Macro is dead. Paul Tudor Jones, perhaps one of the most famous macro investors of our time, confirmed this fact at today's Ira Sohn conference with a presentation titled: “Manic depressive trading in a volatility-compressed world.”
He did say during his presentation that, “Macro trading is about as difficult as I’ve ever seen it in my career." The reality of coordinated, global central bank intervention has taken its toll on all the key components that make up the bread and butter of the large macro investors. We are increasingly living in a micro world, where focused themes in technology and financial innovation will drive extraordinary capital gains for investors.
At this moment, the markets are in a digestive phase that has seen key momentum or growth based names suffer extraordinary punishment in the past couple months. All the meanwhile, the general market (SPX, DJIA) has held up remarkably well, being poised for new all time highs in the days and weeks ahead. The strength being shown by the general market averages while technology, biotech and to a certain degree, financials have all experienced extraordinary losses should be seen a positive sign by investors. It is by no means a precursor to any type of financial cataclysm in the form of evaporating stock prices in the months ahead, as you have been led to believe by the gallivanting pundits that occupy media of all type.
It is of key importance to have perspective during periods of time where confusion reigns supreme. Perspective in the case of momentum driven names comes in the form of zooming out a bit and looking at their performance thus far in 2014:
FB +12%
GOOG -6%
NFLX -6%
TSLA +44%
YELP -13%
ZNGA +1%
To those claiming that growth has imploded, I ask if they would like a wax with their brain wash? This is not an implosion but normal market behavior during a secular bull. Those who regrettably and perhaps, naively chased these names up during Q1 are being taught a very basic lesson of bull markets: Chasing momentum is a punishing sport. Further, those who are complaining of the punishing circumstances surrounding growth names in 2014 have simply arrived at the masquerade ball late and without the proper costume.
You can see in the chart of TSLA below that it has just today pierced a short-term trajectory to the upside. It should also be noted that the recent multi-month sell-off has been occurring on consistently diminishing volume. A very standard pullback by any stretch. I would also put a tremendous amount of weight in the simple fact that TSLA is one of the best performers in growth thus far in 2014.
click chart to enlarge
TSLA
Moving onto the worst performing growth name in the short list above: YELP. Note that the recent earnings announcement caused the biggest volume up-spike that YELP has ever seen. This is during a period of time when good earnings are being sold more consistently than anything we have experienced during the past couple of years. YELP's earning spike on very obvious large buying should be seen a sign of potential outperformance into year end. Not for the faint of heart. If you can't withstand 50% drawdowns, then YELP isn't a name for you. There will likely be a few of these types of steep drawdowns over the years for the stock.
YELP
A consistent outperformer with much less volatility, of course, should be AAPL in 2014. The recent gap up on earnings changes the bearish equation, disrupting the downtrend from September of 2012. AAPL should be a "safe haven" technology asset in 2014, during what will continue to be volatile, generally sideways conditions. It is only obvious that institutions will seek safety in the most predictable of names during this transitory phase. This should benefit AAPL going forward.
AAPL
As for the general market, we can see below that the Nasdaq 100 has held its key trajectory and is now sitting below a short-term trajectory from the March highs. This should be taken out to the upside in the days/weeks ahead, with a challenge of the previous highs a significant possibility into the end of May. This will more than likely be a selling opportunity into what should be an extremely unfavorable, volatile summer trading season.
NDX
Moving onto a key technology component in the SOX, we can see that the volatility has subsided in May, with a tightening range right near the bottom end of the ascending channel. This should bring with it a change of trend for the short-term to the upside. A test of the old highs at 600 or new highs all together are a significant possibility into the end of the month.
SOX
Finally you can see how well the S&P has held up during the volatile earnings season that just passed. This should be seen as a sign of overall strength for the market in the short-term. Dramatic new highs in the S&P 500 in May will certainly serve as a means of gaining the trust of investors before the summer months present an entire family of new issues for the market to deal with that should cause new lows for 2014 to take place somewhere in August or September. We'll get our 10% pullback, but it will come from much higher levels than where we are today.
S&P 500
In summary, don't take a sideways market after powerful gains in the years prior as anything other than what it is. This is digestion, plain and simple. There are no fire breathing dragons or winged serpents lying beneath Wall Street, waiting to devour equity investors whole. Only great imaginations that have been chiseled from the stone of past calamity and tragedy to the point of being warped beyond repair.
