Market Radar 26. January 2023


Growth beats value
In the Russell 1000 Value Ishares ETF (IWD) we now locate a lower high.
In the Russell 1000 Growth Ishares ETF (IWF) we now locate a higher high.

In order to be able to determine a lower or a higher high, it requires – at least according to my interpretation, which is also favored by most technical analysts oriented to the Dow theory – a pattern with five candlesticks in the chart. The high is determined by the two candlesticks to the left and right of the middle candle by the middle candle indicating the high point in this pattern.

Thus, we can once again state that the value factor is losing more and more of its relative strength compared to the growth factor.

We also see this relative strength of growth over value when we compare Warren Buffett’s Berkshire Hathaway (BRK) product with Cathy Wood’s product Ark Innovation (ARKK). For both products, we could locate new intermediate highs after the close of trading today. For Berkshire Hathaways, this intermediate high would then be a lower high and for Ark Innovation a higher high.

According to risk-on / risk-off logic, we once again see a sign that the risk-on mentality has replaced the risk-off mentality in US equities.

Anything other than a rising share price trend would currently contradict the “mental state of the market”.

Stock market participants need trends in order to be able to act. Once a trend is relatively newly “anchored” in the market, it takes a certain amount of time for it to reverse. We think of “time” here in dimensions of several months.

If we consider this risk-on mentality of the market, then it was absolutely logical that the down gap, with which many stocks opened yesterday, was seen by market players as a buying opportunity.
Flash crash on Tuesday at the New York Stock Exchange.

The main reason for the down gap was not the fear of another flash crash on the New York Stock Exchange – we saw one on Tuesday at the opening of many higher-capitalized stocks such as Exxon Mobil (XOM), Merck & Co. (MRK), Occidental Petroleum (OXY), Visa (V), Walmart (WMT), to name but a few.

Such a technical error should not be repeated, as it could well limit trading activities. Above all, stop orders and option prices form the areas that could cost many traders dearly if errors in price determination accumulate.

Microsoft warns of short-term decline in sales

No. that was not the reason. But the reason for the pre-market price slump was called: the seemingly disappointing reaction to the conference call, which Microsoft CEO Satya Nadella held for investors and analysts according to his company’s previously published quarterly figures.

What did Microsoft’s quarterly figures (MSFT) bring? Net profit increased 12 percent from the year-ago quarter and revenue increased two percent. The figures were in line with the expectations of many market experts. After the stock market, the stock even rose to about 5% on Tuesday.

The slump in sales in the PC sector was then a topic in the conference call – This was already apparent at Microsoft and was no surprise, even if the decline of 39 percent nominally represents a shocking number. The gaming business also weakened. CEO Satya Nadella prepared market participants for a challenging current quarter.

Microsoft plans to lay off around 10,000 employees from the workforce. The cuts and planned restructuring measures could cost around $1.2 billion. Meanwhile, the planned takeover of the gaming giant Activision Blizzard is becoming a hanging game. Numerous antitrust authorities have already signalled their concerns. One of the great hopes, however, is the writing AI software ChatGPT from OpenAI. Since the end of November, the chat Generative Pre-trained Transformer is online and creates texts free of charge. Soon there will also be a “professional version” from 42 US dollars. Microsoft has a stake in OpenAI and plans to invest billions of dollars in the expansion of OpenAI in the coming years. “Over time, every app will be an AI app,” Satya Nadella said in a conference call with analysts after presenting the quarterly results.
“In time, every app will be an AI app”

We repeat: “In time, every app will be an AI app”. We read this sentence in almost every market commentary on the Microsoft figures. Not only Microsoft will have to be measured by this sentence from now on. If this happens, there will probably be a boost in innovation among app developers and in the medium term new behavioral habits of users will emerge that could incorporate human traits into digital communication, the effects of which on users can hardly be fully predicted at present.

We can perhaps already guess it a bit: 

Our approach to apps will be quite different in ten years: We don’t tap our fingers on a display when we look for an Italian restaurant nearby that has tagliatelle in sage nut butter with tomatoes, fresh leaf spinach, roasted pine nuts and sliced Parmesan cheese or a similar dish on the menu, but we then talk to a humanized app about which Italian has the best ratings for a dish that is most comparable to it. Maybe the AI app also points out that in the vegetable shop 50 m away from us, the ingredients for this dish are in stock and we could cook it cheaper at home. Or the AI app could discreetly point out to me that my new friend chatted with her best friend about 4 weeks ago that she actually doesn’t like Parmesan. 

Get the Seasonal Tradingsignals on you cell phone

What do we see under the radar of the major stock indices?

Lithium continues to rock upwards
Furthermore, industries that would be risk-on rather than risk-off show relative strength. The lithium ETF (LIT) was bought four trading days in a row immediately after trading opened and also closed at its daily high for four days in a row. We saw a higher trading volume yesterday than on the three days before. Accumulation can hardly be made visible better in terms of charts.

The semiconductor industry also continues to show relative strength as measured by the corresponding ETF (SMH).
Rebound Chances
Today, we issue entry stamps on the long side for the shipping (BOAT) and medical equipment (IHI) industries. This means that after a short correction, entry opportunities for an upward swing could now arise again.

From the shipping sector, for example, the share of the Monaco-based company Costamare (CMRE) is a good choice. The stock slipped below the $10 mark yesterday. Traders could speculate on a quick rebound that quickly recaptures the $10 mark. However, this should also be done in the next few trading days, otherwise this price zone could establish itself as a resistance area.