Mechelany Advisors’ Investment Ideas are here to make our readers make profitable investments over different time-horizons. Our value oriented investment management style and research focuses on cheap companies with great and solid businesses to be held as core holdings in portfolios. We provide individual Investment ideas based on our multi-layered screening and valuation process combining structural, top-down macro, sectoral analysis, bottom-up stock selection and valuation analysis. Our Investment Ideas may be included in our Model Portfolio while some may not be included if they do not fit the global risk profile and asset allocation chosen at the time of selection.
As our regular readers know, we have been developing the END OF TECH theme as early as February 2018, based on unsustainable valuations and growing regulatory and tax pressures on their business models.
Clearly, we were early and the massive bubble in the FAMANGs kept on going for another two years, fed by Donald Trump counter-cyclical tax breaks and the massive monetary stimulus engineered by the FED in 2019 and 2020, compounded with the “work-from-home” culture breed by the Covid lockdowns
Nevertheless, our fundamental theme is even more valid today than it was then. Regulatory pressure is going to increase markedly, earnings have all been but discounted and tax pressure is increasing sharply as testified by the recent developments in Australia and Europe. Moreover the role played by the Social Media in the January 6th 2021 insurrection at the US Capital has turned the tide against their free-wheeling practices.
The FAMANGs have been the leaders of the entire secular bull market with Apple reaching US$ 2.5 trillion market capitalisation, more than the GDP of France, and Facebook, Microsoft, Alphabet, Netflix and Amazon trading at valuations extremes never seen in the past with earnings yields that are so low that it will take decades for owners of these stocks to recoup their investment.
More importantly, we are now having all the signs that the investment bubble is finally bursting.
In 2020, the bubble was charaterised by TESLA ‘s 800 % rise, Gamestop, Bitcoins, SPACs and the frenzy of speculation by a new breed of young investors confusing video games and trading apps, with a culture of “never sell” – save for when there will be no one else to buy anymore and they will start seeing lasting and growing losses on their portfolios.
In the past few months, we have highlighted the loss of momentum of the entire FAMANGs universe that have been basically flat since September 2020, and in the last two weeks, failed new highs on most of them.
As the charts below show, Apple Inc has now broken its uptrend, Tesla failed to sustain the 800 level and each and every one of the leaders of the bull market is now showing signs of a trend reversal.
We see these breakdowns, together with the collapse in Bitcoins and the rise in US bond yields as the signal that the SECULAR TOP in these Technology mega-caps have been seen.
The downside from here is CONSIDERABLE for these stocks as reversion to the mean of their natural earnings growth trend means significant price falls and we are short of them in our MODEL PORTFOLIO.
Considering the weight of these megpacaps and of Tesla in the SP500, this peak in the FAMANGS may herald a peaking of the main indexes as well, something that could bring our global secular top much earlier than our preferred assumption of a final peak in the 1st half of 2022.
We invite our readers to take close look at the Monthly Charts of those stocks to fathom the downside potential.
We plan to launch an index certificate being short this basket of stocks to enable investors to play this secular turn in the leaders of the 2008-2021 secular bull market.
Apple Inc. AAPL US
The daily chart reveals a significant break of the uptrend in place since March 2020 and the confirmation of a failed breakout to new highs, a very negative signal.
The WEEKLY CHART shows that the entire up-channel has been broken and that we are now trading BELOW the September 2020 initial top.
The MONTHLY CHART shows that the five waves bull market ended in a phenomenal vertical acceleration that saw Apple shares double in value since March 2020, a pace of appreciation that is untenable.
Reversion to the mean points to a fall towards US$ 57
Significant breakdown with a gap yesterday on the DAILY CHART. There are no more buyers at these levels and there is no visible catalyst on the horizon for the US software giant.
The WEEKLY CHART shows a loss of upside momentum after the lengthy consolidation since July 2020 and yesterday’s reversal points to an initial re-test of the 210 level.
The MONTHLY CHART shows how over-extended MSFT is and the potential failure of the attempt at a new high
Alphabet Inc. ( Google )
Despite its excellent corporate results ion the 4th quarter of 2020, Google shares failed to make significant headways and they are now more than likely to close the gap that opened up at the beginning of February
The WEEKLY CHART shows that the doubling of the stock since March 2020 is losing momentum…
The MONTHLY CHART shows that the reversion to the mean would take the stock down to 1200 if not 1’000.
Despite its good results, Facebook has now been in a horizontal / downtrending consolidation channel that is pointing to a break down very soon. The sharp rebound on its earnings publication did not last and has now been all but erased.
The WEEKLY CHART shows a declining triangle that is more likely than not to be broken to the downside
The MONTHLY CHART shows that the September peak is a lasting secular peak with a target towards 180
A failed break to new highs despite bumper results and the current trading below the July, September and October peaks is a bad Omen.
Three tops after a major acceleration upwards and a sixfold rise in the past 5 years. The target to the downside is around 245
Amazon is great ! But Amazon stock has been dead money for the past six months and there is strictly no catalyst to push the stock beyond its 65x earnings and 17x price to book ratio.
Three lower tops and a failure to break to the upside points to a test of the downside at 3000
The MONTHLY CHART tells the story of the exuberance of the world’s largest online retailer after Ali Baba and a failure of the continuation of the uptrend with a target at 1500
Advanced Micro Devices Inc.
Major breakdown under its moving averages for the star of the last five years with a succession of lower highs.
The WEEKLY CHART shows the loss of momentum since the September 2020 peak and we now trade under that level.
AMD has seen its stock price multiply by 10x in the past five years and the vertical acceleration is over. A break of the 75 level will send the stock down to US$ 35, or even 15
Tesla is the greatest fundamental short in history despite all the young generations that consider Elon Musk to be a God. He is indeed a genius and his companies are great but there has rarely been so much hype in an investment and yesterday’s breakdown is extremely telling of things to come.
The WEEKLY CHART does not need comments.
Tesla started 2020 at US$ 83… and the company was already overvalued then.
There is no reasons the stock could not revisit that very level
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