Ask me Anything Answers: Part 3

We made it! This is the last of the 3 blogs it took to cover the questions (18 in total) from last week’s “Ask me” blog. Lots to cover, but….we’re in the home stretch!

As a humorous note on the “home stretch” comment – some of you might know that I am a competitive cyclist. Because there was no bike racing this year – I took up a new goal of achieving one-ride, and all-year distance records for myself. I’m not much a super distance cyclist – I prefer going fast over shorter races. So its been a challenge to go from short and hard, to long and slower. Not slow, just slower.

Anyhow, one of the goals was to do a single ride of 220 km with significant climbing – at a good pace. My friend, who is way better at distance rides than me, was in for such a ride. He was actually doing a 300 km ride that day, so I joined him for the last 220 km. Of course, being the short distance racer I am, I was fine up until about 140 km. But then, cracks started appearing. So Jeff, in an effort to be encouraging, said to me “Hey, its only 80 km to go…we’re in the home stretch!”. Ironically, my prior definition of a long ride was 80-140 km. Whatever the case, I made it.

So you see…everything in life is relevant, isn’t it?

On with the show…

Sports betting stocks

Right in line with my bike comment above, Terry asked about sports betting stocks. This is an area I hadnt explored in the past, so it intrigued me to look into it.

To start, its not really a “sector” play that one can comment on in one swoop. There appears to be only a couple of dedicated sports betting stocks. They are DraftKings (DKNG-US) and Flutter Entertainment (PDYPY). Draftkings is a relatively newly listed stock–although I believe it traded under the ticker DEAC prior. As such, I can’t really asses much on the chart beyond that its basing after a rise over the past number of months.

Flutter is an OTC stock that has the typical erratic super rallies and super declines that you see on such thinly traded stocks. The volume has picked up on that stock – I assume due to “stay at home” pressures. Clearly, the stock has gone parabolic – with a price of $80 its almost 40% above its 200 day SMA. I don’t like to see stocks trading at 20% over their 200 day SMA’s – so its a risky one.

Other gambling companies are getting in on the sports betting action. MGM, BYD, CHDN, and PENN are involved. Of those, only CHDN and PENN are displaying bullish, albeit way overbought, charts. They are making new highs, yet need a pullback to wash out some excess. The other two are erratic. CHDN is in the early stages of the breakout, so it may be worth watching. Not much else I can offer on the group, beyond these brief technical comments. Do your homework. It looks like there are lots of opportunities to make, or lose, your money on these stocks. You might call it “a gamble” to trade them….

Market outlook

Aaron asks if I am still holding cash with markets at new highs. I’ll expand on that question by adding…if so, why?

To start, I am holding 20% cash in both the ValueTrend Equity Platform, and even in our “ValueTrend aggressive Growth” Platform. Here is why:

Most of the indicators that make up the nearer-termed market outlook factors of my Bear-o-meter have been suggesting flat/lower stock prices short- to medium-term. That said, the longer termed outlook is bullish due to chart patterns, moving averages, cumulative moneyflow etc.
Seasonally, markets can be more volatile in August and September than most other months. True, seasonal patterns have not mattered much this year, but there is always the potential for a return to normal.
Most market indices are overbought on the daily charts, and getting closer to overbought on weekly charts (momentum indicators).
One of my worries is the polarization between the extremely skewed preference for tech stocks which looked to have stalled by late June, especially relative to value, dividend stocks, industrial’s and financials. The “market” indices like the SPX have been led by stay-at-home and tech. If they correct, they will influence all stocks – albeit less so for value etc – as I discussed here.
Market optimism is at an extreme level (a contrarian signal). Especially by market participants who are traditionally “wrong” more often than right when markets reach extreme levels. For example, small options traders net speculative activity is the most extreme since 2007. According to Sentimentrader, when premiums are considered, it is by far the most extreme ever. Similarly, smart money/dumb money (courtesy www.sentimentrader.com) is getting to dangerous levels. Basically, this indicator pits smart investors like institutions and large commercial hedgers against mom & pop investors. Smart money is on average only 35% confident in the current market outlook, whereas dumb money is 80% sure that things can only keep going up. The chart below shows us how most of the time, when these levels are reached we see a correction in the coming weeks.

Final question: Heiken -Ashi charts, and my favorite indicators.

This really is the home-stretch. Andy asks about Heiken-Ashi charts and my favorite indicators. Lets start with my favorite indicators. Heck, lets go way deeper than just that. How about we look at the entire ValueTrend technical and fundamental approach? Here is a link which brings you though the entire ValueTrend process from start to finish. This should more than answer your question on what kind of indicators and tools we use to make investment decisions.

Ok -Heikin-Ashi charts. To be honest, I had never heard of them until you brought them up, Andy. Yikes – another thing to learn! But stockcharts.com has a great resource on how to interpret them. Here is the link. I won’t waste your time by commenting on these two-bars rolled into one type charts. I haven’t the experience to add insight. However, you have sparked some interest – I’m going to spend some time trying to learn about them. So you see, you just taught me about something I didn’t know. And that’s what this blog is all about! Thanks for that!