When Will It Get Better?

The war is about to be lost.

Almost every one of the “Generals” (Facebook, Apple, Amazon, Netflix, Microsoft, Google, and Tesla) have been killed.

Apple and Tesla are the only ones left. They’re barely hanging on.

Both are trading just above their respective 50 and 200-day moving averages (DMA).

Here’s Apple:

And here’s Tesla:

The 50 and 200 DMAs are important indicators. They represent the stock price trend. They’re simply the average of the previous 50 and 200 days of the respective stock price.

50 days is obviously more short term than the 200.

So the momentum is still in its favor when they’re both trending up.

When they trend lower, it shows lost momentum. Especially the 50 DMA. Bullish investors are exhausted. And the sellers have taken over.

We published last week’s missive What Do We Do Now? right before Amazon and Google reported. We warned clients and readers once again.

Both stocks got crushed. It took the indexes down 3-4%. Look at their charts.

Here’s Amazon after earnings:

Here’s Google:

Amazon is down 32% from its highs. Google is down 23%.

Both were supposedly “indefensible” names. Not so much anymore.

Their next levels of support are much lower. Meaning the stock market (potentially) has a lot more pain to endure.

This brings us back to the title of this missive. A question we get asked quite often by everyone we know.

“When Will It Get Better?”

Unfortunately, the answer isn’t predetermined.

The market is made up of millions of participants. Each with their own set of financial goals.

All investors — not traders — invest on a company’s projected future cash flow earnings. Discount them back to the present. And then pay a multiple on those earnings.

Meaning the market is a forward looking mechanism.

Remember, these are just projections. As the future is unknown.

The market selling off means investors are more uncertain about the future than they were in the past.

Companies sell off before earnings get reported because investors are already expecting things to be bad.

So the market will turn when things go from “bad to “less bad.”

Said another way from venture capitalist investor Gavin Baker:

We’re starting to see signs of that now.

Facebook reported earnings last week. They told investors on their earnings call:

• They’re going to increase spending on the Metaverse

• They’re going to lose money for a long time doing so

• They’ve Lowered their 2022 revenue guidance

And yet Facebook went up 18% the next day.

That’s the classic example of going from bad to less bad. Investors went into the earnings knowing things would be bad… but “less bad” relative to their expectations.

The same thing happened to our portfolio holding Roku.

Roku is still getting crushed due to supply chain issues. They expect things to persist through the rest of 2022. Meaning total user growth will continue to be slow.

And yet, its stock ended up 1.4% on Friday… as the Nasdaq fell 4.2%.

That’s the signal.

That the bottom is in when reality isn’t as bad as investor expectations.

Bad to less bad.

That’s great for individual companies. But unfortunately, it might not matter.

The Generals are/were the last line of defense.

There’s only two of the seven remaining — Apple and Tesla.

Expectations on both are still pretty high. If that changes, then they’re taking the rest of the market with them.

However, it also shows we’re closer to the bottom than the top.

Good investing,

Lance