Near Record Long Streak Without 2 Down Days
Nasdaq hasn’t had 2 down days in a row in 48 days. Last 2 day losing streak was mid May as you can see from the chart below. That’s around the time the momentum tech stocks started outperforming the cyclical stocks. It’s amazing there was never such a streak in the 1990s tech bubble. If the Nasdaq rises on Wednesday or if it falls and rises on Thursday, this streak will reach a new record.
Even though last week the Nasdaq dramatically underperformed the S&P 500, the index wasn’t down much. This has been a nice run of sector rotations because no matter which stocks do well, the S&P 500 rises. Furthermore, the stocks that investors leave behind don’t decline much; they either rally less than the rest of the market or decline slightly.
It’s impressive the Nasdaq hardly fell during Amazon’s 5 day losing streak. This index will be hugely impacted by Tesla’s inevitable sharp decline. Parabolic rises don’t end well.
Unprecedented Decline In The VIX
We have seen amazing stats related to the VIX recently. Previously, we’ve seen the indexes close to their records with a relatively high VIX. That speaks to the speed of the rally and potentially the fear. There is extreme uncertainty in the real world which can permeate into investor psyche. It certainly impacts the AAII investor sentiment poll. VIX is still relatively high as it at 24.32. That being said, it has consistently been falling.
As you can see from the chart below, it has fallen in 15 of the past 18 weeks. It has never fallen that many weeks in any 18 week period ever. That’s clearly a random number of weeks cherry picked to make a point. Even still, it’s impressive. There have been corrections after 18 week periods where the VIX fell in fewer weeks.
There are many signals saying stocks are due for a real correction, but the only thing we saw was a brief decline in mid-June in which the cyclicals fell the most (and still haven’t fully rebounded). Internet names haven’t had a real correction. A decline last week did nothing to get rid of the euphoria. When people have their entire portfolios in momentum tech stocks, we need to see massive declines in these stocks (over 30%) to scare them away.
Tesla Reports A GAAP Profit (S&P 500 Inclusion?)
Tesla’s hotly anticipated earnings came out on Wednesday afternoon. The company reported non-GAAP earnings of $2.18 which beat estimates of 3 cents. It also reported a GAAP profit because of regulatory tax credits which means it will probably be added to the S&P 500 later this year. Specifically, it had $104 million in GAAP net income.
However, it had $428 million in regulatory tax credits which was up from $111.2 million last year. It has a deal with Fiat Chrysler which is boosting credits.
It's confusing why there was such a big spike in these credits during a global pandemic. Tesla isn’t profitable on its own which could hurt its chances to get into the S&P 500. Either S&P Global will make an announcement that it was added or there will be no news. There isn’t going to be an announcement that Tesla wasn’t added. Therefore, it won’t catalyze a correction.
People will likely be wondering for a few months which could cause more speculation in the stock. Tesla’s Battery Day in September is now the biggest source of speculation. In reaction to this report, the stock rose 4.06% after hours. Tesla shareholders were very disappointed in this because they are very greedy. They have made 59% in the past month. They don’t understand the concept of buying the rumor and selling the news.
With such euphoria, there is no limit to the imagination as to what the company will announce. Investors are still focused on the fact that they haven’t delivered any Roadsters or Semi-trucks. Model Y production ramp went well and the factory is being built in China quickly, but where are those 2 products? They are late.
Bulls like to say Elon always delivers, but that logic is faulty. They are assuming all the promises he has made will get done. Tesla is struggling in Germany where regulators stated it can’t use the term ‘autopilot’ because it is misleading. Korea is considering banning that term in Tesla ads as well.
Bears love to focus on Tesla’s weak growth because it’s supposed to be growing exponentially, but growth is barely existent. Sales were $6.04 billion which beat estimates for $5.37 billion. However, auto sales fell 4%. On the other hand, as the chart above shows, deliveries were up double digits in the first half while all other car companies had at least a 20% decline.
Counterpoint to that is Tesla ramped production of a new product and sales in China. Those companies are all older; they already had crossovers and already sold cars in China.
Microsoft Reports Good Results
Microsoft reported solid Q4 results, but they still had a decline in sales growth. Specifically, they had EPS of $1.46 which beat estimates by 12 cents. They had sales of $38.03 billion which beat estimates for $36.5 billion. The stock declined 2.2% in reaction to these solid numbers because it is priced for perfection. Sales were only up 13% on an annualized basis. They were up 8.2% yearly. Diluted EPS was down 15% yearly. However, if you adjust out the tax benefit last year, it had 7% growth.
Elephant in the room is Azure because that’s it’s profit center. Its growth fell from 59% to 47%. Highest growth rates of Azure are long gone, but that’s to be expected because of its size. It passed $50 billion in sales this year. Many are wondering how weak AWS sales growth was if Azure fell 12 points. A
WS’s deceleration is starting to become an issue for Amazon which has seen a parabolic rise. Personally, I’m going to make a guess for fun and say AWS has 30% sales growth.