning that they drop much faster than they rise. The NASDAQ, for example, lost more than 2 weeks of returns in a single day on Friday. When stocks like AMZN and NVDA experience such large price increases like in the last few weeks, they create a positive feedback loop of investors over-crowding into the stock because it is heading up, which makes it rise even more. There is a stark difference between investors that buy a stock because they have valued the company at that price, and investors that buy a stock because it is going up; the latter are much more susceptible to fear and emotion and sell the stock at any negative news.

When one investor starts selling, all of the weaker investors think that the free-ride is over and sell as well, causing a domino effect, or "shakeout" of weak investors in a short period of time. At a certain point, the other type of investors (the ones that buy stock based on valuation) jump in and buy at the price they have specified, causing the stock to stop falling. 

The problem is that it's impossible to predict the selloffs (tops) and when the stronger investors will step in (bottoms). For that reason, we try to put ourselves in positions that have low downside, and strong upside potential.

We mentioned in the last few weeks a rotation from the tech FANG stocks (FB, AMZN, NFLX, GOOGL) into other sectors, and this seems to be an indicator of that. For this reason, we had positioned ourselves towards much shorter term positions in these stocks, and longer, multi-month positions in "Trump-trade" names. This looks like a rotation, rather than money actually leaving the markets, because of how many other sectors were up during this dip; The financial sector was up 3.54% for the week, and the energy sector was up 2.36%.


Short Term

We're going to observe any follow-through of this downside move on Friday and possibly initiate some tech positions if things are able to level out. What we want to avoid here is speed in either direction, which is indicative of a top. It's possible that we engage in puts on the over-crowded tech names (NVDA and SQ look good) if this downward trend continues. 

One metric that caught our eye was the amount of call-buying activity on NVDA during the selloff, which is a clear indicator of a short-term top. If you remember from previous emails, put-buying on a dip is a bullish indicator, while call buying is a bad sign.

Do I need to say it again? We love financials here

We also have positions in biotechs (MYGN, ALXN) and are watching some others; additionally looking to initiate positions in BIDU, CMG, X which have decent setups.


Long Term


The semiconductors took a significant hit on Friday, with some dropping over 4% in a single day of trading.  While the rotation out of tech into other sectors is sure to cause some short-term pain in the sector, this sell-off says nothing about the specific companies that are being hit.  

We think that there is a buying opportunity here once the dust settles and the industry sees some consolidation in pricing.  With smart cities and smart phones growing at an exponential rate, these companies are sure to keep putting out good numbers, and the buyers will be there to send them higher.

For those of you who let fundamentals guide your investments, the sector is trading at 16x forward earnings, which is lower than the 17x the S&P 500 is trading at.  Consider how many people you know that have a smart home or utilize Alexa.  That number is expected to grow astronomically over the next 5 years, and you'll want to have exposure to that growth. We like CY, SWKS, and AVGO on a deeper pullback.  

CY is gearing up for a move here, one way or another.

CY is gearing up for a move here, one way or another.


Materials / Agriculture:

We're almost tired of saying it, but if you don't have any exposure to steel right now, you might be missing one of the last opportunities to buy at these levels. There is going to be a time where you'll look back on how X sat oscillating between $20 and $22 for weeks.

Steel's not the only party we're looking to jump in on.  We really like MOS, CF, and other farm-related companies for a long-term turnaround after months of pain.  We think this is the sector that large funds are rotating into, and we like the fundamentals of the sector enough to toss our hat in the ring.  This is a "close-your-eyes" and wake up in 6-8 months kind of trade.

MOS is likely set to retest this breakout, at which point it could start its upward trend.

MOS is likely set to retest this breakout, at which point it could start its upward trend.

Happy Trading,

- The Minotaur Team