1999 Redux?
Posted on Saturday, June 23rd, 2018
Trade wars and tariffs continue to grab the headlines as small and mid cap stocks in the United States outperform. The theory is that small and mid cap stocks will not suffer as much as their large caps brethren due to their lack of international sales. Lately, what has piqued our interest is the tremendous disparity between large cap tech (i.e. Netflix) and consumer staples (i.e. Kraft Heinz). Not advice folks, just examples. We are getting that 1999 feeling again. 1999 was when tech overtook all reasonable valuations and left good quality companies in the dust. We currently see Netflix valued at 275x earnings with no dividend versus Kraft Heinz at 7 x earnings and a 4.0% dividend. This is Not advice. We are just bringing attention to disparate valuations.
Our thesis about the market consolidating its gains around the 2666 level on the S&P 500 for 9- 18 months continues to hold. At the end of June we will have seen month 7. The World Cup has the eyes of Europe and Asia as the tournament tends to keep a lid on things and so will August beach vacations. Those would months 8 and 9.
We have been telling you to keep an eye on Bitcoin as an indicator of risk. It was another tough week for bitcoin as it fell 6% from where we last marked it to a current level of $6061 (Fri 4pm).We felt that the $6777 level was a key level of support. We would now look to the $4000 area as support. Let’s see if any continued selling has an effect on speculators in equities. We are not trading bitcoin nor have much interest in it beyond using it as a temperature gauge for risk sentiment and how that may apply to the stock and bond markets. Bitcoin will begin to interest us when it falls 90% from its high of $19,200.
The S&P closed the week at 2754 or smaller than 1% loss for the week. The S&P 500 has consolidated its run from the last few weeks and that is healthy. The 200 DMA is sitting right about 2666. Small and mid caps continue to lead but are a bit over bought and signaling that they may need to take a breather. Gold has broken below support levels and is a bit oversold and looking to bounce.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.