Where is the Bottom, Do I Buy or Sell, Bearish or Bullish?


Fear the bear as they say. The bear market is here, the world is ending, Sound the bells. I love when the world panics because I run towards danger not away from it. Bring me to the center of the storm, I want to see what is going on. So what is going on with the financial markets? Most stocks and cryptocurrencies have hit 52 week lows with over 200 cryptocurrencies and stocks hitting all time lows. 

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The Stock Market

Let's take a look at the stock market first. It correlates the closest to real world buying and spending habits of the typical consumer. Of course, it is not an accurate indicator of the US’s economy, yet it is a stronger indicator than the crypto market. I believe that the S&P 500 gives the most accurate picture about how the stock market is doing. For all of you that do not know, the S&P 500 is a cap weighted index made up of the 500 most influential stocks listed on the Nasdaq. Apple and Microsoft make up more than 10% of the S&P 500 ($SPY). Meaning on any given day Apple and Microsoft can pull the market up with positive sentiment in the news or a strong earning report. This is why many financial advisors say that the S&P 500 is a bad indicator for the overall stock market. I disagree, if the majority of risk averse (which most people are) investors are invested into Facebook (Meta), Apple, Amazon, Netflix, and / or Google then the S&P 500 is a good indicator of stock market performance and condition. You might have heard of the stocks mentioned previously known as the FAANG stocks, representative of the largest cap weighted companies on the Nasdaq. This has changed in recent years, with the addition of Tesla on the S&P 500. FAANG is more like FAANG + TMBV: Facebook (Meta), Apple, Amazon, Netflix, Google + Tesla, Microsoft, Berkshire Hathaway, and Visa. The top 10 cap weighted companies in the S&P 500 and arguably the most powerful companies in the world.

The S&P 500 has been playing “follow the leader(s)” for the last two years, leaning heavily on big tech to support its upward movement. In the last couple months SPY has lost 16%, two repeat quarters of this is considered a recession. I argue that we will not be heading for a recession but this is the correction that was desperately needed. My rationale is that one big tech was way overbought due to the pandemic and is correcting itself, however a correction in the tech sector leads to a further loss among mid-caps and small-cap stocks. Take a look at the chart for Shopify ($Shop). Shopify had a rapid increase in share price due to its incredible growth during the pandemic but has since sold off almost all of its gains during 2020 and 2021. Shopify is a prime example of a company being oversold due to the adjustment occurring in the tech sector. There are a myriad of companies that are having similar experiences to Shopify which is fine. I can’t stress that this is a much needed correction, it is just having a negative effect on retail traders. For that I am sorry, but as a famous financial analyst once said “zoom out,” in 10 years this correction will be nothing but a reminder to keep some liquidity on hand. 

 

Right now is a perfect time to reenter the market but focus on companies that are preparing for the future. Do not think in terms of year-to-year growth potential, but in 10 years where will ‘company x' be? I know that might seem like a daunting task to predict where a company will be in 10 years but just think about our current growth as a society, as technology has advanced people. What will we need, what will we want, etc. These questions can help you narrow down your search to find companies that are preparing for the future. I am not a financial advisor, I am not recommending you follow my advice but I will share how I have been thinking about what companies I want to invest into. I have narrowed my search to four sectors: tech, gambling, marijuana, and energy. I am not a huge fan of unnecessarily diversifying one’s portfolio to mitigate risk. A study was conducted on investors, and they found that people more willing to take risk compared to investors who were risk averse, the investors who took more risk were more likely to make money in a 20 year time span then the risk averse investors. That is something to keep in mind when moving forward with your investments. For me, I love taking risks, I am young, I have time to recoup losses, so my portfolio is full of “risky” assets, however I mitigate risk through day trading and holding REIT stocks. REITs are incredibly stable and return slightly better than the Dow Jones or the S&P 500 on average.  For the short term, I am pivoting out of my REIT holdings in the next couple of months as I fear a housing crisis, I am also worried about large corporations moving away from large corporate headquarters to smaller, more efficient work-social offices in convenient locations. Airbnb came out with a post earnings announcement that they are letting all of their employees, who choose, to work remotely. They followed that statement from their CEO Brian Chesky, who said they will keep their headquarters in San Francisco for all employees who prefer to work in an office. I think many companies will follow Airbnb and cut back on having traditional corporate office spaces. This plays heavily into my fear that there will be a real estate downturn or even a sector crash.

