AM Brew Mar 5, 2022

Futures are weak following yesterday's incredible strength. Its risk off this morning: S&P Futures trading down, Gold trading up and the UK Pound is weak again following its only strong day in weeks.

SHOP trading down 15% pre-market to $420 from the $485 closing price. Brutal DeMark chart on any 3 week timeframe. Today's open indicate that risk assets still are not timely and yesterday's bounce was a bear market rally and probably not the start of a new trend.

Tech fundamentals are quite healthy but can you really justify the insane revenue multiples? SHOP reported GMV y-o-y growth of 16% to $43.2 billion. Unfortunately, expectations were 7.6% higher, which is why the stock is getting killed. Tech won't be growing at 20% anymore. We are in a more normal growth environment now - the tech hypergrowth phase is behind us, so the valuations are in the 7th inning of readjusting to the new reality. In the long run, the new reality for Tech is pretty good, as digital adoption will run for years, but the valuations are still too high. We are available to value individual companies for you on a case-by-case basis. Best-in-class midcap Tech still can grow exponentially: this morning PAYC reported 30% y-o-y growth but revenue was only $354 million. Its tough to grow fast as your denominator gets large, and we are seeing the decelerating growth rates hit stocks one by one. PAYC, despite its beat & raise, is trading off a tad in the premarket. Valuation matters in these markets. We are happy to help on the valuation side.

Scary blurbs emanating from the BOE this morning. The Bank of England is predicting GDP contraction in 2023 and warning about 10% inflation. Wow. If any of this is remotely true, then markets of all types have a long way down to go. Our initial take is that the central bankers didn't know what they were talking about when they said last year things were transitory and now they are probably panicking a tad too much.

GBP is truly a falling knife as England is under-performing the USA. Stay short in the near-term. Wait for trades where the fundamentals, technicals and "tone" all line up at the same time. Don't trade on 2 of 3 unless day-trading. GBP is a good example of this: fundamentals are terrible but the technicals suggested a decent buying opportunity on April 18th. Tone can be defined as follows: the security acts as it should given the news. In general, tone across markets has been stable and as expected, thus allowing traders to focus on just fundamentals & technicals. Tone can be important when the smart money knows something but that has not been the case YTD in 2022.

The WSJ is reporting this morning that HDV, the iShares Core High Dividend ETF is up 6.4% YTD. This is mirroring our portfolio experience: stocks down, bonds down, real estate strong and reliable dividend growers like KO are up. The point is that there is always a profitable trade on the long side.