Carlsquare weekly market letter: The bitcoin rally and why it matters to all of us…

• With the rally in the magnificent seven faltering somewhat, the focus has turned to bitcoin and precious metals. Energy comes from lower USD and new cryptocurrency ETFs
• But the rise of cryptocurrencies could be a (red) flag for China
• A red flag also needs to be raised for the broader market as internals start to fall apart

As we have reported over the past few weeks, the Magnificent Seven machine has become increasingly unbalanced, with Apple and Google being the drags. Apple’s headlines have included lower-than-expected sales in China. But the investment community is also concerned that Apple’s biggest fan, Warren Buffett’s Berkshire Hathaway, has started selling Apple shares. Is this the start of a new trend? What does Warren Buffett know that we don’t?

Apple has now fallen all the way back to the November lows, which is also a zone where you can historically see demand for the stock. Perhaps this is a buying opportunity for the long-term investor to pick up some Apple. But it is also a clear warning sign that we are entering more troubled waters. Aside from Apple, Tesla fell back to the bottom of its trading range yesterday and Google closed below its MA200. It is high time to look at the whole portfolio.

This is traditionally a slow period of the year, as the reporting season comes to an end and a gloomy macro environment takes its place in the spotlight.

On the positive side, NVDA is still maintaining its strong momentum. A break of the EMA5 (yellow line) and EMA9 (red line) would be a first sell signal for the stock and of course for the broader market. Keep an eye on the EMA5 and EMA9 for future guidance.

The VIX, which shows the market’s pricing of volatility over the next 30 days, rose 7% yesterday, but still doesn’t indicate too much caution in the market. Lets see if it can make it to the higher Bollinger Bands. If the VIX breaks above the higher Bollinger Bands, it is a potential sell signal for the entire market.

Perhaps the easiest way to follow the market is to use the above chart as a guide. It shows the 3 hour performance of the Nasdaq and you can see a strong trend line on the chart. As long as the Nasdaq is trading above it, weakness in individual stocks can be seen as buying opportunities. However, a break below the trend line is a strong red alert for the overall market.

The performance of the Nasdaq is currently highly correlated with Nvidia. And NVDA is still on the rise. Keep an eye on the EMA5 and EMA9 for further guidance.

As the focus shifts away from the Magnificent Seven, the market is zooming in on the cryptocurrency market.

https://companiesmarketcap.com/assets-by-market-cap/

The chart above shows global asset classes ranked by value. At the top is gold, which is worth 4 times the value of Microsoft. In 9th place we find bitcoin, which is surprising as it is an asset class that is not really accepted as an asset by central banks and is banned in many countries. However, there is no meaningful fundamental analysis of how bitcoin compares to other asset classes. As this seems to be negligible to the community, the valuation of the asset is left to the individual to assess and trade accordingly. Supply and demand are therefore the relevant factors to analyse.

From a demand perspective, we can see that the US SEC’s approval to launch cryptocurrency ETFs is a game changer. With ETFs, retail investors don’t have to take the risk of crypto exchanges crashing or assets being stolen, which is a real threat.

Bitcoin has now exploded to $69000, but fell back $10000 in yesterday’s trading due to profit taking after the huge move. Lets see where it ends up…

We would also like to highlight another development. China is pumping more liquidity into the market. This has turned the tide for the Chinese stock market, represented above by Shanghai.

Higher liquidity in China with strict capital controls makes it interesting for Chinese people to invest in cryptocurrencies, even though they are not allowed in China. In fact, the Chinese state repeatedly warns Chinese people not to invest in cryptocurrencies as they are very risky assets. Nevertheless, crypto is one of the few ways for Chinese people to move money out of China. So a higher price of bitcoin can be seen as a red flag for the Chinese market. We haven’t seen any major crashes yet, so one way to read it is that money is starting to flow into China, which is a positive for everyone.

As Russia begins to run into serious funding problems due to the war, there is speculation that Russia’s currency reserves have been reduced to gold and hoards of Chinese renminbi. As the war continues, the renminbi can be sold to buy goods and weapons, creating a flow of renminbi into the global market. This is as good a reason as any to buy bitcoin.

Gold has also started to move. With a weaker USD due to lower yields and higher equity markets, gold has returned to all-time highs.

Usually gold miners (GDX) lead gold, but not this time!

It seems that company-specific news has pushed the gold miners down as a group, with giant Newmont in the driver’s seat. Newmont is fighting its way back into positive territory. Let us see if we can also see a big push higher for the gold miners. The gap should close again somehow.

As we always say – don’t fight the trend – let the trend be your friend.

Happy trading!