 

 I mentioned earlier that REITs are incredibly stable, yet I followed that statement with a caveat that I believe that there will be a real estate downturn, commercial and non-commercial real estate will take a hit, unsure which domino is first to fall. However, the fact remains that in the stock market nothing is safe. Every stock has risk, and every time you invest you run the risk of losing everything. This is why risk does not bother me, and personally I do not think it should bother anyone. So, how do you, the savvy investor, invest for the future? As a reminder I narrowed down my search to four sectors: tech, gambling, marijuana, and energy. I see these four sectors have the most upside potential with room to expand into other industries if successful. The automobile industry is a very interesting sector as well but I am waiting for Tesla, the electric automobile sub-sector leader, to price adjust. My absolute bottom for Tesla would be  $554. Look at the chart below for my levels. 


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Tech

The tech industry is hard to forecast as it is the fastest growing sector. It is an ever evolving and changing industry. However, tech is so embedded into consumers’ daily routine that the tech sector can be analyzed through behavioral analysis. Following consumer behavior to predict the tech sector is a very simple thing any investor can do. Ask yourself, your friends, your family, what technological addictions do they need, what products and services do they currently use. This can help you, the investor, narrow down companies to focus on and highlight. Behavioral analysis is more complex as an economic philosophy. Yet any investor can run simple behavioral analysis by just asking questions and observing their peers. I invested in Shopify in 2019 because my friends were opening e-commerce stores through their platform and said that Shopify by far was their favorite e-commerce support platform. From there I did some digging on Shopify, their numbers were strong and yielded positive sentiment backed by unequivocal growth potential, so I invested but my investment idea came from a simple conversation with a friend. I plan on investing into Unity software because Unreal engine 5 has helped some of my friends create unimaginable spaces that touch reality. Some have the power to mirror reality. Similarly I have opened a position in Adobe because every advertising friend I know uses at least one application within the Adobe Suite. Graphic design is a rapidly expanding industry, Adobe is a major supplier within that industry, there is your growth potential. Again, think in 10 years, almost every advertisement will be digital (*cough* Tradedesk *cough*). Sometimes you don’t even need to think of a company directly but a growing industry, profession, or sector. 

 

Gambling

The gambling industry is a new industry. Gambling has been around for thousands of years but has always been frowned upon. Nevada was the first state to legalize gambling and Las Vegas became the North American hub for the activity. For years, Las Vegas was the only place in North America outside of Indian Reservations that allowed gambling. With the recent success of fantasy sports companies like DraftKings and Fanduel have made fantasy sports into a phenomenon. Adding a cash incentive to playing fantasy sports on their apps and websites. This was a legal gray area for lawmakers which left the door open for DraftKings and Fanduel to grow. This led to DraftKings going public in 2019 leading to a resoundingly strong IPO launch that I believe fueled the IPO craze over the last couple of years. Why do I believe gambling will do well in 10 years. Well, like I mentioned earlier, gambling is still illegal in most states, but with the recent success that New Jersey and Arizona have seen because of gambling revenue, I believe many states will follow suit and legalize gambling. The tax revenue is too much of an incentive to ignore. With more states legalizing gambling in the next couple years and with the increased interest in traditional gambling and fantasy betting I believe the gambling industry will do very well. 

 

Marjuana 

This leads me to another new sector, marijuana or weed, as it is typically referred to. The same reason I am investing my money into the gambling sector is the reason why I am investing my money in the marijuana sector. The tax revenues are too much of an incentive for law makers and policy makers to ignore. Weed will be federally legalized by 2026 in my opinion and marijuana will be treated similarly to how alcohol is treated in the United States. 


