THE BOTTOM LINE
Atypical and abnormal behavior in normally reliable supply and demand indicators together with an environment of extreme bullish sentiment, and historic overvaluation has caused us to investigate building a new core investment holding in an ETF to diversify risks, which holds out the promise of giving our clients an opportunity to participate in two globe changing emerging disruptive trends, which are beginning to be powered by major multi-national corporations, sovereign nations, and a new generation not only willing to quickly adapt to new technologies, but eager to incorporate them into their daily lives. Consequently, we will begin to build a growing core holding in our preferred ETF, while continuing to trade around VOO and QQQ as trading opportunities arise.
Disruptive Change
Our Investment Committee has been investigating two emerging disruptive changes, which hold out the possibility of dramatically reducing costs in a number of industries, while also saving tens of thousands of lives in this country, and even more around the globe. The impact of these two disruptive changes will very likely challenge the future of some multi-national corporations while creating massive opportunities for corporations willing to change their existing business models to take full advantage of these two emerging tech driven trends. In short, there is change afoot around the globe, which will likely change how business is done, and the application of these changes are likely not decades away, but accelerating towards us so swiftly that the affects may be felt in a meaningful way in five years, or sooner, as opposed to decades in the future.
Moore’s Law is an observation, which drove the application of personal computers, the Apple I-phone, and the ubiquitous application of the internet. It postulated that the power of early micro-chips and personal computers would double every year, while the associated costs would continue to decline sharply. Early on this seemed an absurd idea, until it actually began to happen. Today there is an “echo” to Moore’s Law, which is not quite as efficient, but nonetheless is bringing down costs of a certain critical technology swiftly, and as it does is accelerating the application of these two emerging trends. A tipping point is being reached as this is being written, which promises to make these two emerging technologies cost competitive with the corporate giants, which have recognizable household names, and which have been dominant for decades. The cost reductions both real, and predicted, are beginning to accelerate the rate of application of these two trends, which are still in their relative infancy.
Major companies, both domestic and international, and even nations are beginning to announce they are mandating the application of these two trends, which will reduce their cost of labor, cast a long shadow on expensive personal and business insurance by potentially reducing premiums by as much as 90%, which will in turn tend to speed up the application of these two trends. And, these trends hold out the potential for dramatic progress in the reduction, and potential reversal of pollution and global warming, which is why entire nations are beginning to mandate the application of these new technologies.
Our Investment Committee has decided that there is a universal way for clients to play both these two disruptive emerging technologies, and at the same time assuage our angst about navigating the current historically gross overvaluation of the stock market, and by numerous measures a historically euphoric, and extreme in terms of bullish sentiment stock market, conditions which often do not end well for investors. A decision has been taken to begin to build a core holding with an ETF to diversify risks, which will give clients an opportunity to participate in these globe changing emerging trends. Upon request, clients will be provided with a more comprehensive report about the implications touched on only briefly in this update.
TATY — A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS
TATY is shown above in weekly format in Snapshot-393 in yellow with the S&P-500 overlaid in red and blue candle chart format.
TATY finished the week at 139 marginally below the red zone surrounding the 140-144 level after dipping into the caution zone surrounding the 115-125 level. This action sets up another potential “Big Chill” warning, which have a history of foreshadowing significant declines. If a new bull market was born at the March 23 low, then at some point we would expect TATY to form bottoms in the red zone and tops in, or near the blue zone surrounding the 160 level. Historically bull trends result in TATY oscillating between the red zone and the blue zone. However, after decades of consistent behavior TATY has exhibited atypical and abnormal activity post the March 23 low, but the “Big Chill” warnings have continued to be effective.
The down sloping magenta line on the TATY chart did flash a brief warning before the February to March 23 record plunge, but the current down sloping magenta negative divergence was breached during the market’s surge to new all-time highs this past week, as investors anticipated another infusion of massive liquidity compliments of the new Administration, the Congress and the Fed. Liquidity must find a home, and it usually flows to the most liquid (no pun intended) markets.
SAMMY — A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS
SAMMY is shown above in weekly format in Screenshot-203 in light yellow bounded in blue with the S&P-500 overlaid in red and blue candle chart format. The dashed magenta down sloping line shows the negative divergence, which yielded to the steep February to March 23 record setting decline.
The orange down sloping dashed line shows the yawning large negative divergence, which developed over the last several months and remains in place. Negative divergences do not always result in declines, but the percentage is so high that investors ignore them at their peril. The more recent negative divergence shown by the down sloping solid yellow line was breached this past week as the S&P-500 surged to new all-time highs riding a tide of an expected new infusion of liquidity. It remains to be seen if TATY will develop enough demand to oscillate with bottoms in the red zone and tops approaching the blue zone, and if SAMMY can sustain its break out above resistance, signaling a balance of supply and demand favoring demand over supply.
Please stay safe!