Q4 2023 reporting season

S&P500 stocks in the US

As of Thursday 29 February 2024, approximately 485 S&P500 companies have reported their fourth quarter results. 73% of S&P companies have reported a positive EPS surprise and 64% have reported a positive revenue surprise.

For the fourth quarter of 2023, earnings growth for S&P500 companies has risen to 4.0%, up from 1.6% four weeks ago.

For Q1 2024, 71 S&P500 companies have issued negative EPS guidance and 30 S&P500 companies have issued positive earnings guidance.  For Q1 2024, analysts are forecasting earnings and revenue growth of 3.6% for S&P500 companies.

S&P500 Q4 2023 EARNINGS VS. EXPECTATIONS, RANKED FROM BEST TO WORST SECTOR

Source: Factset Earnings Insight

The table below shows seven major US companies that reported quarterly results for Q4 2023 last week, along with the actual and expected EPS, the percentage deviation and the post-announcement price movement. The average EPS surprise is 9.8% and the median is 5.0% for 113 reporting companies since 1 January 2024. The post-announcement price movement is 0.2% on average and minus 0.5% on median.

Below we have listed the market’s earnings per share expectations for each company and the date of each interim report for the coming week.

OMX stocks in Sweden

Carlsquare has compiled the results, revenues and order intake compared to expectations for 92 OMX companies that have submitted their Q4 2023 reports since 18 January 2024. As can be seen, 51% of Q4 results and revenues exceeded expectations. Eight out of 14 companies missed expectations for new orders.

Q4 2023 OUTCOME VERSUS EXPECTATIONS FOR OMX COMPANIES

Sources: Avanza, Bloombergs, Carlsquare, Direkt och Infront.

The following table shows the deviation (in percent) of the earnings, sales and order intake results of the two OMX company that has reported its Q4 2023 results since Wednesday 28 February, compared to the corresponding consensus estimates.

Week Ahead

Reports on Wednesday, 6 March: Clas Ohlson, Bavarian Nordic and Schaeffler. Capital Markets Days for EQT and Sampo.

We start the day with the German Trade Balance for January at 8.00 CET. Eurozone Retail Sales for January are due at 11.00 CET. The Bank of Canada will release a statement on interest rates. From the United States, we get ADP private payrolls for February, JOLTS job openings and wholesale inventories for January, weekly oil inventories (DOE) and the FED’s Beige Book. There will also be a Q&A session at the US House of Representatives with FED:s Jerome Powell.

Reports on Thursday, 7 March: SAS, Torm, Drägerwerk, GEA, Broadcom, Costco Wholesale and Marvel Technology. Capital Markets Days are hosted by Novo Nordisk and Securitas.

China’s February trade balance is due at 4.00 CET. Four hours later we have German industrial orders for January and a mortgage report from the Swedish Financial Supervisory Authority. From the United States we get Q4 productivity, February Challenger layoffs, January trade balance and initial weekly jobless claims. The ECB will hold a press conference with Christine Lagarde at 14.45 CET. The Fed’s Jerome Powell will answer questions from the US Senate at 16.00 CET.

Reports on Friday, 8 March:  Sectra.

Japan starts with Household Consumption and Current Account Balance for January at 0.30 CET. Statistics Sweden publishes the GDP indicator, industrial orders and household consumption for January at 8.00 CET. At the same time, Germany will release industrial production and PPI for January. Three hours later, Eurozone GDP and Q4 employment are due. At 14.30 CET, employment figures will be released from the United States (Nonfarm Payrolls) and Canada.

Reports on Monday, 11 March:  –

The first macro news of the day is Japan’s Q4 2023 GDP due at 0.50 CET. From the United States, we get the NY Fed Inflation Expectations at 16.00 CET.

Reports on Tuesday, 12 March: Svolder.

UK unemployment (ILO) for January and German CPI for February are due at 8.00 CET. Opec will publish its monthly oil report. From the US, we get the NFIB small business index and February CPI, weekly Redbook retail data and weekly oil inventory statistics (API).

Disclaimer:

The information in this presentation is based on what the publisher, Carlsquare, believes to be reliable sources. However, we cannot guarantee its content. Nothing in the presentation should be construed as a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the presentation are for the recipient’s use only. The contents may not be copied, reproduced, quoted, or distributed to anyone else. Carlsquare shall not be liable for any loss arising from any decision taken based on the information contained in this presentation. Past performance should not be taken as an indication of future results. Changes in foreign exchange rates may affect the value, price or income of an investment made abroad or in a foreign currency.

The analysis is not directed at U.S. Persons (as that term is defined in Regulation S under the United States Securities Act and interpreted in the United States Investment Companies Act of 1940), nor may it be distributed to such persons. The analysis is not intended for natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign laws or regulations.