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Hold Tight as Shares Climb a Wall of Worry

February 7, 2024

There is a strong m/a buy signal for Spotify. As subscribers know I am a huge fan of Spotify with 5,140 songs on my liked list. I listen in my office, in my car, and on my Airpods – my life is like a musical and I love it. When I am not listening I am singing but unfortunately the Gods were not on the case when I got my singing voice.

Spotify has a serious something new in the form of audible books. Spotify is great value for the songs but now you get podcasts and audible books. You only get the audiobooks if you are a premium subscriber. Spotify has 602m monthly active users, up from 489m a year ago. Out of these 236m are premium subscribers and 379m are ad-supported. As a premium subscriber, you get 15 hours of audiobooks free a month, which should encourage many people to convert from free to premium and set the scene for more price increases on a subscription.

The shares are up over 200pc from the lows and look good for a challenge to the former peaks.

Amazon is an Innovation Powerhouse

Amazon is giving a golden cross buy signal on my chart and is building a consolidation which would support a big rise on a breakout. Quite a few shares look like this which is one reason why I feel so positive about prospects. Amazon has performed well over the years which is why Jeff Bezos is presently the second richest man in the world.

Like other founders of companies, he does something which most third-party investors find hard to do which is hang on to shares that do well. I am not sure that anyone apart from Bezos should hang on through a crash like that which happened when the first Internet bubble burst in 2000 but other than that the case for buy and hold is good and largely supported by the charts.

The golden rule is to hold the shares while these ultra-long-term moving averages are rising and consider selling if they start to fall.

If Amazon is to break higher and rise strongly it will need something new. AI will help but there are other better ways to play the AI boom. What is needed is something specific to Amazon.

“This Q4 was a record-breaking Holiday shopping season and closed out a robust 2023 for Amazon,” said Andy Jassy, Amazon CEO. “While we made meaningful revenue, operating income, and free cash flow progress, what we’re most pleased with is the continued invention and customer experience improvements across our businesses. The regionalization of our U.S. fulfillment network led to our fastest-ever delivery speeds for Prime members while also lowering our cost to serve; AWS’s continued long-term focus on customers and feature delivery, coupled with new genAI capabilities like Bedrock, Q, and Trainium have resonated with customers and are starting to be reflected in our overall results; our Advertising services continue to improve and drive positive results; our newer businesses are progressing nicely, and along with our more established businesses, collectively making customers’ lives easier and better every day. As we enter 2024, our teams are delivering at a rapid clip, and we have a lot in front of us to be excited about.”

Andy Jassy, CEO, Amazon, Q4 2023, 1 February 2024

It is obvious from the quote that Amazon is a class act. Another feature of companies like Amazon which are investing on an epic scale in research and development and sales and marketing is that an endless stream of seemingly small innovations can over time add up to a complete reinvention of the business.

An exciting thing about Amazon with its Marketplace, Amazon Prime and Amazon Web Services businesses, the latter accounting for a big chunk of total profits, is that it has so many things on which to spend money. I think investors would be right to become excited about a decisive breakout from the latest consolidation.

Strategy – Hang on to Your Shares (Unless You Are Surfing)

There are plenty of exciting shares with great 3G credentials giving buy signals at the moment which is a good sign for the overall stock market. Once bought it can be hard to hang on to shares because you an always find something negative to worry about.

An investor called Josh Brown laid into Nvidia the other day very publicly on CNBC.

People have become so bullish on Nvidia that they have run out of new good things to say, Brown said. Instead, analysts are raising price targets to keep up with the stock. It’s become almost “breathless,” he added.

Brown, who has owned Nvidia stock for several years, says it continues to outgrow his other positions. “Nothing else is going up that fast,” he said.

Given the outsized gains in Nvidia stock over the last few years and the continued upward momentum to start the year on no apparent news, Brown decided to cut 20pc of his Nvidia position.

“I’m not calling the top. I still have most of my position … I just felt like the chart went vertical and people have just like lost their minds,” he said.

“I’m as excited about generative AI as anyone else and I’m bullish. I’m just not that bullish where I think a stock should go up, you know, 20pc every month just because the alarm clock went off and the sun came up,” Brown said.

Benzinga, 6 February 2024

The problem is you can always say something like that about a fast-climbing share. It is probably the main reason why many people sell and so few people hold on to the great performers. It can be stressful holding onto a share that is climbing strongly and worrying that what goes up must go down. My advice is don’t try to overthink it. Keep it simple. You are holding shares in a great company; why sell? It is the worst performers you need to get rid of, not the best.

Another Buy Signal for QQQ3

Different charts give different signals. I like these charts where each candlestick equals 12 months because buy signals are so rare. We won’t be sure until later in 2024 but this chart looks very promising for a golden cross buy signal from the moving averages, which is the first ever on the chart though I am guessing there would have been one in 2014.

Imagine if QQQ3 (three times leveraged Nasdaq 100 tracker turbo-charged by daily rebalancing) is poised to repeat the rise that happened between 2012 and 2021, in other words, serious WOW! It is possible.

Share Recommendations

Spotify. SPOT. Buy @ $238.95

Amazon AMZN. Buy @ $169.90

QQQ3. Buy @ $173

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