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Time to circle the wagons

December 6, 2021

Looking at the chart of the Nasdaq 100 you would probably think all was set fair for the US stock market but I am not so sure. Maybe the index will be OK but under the surface many stocks are suffering. Last Friday was a terrible day for many stocks and in chart terms it feels like a break down. Nobody can predict the future but my guess is that a bumpy period lies ahead. Stocks are falling sharply, often for no apparent reason. To use a watery metaphor it feels as though there is a shark circling around below the surface.

One of my regular routines is to update the Quentinvest table. Usually there are loads of buys and not many sells. Not this time. The number of sells is more than double the number of buys and more than the number of buy signals and neutral stocks put together. This is unusual and suggests stormy weather ahead.

It is a major test for my never sell strategy. The problem is that for many people it is hard to just sit out a major bout of stock market turbulence, especially if you are an active investor. Below I have listed all the stocks giving buy signals or still in strong uptrends, all those which are not giving any sort of signal and those giving sell signals or in established down trends.

You could use this as an opportunity to give your portfolio a major spring clean or even a total reboot. Go liquid, wait for the dust to settle and then start again. if I am wrong and the market just turns around and resumes its climb you will miss out on some gains but if I am right you will live to fight another day.

If you do nothing time will be on your side as the table is stuffed with stocks with great fundamentals and they will resume their climb sooner or later.

What exactly might be going on? I don’t know. If it is bad news it will be a cocktail of things. Omicron was a trigger but would not account for what I am seeing. There is something else happening. The destruction that has taken place in the values of many Chinese shares seems to be spreading to their US counterparts.

Some of the big names are hanging in there like Apple which is trading close to its all-time peak, which explains why the Nasdaq 100 index has been resilient but below the surface there has been some serious carnage. This happened before when I wrote a piece – looks like a bull market, feels like a bear market and on that occasion many shares quickly recovered but this time feels worse.

Many years ago there was a company in the UK called ICI which stood for Imperial Chemical Industries. For a long time it was the definitive blue chip and its pharmaceutical division was spun off to form what is now Astra Zeneca. One day when the shares were falling hard a journalist or somebody asked the company what was going on and they said – it feels as though demand has just dropped off a cliff.

Is something like that what is happening now? Some very exciting tech companies like Docusign and Asana have been hammered on fears that demand is not as strong as they expected. And if they confirm that it isn’t the punishment is severe. Shares in Docusign have halved in 10 days after reporting a disappointing outlook.

If charts worked perfectly we would all be billionaires but even if the Docusign share price is due for a bounce the overall pattern looks to me as though it could take these shares much lower.

It has often been said that share prices are 20pc rock hard reality and 80pc sentiment. When sentiment changes big moves can happen and it feels to me as though sentiment is changing. As you can see from the chart we have had an amazing run since 2009. We could be due an interruption before its back to onwards and upwards and if the interruption is a big one new names may come to the fore in the next bull leg.

So there you have it. Updating my table has left me feeling very cautious and I feel I need to make my subscribers aware of the message I am getting. I am an optimist most of the time but not all the time. If red signals are flashing I do sometimes turn cautious. Even when I do I may be wrong but I do feel cautious. There are some high quality names with wobbly looking charts and who would have thought that Chinese shares with their incredible growth curves and opportunities would have been hammered as they have been. I think it is time to play safe so as not to be sorry.

Worst case there is the possibility of a major panic if leveraged long positions start to be unwound. There is around $935bn of debt funding US share holdings.This is up around 50pc since the summer of 2020.

Remembering that this a snapshot of a moment in time I will first list the stocks in uptrends

Uptrends

Abbott Laboratories, Abbvie, Abcam, About You, Accenture, Advanced Micro Devices, Allianz Technology Trust, Alphabet, Ambarella, Apple, Advanced Materials, Arista Network, Ashtead, Avast (being acquired), Biontex, Blue Prism (being acquired), Broadcom, Bruno Cucinelli, Cadence Design Systems, Crocks, Croda International, Datadog, Diageo, Diploma, Enphase, Estee Lauder, Ether, Experian, Fastset Data Systems, Ferrari, Focusrite, Genscript Biotech, Halma, Hello Fresh, Hermes, Home Depot, Impax Asset Management, Impaz Environmental Markets, Intuit, JD Sports, JTC, Keyence, Lam Research Corporation, Lio Asset Management, L’Oreal, LVMH, McDonald’s, Microsoft, Monolithic Power Systems, Morningstar, Nike, Nvidia, O’Reilly Automotive, Palo Alto Networks, PepsiCo, Polar Capital Technology Trust, Pool Corporation, Prologis, Invesco QQQ Trust, Rightmove, Roblox, S&P Global Inc., Sartorius Sted Bio, Snowflake, iShares Semiconductor ETF, Spirax Sarco, Stamps.com (being acquired), Synopsys, Tesla, Tractor Supply, The Trade Desk, Unity Software, Verisk Analytics, Victoria, Waste Connections, Waste Management, Watches of Switzerland Group, West Pharmaceutical Services, Wisetech Global Corporation, Wisdom Nasdaq 100 3x Daily, Xilinx (being acquired by AMD), YouGov, Zebra Technologies, Zoetis and Zscaler.

