Smart Money – Dumb Money January 15 , 2021

January 15, 2021No Comments

Today we are going to be doing a little bit of heavy lifting with the barbell. My name is Keith Richards and I am Chief Portfolio Manager, President and Founder of ValueTrend Wealth Management. I’ve been in the business for 30 years and I’ve done a little bit of weightlifting at least on the stock market myself. So I’m going to share the screen, and we’re going to go over a couple of our top ideas on the blog that I usually write twice a week here at ValueTrend. The website for the blog is www.valuetrend.ca. Twice a week, we cover interesting topics on the stock market that most investors might get some ideas from. So let me just start off with sharing the screen to give us a picture of a pretty simple thing.

Most people know what a barbell looks like, but what we’re going to be talking about is how the market resembles a barbell. Right now, we see with the barbell that there’s kind of a lot of weight at each end with a sort of less, materials, so to speak an empty bar in the middle. And to me, that is an acronym for what I am seeing on the stock right now, where I’m seeing a tremendous amount of overvaluation and overbought technical conditions on some stocks in some sectors. And I’m seeing the tremendous value and tremendous undervalued and overlooked under bought oversold sectors on the other. And there’s almost nothing in between. So there’s not a lot of fair value out there. It’s either like over overbought or oversold and almost nothing in between.

So let’s go right to the blog. So for those who have not been a regular follower of my blogs, this is the front page of our website, and you can see how our blogs are presented. Usually, the first three are on the front page, but you can always click up here on blogs and you’ll be given the whole gamut, and you can actually search categories. So if you’re interested in oil or something, you can have a look but we’re going to talk about the past week’s blogs today. And the first thing I want to talk about is that one side of the barbell, which is one of the overbought sectors and this summer, for example, the overbought sectors were the tech stocks like the fangs. Now they’ve calmed down basically since August.

They haven’t moved a bit in their place though. We see this massive rally on the green movement stocks. So TAN is an ETF traded in North America, US exchanges and it tracks all the solar industry stocks. And you can see, this is where this particular ETF was trading at a couple of days ago when I wrote the blog about three days ago and where it is and how far above the 200-day moving average, it sits. And that was about 115% above the 200-day moving average. At that time, I use a rule of thumb and that is about 15% over the 200 day, you’re starting to get overpriced. And that’s like 10 times overpriced from at least from a technical perspective, traditional momentum indicators, stochastics, RSI even MACD, are off the charts they’ve been running overbought for quite some time.

I noted in the blog that, that even, I’m not a technical fundamental guy, but a lot of the top holdings in this ETF have a huge price-earnings ratio it’s like 162 for Enphase. And SolarEdge is 88 and Sunrun, and these are forward earnings, by the way, not even trailing earnings,  765 times forward earnings. I mean, these guys have basically got to reinvent the light bulb for that earnings prophecy to be true.

A company called bear traps, whose research I subscribed to, It’s institutional level research, it’s usually not accessible by retail investors, but they brought my attention to this stock. So I did the technicals on it, but they noted that it is above the 200 days moving average by the greatest percentage that it’s ever been in its history.

So there’s, this is an overbought sector, probably the poster boy of, of the green movement has been Tesla. I mean, I always say that if we look at Tesla, it’s a great car company. It’s a great car. Elon Musk is a genius. We know all that, but this is like paying, if a box of really good donuts like Krispy Kreme is worth 10 bucks it doesn’t change the fact that if somebody tried to sell you that same box of Krispy Kreme donuts or $400, it doesn’t change the fact that they’re not good donuts. What it is that you’re overpaying by a marginal, by a magnitude I should say. And that’s the problem with Tesla. It’s trading at 378 forward earnings, and that’s just ridiculous. It’s right now using my rule of thumb,  anything over 15% over its 200 days, moving average is starting to get expensive.

It’s 143% over its 40 week or 200-day moving average. Ridiculous. This is most certainly been driven by speculation. Certainly not by valuation. There are going to be competitors coming into their space and the market is discounting any possibility that GM or Ford or Porsche or the high-end carmakers will come out with an equal or better product, or even just an equal product and give them any competition whatsoever. So it’s a spec stock and that’s the side of the barbell. If we go back to just one oversold area and not that I’m trying to promote gold, we hold some in our portfolio, but it’s just one of those sectors that are out of favour. So the black line is the 200 day moving average. This has come, the gold has come right back to its 200 days moving average.

It’s a longer-term trend so far is up. Yes, it’s doing a pullback, but stocks do pullbacks at times and so do commodities rather than being overbought, like we just looked at with the solar stuff it’s coming off of oversold levels. MACD was overbought for gold when it hits a peak, but it’s pulled back considerably. Meanwhile, we have progressive money flow in gold is, again, I’m not promoting gold is the only thing you should buy, but it’s just one of those old, it’s the other side of the barbell and you’ll see, utilities are on that side. Even REITs, not that I’m horribly interested in REITs right now, but these are all on that other side of the barbell. And these are areas that we should be looking for.

This is silver, nice cup and how their breakout same thing coming off of an oversold level. SentimenTrader does an optics that takes a look at, what the investor sentiment is on all kinds of different sectors.

And on gold, you can see that it’s coming off of, a very bearish, pessimistic outlook. And you’ll see that typically when the outlook is positive, gold or other, other sectors will fall. And when it’s out of favour by investors, that tends to be when the bottom occurs. So we’re kind of in, here we are there led up with a good bottom that came up with a good bottom signal. So I think the gold has potential, from a sentiment point of view, not just the technicals. Finally, I mean, whether it’s a longer term or shorter term condition of gold, potentially rising if it’s going to rise, it often rises into March and you can see that much of the year.

It’s fairly up and down. There’s a strong tendency between July and October, but probably one of the better bets is from January to March from a seasonal perspective. So if gold is going to move, this might be an opportunity again, it’s, I’m not trying to say, go out and buy gold. What I’m saying is take a look at these sectors that people are not looking at and do some homework because I don’t know if you want to buy into these super high valuation sectors right now at this point in the market. I just wanted to finish up by saying that we’re going to be doing a “Ask Me Anything”. A seminar in about two weeks on the 29th of January. And if you are a subscriber to our newsletter, you can click on our webpage and you’ll see a subscribe to the newsletter section, and you will be invited to attend it, and you will be able to conference in with myself and Craig Aucoin, Fundamental Analyst here at ValueTrend, and we’ll be answering your questions directly.

So it should be exciting for people. It will be a Zoom conference. I want to also finish up by just saying that we are quite convinced that there’s going to be a lot of rotation happening there already has been. If you look at the first half and the second half of 2020, it was rotation into tech stocks then out of tech stocks and into commodities. And who knows what’s next, but we’re trying to keep ahead of that. As we have been by looking at things like these value stocks and utilities and, and whatnot as well as commodities. We continue to be interested in commodities. So if you are not analyzing stocks effectively and moving with these rotations, then you may be disappointed later this year because the market is certainly not cheap on at least one side of it. So index trading may not be the best strategy as things move forward. And if you would seek guidance in that area, that’s certainly what we ValueTrend do. And we’re happy to accommodate you for your investment needs. Thank you for watching, and we hope you have a great trading week ahead.

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