It’s almost impossible to imagine a more bullish headline for tech:
“Hedge Fund Shorting Of Tech Stocks Hits Record High”
Those who were levered long tech - and dead wrong - a year ago are now heavily short and will likely be proven dead wrong again.
It’s always comforting, fun, and often very profitable to find myself positioned opposite this cohort. Are they ever not very late to the party?
FNGU is already up 20% in three days since I nominated it my “one and done” for tech.
The headline above motivated me to review the position, and from here on down it gets dense with a complex explanation of a very simple concept.
A closer look at FNGU and its components
I use a scoring system for my timing. In the case of FNGU - a 3x levered bullish ETN with 10 components of equal weight - it’s easiest to evaluate it by adding up the scores of individual components:
Tesla - TSLA Baidu - BIDU Apple - AAPL Netflix - NFLX Alibaba - BABA NVIDIA - NVDA Amazon - AMZN Microsoft - MSFT Alphabet (Google) - GOOG Meta Platforms (Facebook) - META
Score can range from 0-30 for FNGU, which is 0-3 for each component added together.
The score is black-box; my feelings or opinion do not factor. What I know about fundamentals, valuations, and where we are in market, economic and rate cycles already led me to a given sector or stock.
Entries and exits must be made only in the cold light of the score. Personal flair applies elsewhere in the process.
“Surf’s up!” is fact.
Surfing is individual expression of style, experience, and skill.
To carry the analogy, big wave surfing equates to holding positions on a long-term basis. Months and quarters. Possibly years.
Smaller waves are weekly rides; on an intermediate basis.
For FNGU, best odds for buying are when 0 turns up to 1. By a score of 30 we’re selling in a raging bull market, perhaps looking ahead to shorting.
I’ll expand a bit on how I use these scores, hoping to present actionable ideas and timing signals in a way that will be understandable to novices while also appealing and of use to grizzled vets.
That’s all I’m trying to do in this substack. It’s how I’d define success in this endeavor. No contest or competition. Interaction welcome.
I or i = intermediate term, weeks. Speculators. Traders.
M or m = major trend, months or more. Investors.
AMZN - i1, m1
The i for AMZN last turned from 0-1 bullish middle of May last year around $112. It reached $146, 30% higher, before i rolled over from 3-2 bearish mid August at $134. Then AMZN crashed.
Its i score turned bullish from 0-1 again early November circa $93. AMZN dropped to $81 by late December but today in mid January has bounced to close at $95.
When a shift from i1-2 eventually occurs, ideally concurrent with m pivoting from 0-1, it’s a signal to hold on longer, possibly adding to the position.
AMZN m just turned from 0 to 1 this month. M changing from 0-1 is the signal for investors to accumulate.
For AMZN m last flipped bullish 0-1 March of 2019 around $85, then ran over 100% higher to $177 eventually turning bearish from 3-2 in September 2020 at $158
By then there were myriad reasons to reduce tech and retail exposure, AMZN in particular. It wasn’t too long after this major bear signal that the teetering Jenga of global speculative mania in full evidence at the time finally toppled.
AMZN barely went higher before the code-red danger signal of m plunging to 0 flashed in July 2021 around $167. After collapsing over 50% by late December to $81, today Amazon closed at $95.
Exhausting, eh?
Nothing good comes easy.
I’ll score META now, leaving the remaining 8 FNGU components for maybe someday.
META was key to my turning bullish on tech a few months ago.
META i3, m1
Meta Platforms, formerly Facebook, has so much noise surrounding it. Far from all the jibber-jabber about the company, its CEO, its shift in focus to “the metaverse” and more, while not having a Facebook account, I can only make sense of charts, stats and simple signals.
M previously turned bullish 0-1 for META in January 2019 around $153. By August 2021 it was 150% higher at $382. M turned bearish from 3-2 the following month around $350.
By November 2022, 15 months later, it had dropped another 75% to a low of $88 while both m and i turned bullish from 0-1 shortly after, just above $100.
META reached just shy of $134 today, with m still at 1.
Other Factors
Scores more than suffice to take action, still I do take other factors into account:
By November’s nadir sentiment overall, and especially on META, was black bearish. That’s the ideal environment for closing shorts or going long.
Cramer beclowning himself again, openly crying on television while apologizing for having hysterically shouted people into META while it was in free-fall. Open-air wailing by bull market heroes is ideal timing for closing shorts, or going long for at least a short-term squeezing of shorts. Buffett’s “blood in the streets”.
Whitney Tilson pounding the table while offering a very compelling fundamental bullish case for META. Odds are absolutely terrible if betting against an impassioned table-pounding Tilson armed with slides and tables. That beast is a treasure to traders and investors, a primary inspiration in writing this substack, and his Empire Financial Research publications offer an exemplary something for everyone.
META was climbing back above the key psychological round number $100
Major indexes showed i scores turning bullish.
Amateur traders, and no small amount of professional commission churners, were going YOLO into short-dated puts.
It’d be nearly impossible to manufacture a more bullish backdrop, and not 2 months later META is nearly 35% higher.
META has had to rally over 50% from its low 3 months ago to reach a price first hit in October 2016 when $134 was worth far more than today.
“Hi everybody!” - Gold
FNGU i3, m1
A month ago FNGU m was just 6/30, recovering from the abyss of 1/30 a month prior.
Today its m has climbed to 10/30, trending bullish.
Absent a significant shift in debt markets, the Fed has zero room to raise rates at its next meeting in 3 weeks no matter how tough they squawk.
When central bank rates turn lower is when bear markets usually get going in earnest, often concurrent with an “official recession” being retroactively declared. That may not be ‘til March.
Note too that until Cathie is at least figuratively crying like Cramer and ARKK suffering massive outflows, no capitulation exists. In early 2023 she remains defiant, still issuing her hallmark absolutely ridiculous forecasts and enjoying net inflows to her cash incinerators miscalled investments.
For now surf’s up.