This week was one of the worst in stock market history. Major indices lost over 6%, with the Dow losing over 1000 points.
China’s growth is slowing down. The U.S. dollar is strengthening. Prices of oil and other commodities are still in decline. This brings a risk of financial triggers for countries that rely on oil and raw materials exports, which brings risk to the world financial system.
I watched oodles of CNBC this week, and I’ve never heard the Wall Street boys so defeated. Even the bullish opinions sound like slick salesman B.S. or clinging desperation. The pessimism is actually a plus. If everyone is already out, how much more money can leave the market?
More. Large U.S. outflows have been observed from foreign countries. Some analysts suggest heavy European selling. Every Joe and Jane will see their 401k funds melting, and they’ll pull their money on Monday. Today some analysts mentioned that the market never bottoms on a Friday.
Jim Cramer talked about Blizzard on Mad Money on Tuesday. He said Activision-Blizzard’s 27 billion valuation was undervalued and even “ridiculously cheap”. Cramer spoke highly of Bobby Kotick, who he knows from the old days.
Cramer also spoke highly of NVidia. I personally thought Microsoft and NVidia were played out in terms of news catalysts. I was wrong.
Microsoft popped today on an announcement of a plan to make their own SIM cards for a new phone service for Windows 10. Jim Cramer thinks there is still positive news ahead for Nvidia, at least for two more quarters.
On Wednesday, Cramer spoke on Electronic Arts. He called EA “more problematic”, and said to stick with Blizzard. This general idea was echoed in an analyst report on EA yesterday. Cowen predicted a very strong quarter for EA in mobile, however, with possibly 50% sequential revenue growth.
Cramer is not always right of course. A valid trading strategy is to do the opposite of everything he says. A year ago this month in January, he was recommending Kinder Morgan (KMI) and recommending against Valero (VLO).
Of all the bad CNBC stock advice I saw in 2015, only Karen Finerman’s repeated recommendations of SunEdison (SUNE) ended worse.
Video Game Stocks As “Sin Stocks”
I’ve heard a few Wall Street analysts recommend RJ Reynolds this week, a stock which has risen strongly this week while most other stocks fell. It has a good dividend, but I assume the real reason is because it’s a traditional “sin stock”.
Sin stocks are supposed to do well in a recession. According to the article, they are “businesses that provide an outlet for consumers”. They also have deeper margins than traditional consumer plays.
Sin stocks include alcohol, tobacco, gambling/casinos, and weapons. Really? It sounds like a new category of sin stock needs to be added, since that’s pretty much a definition of video games: addictive, with lots of gambling mechanics and as many guns as possible.
As Jim Cramer mentioned today on Mad Money, Constellation Brands (the brewer of Corona, etc.), reported a stellar quarter and the stock rocketed yesterday. I don’t see why video game stocks shouldn’t also outperform.
I sold Nvidia, Microsoft, TAN (solar ETF), and Electronic Arts in previous weeks closer to their tops. The question is when to buy them back. Yesterday I pushed 50% back into EA, but it’s important to have major patience.
The solar ETF is a trickier trap since it’s influenced so heavily by politics, oil, and having 25% of its holdings in China.
Some big name money managers are calling this another major financial crisis, on par with the 2008 Great Recession, which lasted 18 months. That seems as good as anything for a worst-case scenario timetable.
Other people are saying the severe oversold conditions are a setup for a “multi-week rally”. I don’t see why the S&P should break the “crowning top” pattern until other bearish patterns, like oil and Dow transports, are broken first, but anyway, that’s enough of that.
Happy Friday, time to stock up on sins.