larrycheung

August 24th Daily Market Note: Tech experiences a large reversal and the Retail sector sentiment is dampened further by Dollar Tree

Added 2023-08-24 18:55:55 +0000 UTC

Hi Folks,

Here is today's Daily Market Note for August 24th.

Daily Market Note: August 24th 2023 by Larry Cheung, CFA

Tech experiences a large reversal and the Retail sector sentiment is dampened further by Dollar Tree

Forward-looking Conclusions of this note:

Macro: Large investors fade the market’s opening strength ahead of Jackson Hole tomorrow
Stock-Specific: We saw an opportunity to get long Dollar Tree at 127/shr (at 20 Daily RSI) this morning, and it had immediately moved up to 130/share minutes after my note. Selling pressure remained high, however, and the stock remained strongly subdued throughout the day. Going forward, I will include Intraday parameters in any provided guidance to help folks take gains if desired so that profits don’t evaporate if the stock retraces. My personal holding period preference is intermediate-term for fundamentally strong companies, but I completely understand if folks want to get an immediate ROI.
Bonds: Bonds are in a holding pattern ahead of Jackson Hole Tomorrow
China: Our HK-Listed positions started earlier this week are up 2-3%, and on a multi-week timeframe, we believe the Hang Seng can recover back to touch 18,500-18,600 or better before further selling. This implies continued further upside on China ADRs in the U.S over the coming weeks, if markets are stable.

Daily Market Note & Context

Ahead of Jackson Hole tomorrow, market participants immediately took profits at the opening bell, pressuring the largest stocks (FAAMG and Semiconductors) to reverse pre-market gains and retrace yesterday’s advance.

NVDA’s earnings yesterday shows that the multi-year total addressable market for AI is a tidal wave of opportunity for companies that produce the technology to build out that envisioned future. That said, long-term narratives and day-to-day price action may not always be in sync with each other, and Fund Managers decided to reduce exposure on tech positioning ahead of Powell’s interest rate policy outlook delivered at Jackson Hole tomorrow. The bond market is relatively range bound ahead of tomorrow’s conference with the long duration rates 10Y, 20Y, and 30Y treasuries relatively unchanged from yesterday.

In U.S. retail news, we continue to see adverse developments in the sector with Dollar Tree now reporting that inventory shrink, lowered margins, and customer shopping patterns are impacting their operating results. The three large thrift shops in the U.S., Dollar Tree, Dollar General, and Five Below, all ride the delicate balance of a positive macro story on a customer trade-down to save disposable income while facing negative fundamental issues such as inventory shrinkage problems due to inventory theft/mismanagement. Because Dollar General and Five Below have similar business models to Dollar Tree, I currently do not expect DG and FIVE to have significant upside surprises from their upcoming earnings report. If they do, then that’s a bonus, but I am simply holding my Sell Put positions on them as previously discussed. Not adding.

I remain confident that, within U.S. Retail, thrift shops will eventually find their allure among investors once consumer data shows evidence that these companies are taking up a larger and larger share of retail sales within the low-priced items of the market. This view is a macro opinion, and naturally will some take time to play out.

In order to maximize the probability that members get a direct ROI from my ideas regardless of intermediate-term direction, I believe it may be prudent for me to include intraday parameters along with my entries so that folks can walk away with gains upon the stock moving favorably in our direction from entry. Naturally, intraday trading of the stock means that you secure the gains immediately but forfeit the upside potential of holding over longer periods of time. That is a personal preference which of course only the individual can decide on.

I personally am okay with longer holding periods with drawdowns in between, but can definitely include intraday parameters if folks find it helpful. In this environment, sizing lightly, being patient, and waiting for setups that have a statistically higher chance of survival will allow us to tactically extract steady outcomes.

My plan is to keep holding, and any change in positioning will be communicated with members.

-Larry

PDF format is also available here for you to read. Just a quick reminder that I send out Daily Market Notes and Pre-Market Updates between Monday-Thursday of each week. I use Friday-Sunday to update my models and read up on company earnings transcripts to inform my understanding of their evolving business operating environment.

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