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Cannabis has incredible growth potential and there is a clear path to see how the marijuana industry can grow. If it captures just a third of the alcohol industry market share, marijuana goes from a 5 billion industry (2018 statistics) to over 30 billion dollar industry.

 

The tricky part with cannabis sector is what companies you invest into specifically. That has been the biggest challenge I have personally come across when planning out my investment for this sector. I have leaned heavily on the Advisory ProShares PureCannabis ETF ($YOLO), commonly referred to by its ticker name, Yolo. Yolo is a safer option if interested in investing in the marijuana sector. The ETF is run and operated by a well organized and decisive team. That has built an ETF prepared to adjust with industry changes and expectations. Outside of Yolo, I have looked into a couple industry suppliers like GrowGeneration ($GRWG) or Hydrofarm ($HYFM). These industry suppliers are a good way to hedge your bet for the marijuana industry. It’s like dipping your foot in the water, you don’t have to get that wet but you still enjoy the nice cool water on your feet. I would suggest looking into industry suppliers for other sectors if you are skeptical of the sector's future performance.   Cannabis testing is a good example. 



Energy

Last but certainly not least, the broad sector, energy. Energy is one of the world’s largest and most complex industries. It is dominated by large corporations backed by huge investment groups that support these large entities to make sure they remain in power (*cough* Exxon *cough*). The energy sector has two sub-categories that I would like to highlight: renewable energy and energy suppliers. Renewable energy is a big focus of mine due to consumer sentiment about the prospects of a dying ozone and the damage gas and oil has caused to our planet and the animals that inhabit it. Renewable energy will take over in most first world countries by 2030 and there is huge growth potential within the sub-sector. The energy sector is complex, I recommend following technical analysis. Behavioral is not very effective, smart charting and entry points will be the most useful to maximize gains and minimize losses in the short term. The renewable energy sub-sector might take some time to take off, be patient and choose companies based on technical research and analysis. I am rotating liquidity into Ballard Power Systems ($BLDP), Plug Power ($PLUG), SolarEdge ($SEDG), NextEra Energy ($NEE), Enphase Energy ($ENPH), and Albemarle ($ALB). 

 

Crypto Market

I was going to write another article about crypto, specifically and what to do. But instead I am going to continue off of my previous statements. Behavioral, then technical, then charting, then decision. Remember cryptocurrencies lean more heavily on retail traders since the market has not been influenced by big money. This is also one of the reasons why cryptocurrencies have such high risk. Cryptocurrencies are also considered high risk, the riskier the assets the less likely people are willing to hold during a “bear market.” With that being said, because people are risk averse, the savvy investor can take advantage of people’s fear. When other people run away from the fire, you head right into the flames and set up shop. With most crypto assets currently down in value there is a strong buying opportunity if you are willing to hold through the bear market. Yet let’s not be stupid, Shiba Inu and Doge coin are not going to change the world in the next 10 years, they are memes meant to pump and dump. If you want to ride the wave and make a quick buck, be my guest. Full disclosure, I did that with Shiba Inu, however, I own zero Shiba now and do not plan on buying another meme crypto because my belief is the crypto market along with the NFT market is going to thin out. People get picky in a bear market and choose the best of the best because they do not want to lose money. They want to maximize profits in the long-run. A bear market industry is an opportunity to buy for the long-run NOT FOR THE SHORT-RUN. The cryptocurrencies I will be buying are as follows: $WAXP, $CHZ, $ADA, $FET, $ICP, $FTM, $LINK. I am going to expand my list later in the summer when the market gets to lower volatility. For now, do research, find coins and tokens that you like, then wait. You do not need to rush into anything. Find your price point and buy, and then close your phone or computer and come back in December. Stop thinking in yearly terms but in 10 year terms. This is just the beginning of the crypto industry. To find out which companies have a promising future, I recommend going to Coinbase’s venture page. They list every company they have invested into. Investing into a company that Coinbase is invested into isn’t a guaranteed path to success but it can help you reaffirm your belief in a company or lead you to find an entity that you haven’t heard of and allow a new opportunity to learn about a sub-industry within the Web3 space.

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