This Week in Episodic Pivots: August 13, 2023
As expected, the markets remained choppy this past week. And that chop led to a few of our positions getting stopped out.
Everyone should have sold the following:
· American Axle & Manufacturing ( AXL 0.00%↑ )
· Unity Software ( U 0.00%↑ )
· IAC Inc ( IAC 0.00%↑ )
· GDS Holdings ( GDS 0.00%↑ ) – assuming it doesn’t trade above $11.80 in the first hour of trading tomorrow
This could come back and bite me, but I’m going to say it anyway. I think this pullback is over. The price action was orderly down to the 50-day MA on the S&P 500 Index and looks to want to hold.
Now, the tech-heavy Nasdaq image dipped below the 50-day on weakness from mega-cap tech. But that is just one part of the market. The rest looks strong.
And we’re not seeing any tell-tale signs of a larger pullback. The economy is running strong. Earnings reports have generally beat expectations. The VIX curve remains in contango – meaning it further dated VIX prices are higher than the spot price. That is normal. This curve tends to invert before large pullbacks.
This week should be a pretty slow news week. There aren’t any major economic releases and earnings season is beginning to slow down a bit.
So let’s add a couple positions to the portfolio to make up for the ones we sold.
Marquetta ( MQ 0.00%↑ )
The payments platform company soared last week on a great earnings report. The company beat the revenue and adjusted EBITDA projections they laid out. And perhaps more importantly, they announced a four year extension to their Cash App contract.
The contract with Block was a huge overhang for the company. In fact, many investors saw MQ as uninvestable because 71% of their revenue comes from Block. The main product Marquetta offers is to power Block’s Cash App debit card.
With the contract negotiations looming, that was a huge risk. But now with the contract extended for 4 years, people can get back in. And this could be a large flood of money. Marquetta now trades below 2x EV/sales, which make it an attractive investment. Especially if they can garner some growth.
As the chart shows below, MQ bounced off its 50-day MA before earnings and blew through it last Wednesday. And then after pulling back on Friday, MQ closed higher to close above all its moving averages.
Let’s buy MQ Monday morning. And we will use the 50-day MA as our stop.
Infinera ( INFN 0.00%↑ )
Infinera uses photonic integrated circuits to create digital optical networks. This is necessary for our data to flow through the internet to get where we want it to.
This industry is facing a bit of an oversupply right now and many of Infinera’s clients are working on reducing their inventory. Despite those headwinds, Infinera beat estimates in Q2. And I think that makes it likely they will beat their estimates in the future.
This glut is also supposed to be over by the first half of 2024. And since the stock market looks ahead 6 – 9 months, this could be the time for INFN to turn itself around.
And it needs a turnaround because this chart is Ugly – with a capital U. But the surge in price after earnings could be the signal of a turnaround.
So we will buy INFN at the market open and use $3.45 as our stop.
And that’s all for this week.
Take care.