Commentary:
We’re continuing the recovery trend that I’ve been looking for since last week. Looks good so far. Cautious optimism continues to be my thinking.
There will be a time to worry (in the future). But there was also a time to pounce (last week). At my Bear Case DCF Levels, we pounce.
In these markets, I think technical analysis is good but may be incomplete. I think you have to use DCF fair value analysis to understand the nature/validity of certain support levels.
For instance, most people looked at 95 NVDA as a gap-fill technical target that could then get lower to 85. But what is missing from this analysis is that 95 NVDA is ALSO a bear-case DCF value that has been stress tested with incredibly harsh assumptions.
That is why we went Bull on NVDA at 95.
Several names from my sequence list for members are now poking back to the Base Case level, notably NVDA making its way back to 110-115. At 110-115, I find NVDA still undervalued relative to its true potential.
See blurb from last week.
On the index side, 19000 is a large watch area for NQ as that was where the July Jobs report caused a large selloff. We have a chance to reclaim this area with force if CPI comes in-line tomorrow. The best case scenario is a figure that is close to consensus. A little colder or even a little hotter is OK.
What I think the market wishes to avoid is something too hot or too cold. This is because this would confuse the analysis. The larger the deviation from consensus, the more debate there is over what that means. More debate means more uncertainty. I would define a large deviation as more than +/- .3% from the consensus. Consensus is 2.9% for tomorrow.
My analysis for long-term positions continues to be extremely straight forward: we pounce at the Bear Case. Ride it till Base Case. Be aware of risks at the Bull Case.
Many names traded the Bull Case in early July. Almost everything in Semiconductors traded the Bear case last week. My Bull and Bear Cases combine extreme valuation/fair value assumptions as well as technical undershoots/overshoots.
I have an update on DCF Tables below which members get access to:
I’ve added the Dow names in the DCF Tables
I’ve added select China names I often discuss in DCF Tables below.
Each Daily Plan newsletter email will now include these DCF Tables with top names from the index (Dow, QQQ ETF, SOXX ETF, and China) for convenient referencing.
Don’t miss out on the recovery sequence. It could be more powerful than we think.