Retail Investor Sentiment: Bullish sentiment drops to 29th lowest level since 1987. Is a turnaround coming soon?
(Email Note on February 21st, 2022)
Premium Public Content (Youtube)
Hey YT Friends, it's your favorite Investment Strategist Larry Cheung, CFA. If you're in the U.S., hope you had a good long weekend. If you're in Europe/Asia-Pacific, I hope this weekend served as a nice mental break from the intensive bearish newsflow we have seen in media outlets lately.
I want to take a moment to write you a note to help you navigate markets given the continued uncertainty.
The mood in equity markets continues to stay depressed due to the culmination of 1.) Geopolitics, 2.) Inflationary Forces and 3.) fears over Monetary Tightening.
There is a famous adage from Murphy's Law that says that "Anything that can go wrong will go wrong."
In secular bull markets, it is emergence of Murphy's Law that has the ability to frighten even the most long-term bullish investors.
In polls I've conducted on Youtube (see Youtube Community Tab) and also in aggregated investor sentiment polls from the American Association of Individual Investors, it appears that the bearish voice is growing louder as observed:
Bullish sentiment has been in decline
Bearish sentiment is back on the rise.
Neutral continues to take a large wedge in the decision making.
I view "Neutral" as a vote on caution and indecision. I also view Neutral as having a slight negative tilt in sentiment given that Neutral can be interpreted as "not ready to make a decision."
While I do believe that markets have the potential for further downside in the coming weeks, I continue to stand by my conviction that the S&P 500 hasn't peaked yet. Yes, the market could fall hard tomorrow. And the day after that. And even for the next week, or two.
BUT - I do not believe that the U.S. stock market has peaked. I do believe the S&P 500 revisits 4700+ later this year because reduced liquidity will have an impact in the future, and NOT right now. Today's price action is based on fear. I also believe Chinese Internet Stocks will make a comeback later this year (even after the latest risk-off headline about further Tencent regulation). Regarding ARKK and Cathie Wood's strategy, I'm not so sure about that investment theme. But S&P 500 and Chinese Tech, I believe the fundamentals are strong enough to weather this current storm.
Of course, I will revisit my conviction if market conditions give me additional reasons to consider.
For most investors in today's market, this is a period of time when you should hold and stay focused on putting a watchlist together of your favorite companies to nibble in if the market continues discounting companies that are poised to stay on the course for growth.
While I do expect the road to get bumpier in the coming weeks, I stand by my conviction that selling if the market opens lower this week will end up being a mistake if you have the ability to hold your position until the end of the year.
During this period of time, I urge my Public AND Private communities to reduce your focus on headlines and allow the market to do what it needs to do to flush out the hedge funds who trying to make substantial profits on geopolitical bets on Oil, Gold, and the VIX.
As retail investors, do not get up in the crossfires and let them whip you out.
Hold the line, by doing nothing. Buckle up. Your conviction will be tested in the coming weeks. Stay strong.
Latest Premium Youtube Content (Please like/share if you enjoyed the analysis):
Topic: Chinese Equities | Macro Research | Monetary Policy
Specific Idea Discussed: Monetary Policy Divergence between China and rest of world along with easier policy (relative to 2021) can mark a multi-month bottoming process in the Chinese Internet sector.
Names in my coverage mentioned: Alibaba, Tencent, KWEB ETF
Cautionary notes: All additions in Chinese Internet stocks must be done in a conservative, small, and methodical way to avoid concentration risk. Ensure DIVERSIFICATION in your portfolio.
Video Link below
Youtube Retail Sentiment Polls
AAII Sentiment Polls
Inner Circle Retail Investment Community Updates
As always to begin, I want to first express my gratitude in having the opportunity to help investors from a range of experience navigate the current market turmoil.
My mission at large is to help investors who are intellectually curious, and interested in research processes that can guide their thinking to the next level.
I want to take a moment to recap certain aspects discussed inside my investment community.
Areas where the market has been in alignment with my views
Up until this point, strong relative outperformance in Chinese Internet names compared to the U.S. Tech
My largest Chinese Internet equity holding Tencent being one of the relative best performers in the KWEB ETF and being a strong diversifier in my tech-driven portfolio. This recent new risk-headline for Tencent comes after my published research (so it's news AFTER the fact)
My view that Semis and high-quality Software being the first to recover when risk-appetite returns (just look at the days when the market is flat/up)
My view that AMD/GOOG/LRCX/MSFT would largely outperform (in an environment that doesn't involve Black Swans). All these companies performed well after earnings. The retracement post-earnings has been very disappointing price action, but these were names I talked about positively and rallied after earnings. In a market where every single name that disappoints is down -20% post earnings, being able to identify AMD/GOOG/MSFT/LRCX as more durable names is more than a small victory.
My research note where Geopolitical Tensions could slow down Fed Hawkishness is playing itself into the media narrative
All of these research conclusions are timestamped & documented in materials provided to my Investment Community.
If I'm proven right, I'm right. If I'm proven wrong, I'm wrong. It's that simple.
Areas where the market has been unfavorable to my views
The Street severely punishing companies such as ROKU, PYPL, SPOT, and SHOP post earnings. All of these positions which I own are down substantially. That said, I have no plan to sell them. These names can bounce 10-20% in several trading sessions alone, at which point I'll revisit trimming if I view it as a bear market rally.
While I believe Roku (5x Sales multiple), PYPL (5x Sales multiple), SPOT (3x Sales multiple), and Shop (18x Sales multiple) will take take a considerable amount of time to recover, I do not believe that these companies' growth stories are over.
Not having enough defensive positions/value stocks (but I'm a young person, so I would argue that's simply an investment preference).
For your information, Marriott (the famous Hotel Operator) is trading at 4x sales. Marriott (Ticker: MAR) has a fixed capacity in terms of its total addressable market. Yet, it is MAR that is now trading like a tech stock, and has a valuation that is close to ROKU/PYPL.
I'll let you decide whether the market is being rational right now.
I stick to my proven research process that has rewarded me handsomely between in 2016-2021.
I wasn't on Youtube before 2021, so there are some things that I don't discuss publicly. If you are a more experienced investor, you may remember the semiconductor boom/bust cycle back in 2016.
I was a survivor of this painful cycle and a MAJOR beneficiary of holding my positions in NVDA/MU/AMD when the markets had fully discarded them due to the glut that had happened in the semiconductor market.
Everybody knows that Micron is at $90. Very few people remember what sentiment was like when Micron was at $10 bucks. I remember the feeling, and it wasn't pleasant. In fact, part of my journey to where I am today has come at a psychological cost.
If investing were this easy, everybody would be rich.
Yes, yes, 2022 has been rough, but the very moment risk sentiment recovers later this year, I plan to fully capitalize on this.
And I have every intention in helping my members take advantage of the emerging opportunities that will present themselves and evolve into advanced investment analysts in the process.
I live and breathe intensive investment research, and I plan to live another day in spite of all the negativity AND upcoming negativity that we must bear until this Winter is over.
A Message to Financial Advisors
Financial Advisors, Wealth Managers, and Institutional Investors:
In a previous email, I walked through how I can help Financial Advisors grow their firm as a provider in organic growth strategy and insightful investment research.
If you're looking for a trusted provider who can help you reach your goals, let's have a coffee on Zoom and brainstorm where you are today and where you want to be.