Why stocks drop following blowout earnings
Aug 11, 2021Good morning!
Futures are searching for direction this morning which is par for the course. The usual suspects are talking about supply chain concerns, inflation, the Fed, China … absolutely none of which have anything to do with the selloff.
There’s a perfectly good (and super simple) explanation. Savvy investors and traders would be wise to pay attention because knowing how the game is played can give you a huge advantage!
Here’s my playbook.
1 – Why the markets really dropped after great earnings
We all love a good story which is why the mainstream media is doing its best to explain the situation by attributing the selloff to supply chain concerns, China, Russia, inflation, the Fed, and more.
Thing is … NONE of those things have anything to do with the short-term selling pressure.
Here’s what is really going on.
Big tech – Apple and Microsoft specifically – are two of the biggest, most widely held, and liquid stocks in the world. When they move, the broader markets move.
Highly leveraged traders are simply following a pattern they’ve set for the past few quarters: a) run the stock up into fabulous earnings, 2) sell just ahead of the announcement to avoid “event risk” and 3) buy more to do it all again when panicked retail stock investors sell right into their hands over the next few days.
If you’re an investor with a longer-term perspective, use this to your advantage. If you’re a trader, understand the “fade.” Both can be tremendously profitable plays.
Watch my take with the fantastic Dagen McDowell earlier this morning.
**And, on a related note, I hope you took advantage of the “fade” I mentioned in yesterday’s Morning! 5 with Fitz. Tesla, Apple, and Microsoft are all great examples. If you’d like specific trade recommendations like the one I sent to the One Bar Ahead™ Family yesterday, I’d love to have you on board.**
2 – Growing at early stage start up rates
People tell me frequently that they won’t buy big tech because it’s “too big” or “too expensive.”
Good luck with that!
I’ve heard similar arguments for years. While I respect that opinion tremendously, the only thing these folks have gotten right is to be so wrong so consistently.
Apple and Microsoft are growing at early stage start-up rates even though they are among the most valuable companies on the planet. Assuming they won’t get any bigger and more valuable just because they already are, is one of the most expensive mistakes any investor can make.
Microsoft’s cloud biz, for example, grew at 51% last quarter alone!
It’s your move – you know what to do!
3 – Two more big bling worthy earnings reports
I love earnings, especially when they come from big, well-known names I own and recommend.
This morning Pfizer reported a “double” – beating on both the top and bottom line. So did McDonald’s which also beat both top and bottom-line estimates. I’m tempted to make a pun about “two all-beef patties” but that’d make me hungry so I won’t this early in the morning!
Oh … and this just in. I told you months ago that Covid-19 could add $35 billion to Pfizer's top line and people looked at me incredulously, much as they would a 3 headed Martian. Same for booster shots and additional emergency authorization.
Guess what … PFE management just updated vaccine guidance to $33.5 billion (and that’s probably conservative, too)! To give you context, J&Js full year Covid sales is $2.5B, Moderna’s is $19.2B.
Repeat after me as many times as necessary … ”Best not rest!”
I own both MCD and PFE and am accumulating shares every chance I get, especially if the markets want to hand ‘em to me on the cheap.
4 – This SPAC just got carried out feet first
Yet another cautionary tale for anybody interested in SPACs.
ATI Physical therapy just reported their first earnings and it seems to me that they may need some of their own therapy. The stock is down 54% in a matter of 2 days following an earnings report in which management didn’t include a share count, balance sheet, cash flow statement, and lowered their already ridiculous guidance with EBITDA slashed 54%.
The trend of “complete deal; slash guidance” is happening with comical frequency and just goes to show you how greedy the companies underwriting these deals are.
Do yourself a favour.
Steer clear of SPACs or at least take your money to Las Vegas where you’ll enjoy losing it!
Ouch!
5 – Cryptocurrency has a “bro” problem
This caught my attention because the crypto trading community has long been dominated by men. Which is exactly why I believe women are going to change the landscape!
Trading is like that.
It doesn’t matter whether you’re talking about big versus small traders, institutions versus retail investors, dark pools versus lit markets … any time there’s perceived to be a dominant group, one thing rings true.
People taking the opposite side of the trade frequently change the rules.
Bottom Line
When nobody is making money it’s because “everybody” has missed something. Figure that out and you’ve got a winning investment on your hands.
I’d like to help.
You got this – I promise!
Make it a great day,
Keith