Trending sideways

AB Dynamics, Accesso, Affirm, Airbnb, Amazon, Argenx, Argo Blockchain, ASML, Avantor, Bailie Gifford Europe, Basler AG, Biogene, Berkshire Hathaway.B, Best of the Best, Bitcoin, Blackrock, Booz Allen Hamilton, Burford Capital, Cable One, Canada Goose, Carl Zeiss Meditech, Casey’s General Stores, Cloudlfare, Corporate Travel Management, Craneware, Cyber-Ark Software, Dechra Pharmaceuticals, Dexcom, Ecolab, Epam Systems, Etsy, Fevertree, Fisher & Paykel Healthcare, Fortinet, Gamestop Corporation, Hilton Food Group, Hubspot, Inspire Medical Systems, Intertek, iShares World Momentum, James Cropper, Kering, Li Auto, Lightcoin, Lonza, Lululemon Athletica, Masimo Corporation, MongoDB, Nasdaq Inc., Netease, Netflix, Novanta, Rapid7, Repligen, Rivian, Rotork, Salesforce.com, Sanne Group, Shopify, Silvergate Capital, SPDR S&P 500 ETF, Solaredge Technologies, Spotify, SpringWorks Therapeutics, Starbucks, Taiwan Sewmiconductor Manufacturing, Tyler Technologies, Workday, Xero, You Group, Yum Brands and Zoominfo Technologies.

Downtrends

Activision Blizzard, ADC Therapeutics, Afterpay, Agora Inc., Alibaba, Allogene Therapeutics, Alteryx, American Tower Corporation, Anaplan, Appian Corporation, Aptar Group, Apptitude Software Group, Asana, ASOS, Atlassian, Autodesk, Avalara, Baidu, Bandwidth, Beyond Meat, BiliBili, Bill.com, Bio-Rad Laboratories, Bio-Techne, BioXcel Therapeutics, Blackline, Boohoo Group, Booking Holdings, Boston Beer Company, Bumble, C3.AI, Carvana, Charles River Laboratories, Chegg, Chewy, Chipotle Mexican Grill, Cochlear, CoStar Group, Coupa Software, Crowdstrike, Darktrace, Delivery Hero, Disney, Docusign, Domino’s Pizza Enterprises, Domino’s Pizza Group, Domo Inc., Doordash, DotDigital, Dropbox, Dynatrace, Edwards Lifesciences, Everbridge, Meta Platform (formerly Facebook), Fair Isaac, Fastly, FD Technologies, Figs, Fiserv, Five9 Inc., Freshpet, Futu Holdings, Fiverr International, Frontier Developments, Games Workshop, Gear4Music, GNS, Getswift, Globant, GoDaddy, GrowGeneration, GSX Techudu, Guardant Health, Hargreaves Lansdown, Horizon Therapeutics, Hydrofarm, Idexx Labs, Illumina, I-Mab, Innmode, Inogen, Intuitive Surgical Group, IQE, iRobot, Just Eat Takeaway, Keywords Systems, Learning Technologies Group, Lemonade, LendingTree, Lightspeed PSD, Logitech, London Stock Exchange Group, Lyft, Magellan Financial Group, MarketAxess, Mastercard, Match, Maxcyte, Meidong Auto, MercadoLibre, MicroFocus International, Middleby, Microstrategy, Moderna, Monday.com, MSCI, Naspers, Natera, NextFifteen Communications, Nikola, Nio, O’shares Global Internet Giants, Okta, On The Beach Group, Par Technologies, Paycom Software, Paylocity, Paypal, Pegasystems, Pelaton, Pinduoduo, Pinterest, Pliant Therapeutics, Plus500, Procore Technologies, Progeny, Renishaw, RH, Restore, Ringcentral, Robinhood, Roku, S4 Capital, Sea Limited, ServiceNow, ShakeShak, Shift4 Payments, Shotspotter, Smartsheet, Snap, Splunk, Square, Stryker, Superdry, Team17, Teledoc, Teleflex Incorporated, Tencent, The Joint Corp, TripAdvisor, Turning Point Therapeutics, Twilio, Unilever, Up Fintech Holdings, Upstart, Varonis Systems, Veeva Systems, Visa, Velox, Vuzix Corporation, Wandisco, Water Intelligence, Weight Watchers International, Wingstop, Wirecard AG, Wise, Wix.com, Workiva Inc., Wuxi Biologics, Zai Labs, Zalando, Zendesk, Zillow Group, Zoom Video Communications.


It seems strange to be talking about selling when the major indices are still close to all-time peaks but I have to tell it as I see it. Charts of many individual stocks are in free fall and could easily fall sharply lower. There are times when it can pay to be prudent. This feels like one of those times. After such a rise with many companies on ambitious valuations by historical standards there is scope for sentiment to deteriorate sharply and if that happens the gloom and doom in the media will be something to see.

The fact that it is not clear why the charts have suddenly started to weaken so dramatically is not necessarily reassuring. Markets oscillate between fear and greed. Fear feeds on uncertainty.

For many of the shares in all three lists above the fundamentals remain outstanding but sometimes that is not the point. In 2000 Amazon shares lost 90pc of their value. According to Bezos the company grew as strongly as ever through this period.

In 1974 shares in a distributor of electronic components called Electrocomponents fell dramatically along with the whole stock market. Looking at the trading history in subsequent years there was nothing in the performance of the business to explain the fall. It was one of those periods when macro factors took over and individual company characteristics didn’t command much attention.

This is just a snapshot of the charts in a moment in time and charts can change how they look surprisingly quickly but I was shocked to see how many charts portray shares under pressure.


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