Mechelany Advisors' MODEL PORTFOLIO Mechelany Advisors’ MODEL PORTFOLIO has been running in a fully transparent way since January 1st 2014. Its Purpose is to implement the conclusions of our research analytical process in a global portfolio managed using institutional liquidity, diversification, risk management and asset allocation processes. Our MODEL PORTFOLIO invests in cash, bonds, equities, commodities and crypto-currencies, it is not tied to any benchmark.
As we predicted, on September 2nd 2020, the US equity markets turned and made a significant top for no other reason than investors finally discovering the reasons behind the insane and unhealthy 70 % rally since March 2020 and the spoofing of technology stocks thro8gh the option markets.
Interestingly enough, the markets turned PRECISELY on the technical level indicated by the ” Megaphone Loudspeaker” pattern that had constrained the indices since the initial top if January 2018 and marked with extreme precision the bottoms of December 2018 and March 2020.
The chart of the SP500 below clearly confirms that the September 2nd is a major top, right on the resistance level, and that the next leg down should see the SP500 reach 2150 before the next down leg is over.
The other confirmation that a final top is in place is the fact that the Nasdaq 100 Index finally broke down and closed below the uptrend channel that has constrained the March- August Rally by closing below 11’150 this week, sending an extremely important SELL signal to all the Technical analysts, Hedge funds and algorithmic traders.
Finally, the bets indicator that the entire rally is over is the technical pattern of almost each and every one of the FAMANGS. As we all know, this entire rally has been built on a very limited number of us mega’ cap stocks, boosted to irrational levels of valuation by an entire new breed of investors punting the markets in drove through social media forums and cheap trading platforms, taking the level of outstanding call options to the extraordinary amount of USD 512 Billion of open exposure through call options that will expire this month.
As we predicted, the behaviour of these individual stocks last week shows without a doubt that some long term institutional holders have started offloading their strategic positions in these shares, in a relentless supply that is taking down slowly but surely through all, technical supports.
This week’s close was actually crucial because they have all delivered the FIRST confirmed SELL signal since March 2020, and this signal will act as the trigger for waves of selling and liquidations that expect to unfold in the coming two months.
Apple’s 142 % rally since March 2020 developed in a very traditional 3 -legs rally that topped out at 140 on September 2nd with a clear blow-off secular top and last week’s break down below the 3rd leg’s uptrend points to the unfolding of a secular bear market that will take the share price to at least US$ 65, a 42 % decline form current levels, with the potential for an overshoot to the downside to US$ 40 or even 30.
Microsoft shows the same three legs pattern in the rally with a clear weekly reversal last week and a clear break below the uptrend.The downside of the coming phase is at least 147 , but much more likely to be US$ 100 or a 50 % decline from current level.
With its 600 % advance in 2020 for a company that does not make one cent of profits from its core businesses, Elon Musk’s company will remain in history as the hallmark of the 2020 speculative bubble in tech. In less than two weeks the stock has already lost 25 % of its value and the remaining downside is probably with a target of US$ 65, an 83 % decline from current levels. Elon Musk was extremely well inspired, as usual, to sell US$ 5 Billion with of new shares through a secondary offering at the very top.
The darling company of COVID 19 shows exactly the same pattern as Apple Inc, with a three legs advance that saw the share price double in five months, a blow-off top on September 2nd 2020 and a clear break of the whole uptrend last week.
Fasten your seat belts as the stock should lose at least 33 % of its value to 1’900 but more probably an overshoot towards 1200, a 62 % decline before the entire bear market is over.
The other COVID 19 darling is also a text book example and a clear confirmation that a secular top has been reached. Its has doubled in a three leg-advance before a blow-off top and reversal in July 2020 and a failed attempt at new highs in August marking a solid and worrying double top and lower high, a sure sign that the balance of supply demand has reversed. Investor still looove Netflix, but last week’s close points to a final break below the 460 support level that has been in place since June. The first target to the downside is 290 and an overshoot to the downside would probably take it below 190.
Google Inc. (Alphabet)
Google displays the same patterns with a three leg rally, a blow-off top with major reversal and a clear break of the uptrend last week. The downside is at least 1’000 and more probably 800 or below.
Facebook’s 100 % rally since March 23rd ended with a major reversal on September 2nd and although it has not yet broken its uptrend, last week’s decidedly bearish pattern points to a test and then break below 245 next week. The ultimate target of the bear phase is at least 150.
Advanced Micro Devices (AMD US)
AMD rose from US$37 in March 2020 to US$95 on September 2nd. a 157 % advance that really does not match the hyper cyclicality of the semiconductor business, and that advance came on the heels of a share price that had already risen from US$5 to US $ 60 since 2016, making the best performing stock of the universe.
The latest move ended with a double top, a failed attempt at new highs, a blow-off phase and a major break down that will see it fall in a vacuum towards at least 50, and more probably US$ 30 before the bear market is over.
We had been calling the END OF TECH as early as 2018 as we called the end of the longest bull market in US equities since then.
Both tech and US equities experienced the final melt-up and speculative excesses that mark the end of secular bull markets and we are now entering a LASTING SECULAR BEAR market in both, that will see many of these mags-tech stocks lose between 80 and 90 % of their value in the coming three years.
Interestingly enough, many equity indexes are showing a clear top and reversal, sending SELL signals across the board.
The MSCI World equity index is also displaying this frightening Loudspeaker megaphone pattern with extreme precision and a scary target for the coming wave of selling that could be extremely sharp and fast, forcing major liquidation of indexed products. The next target is 1450, a 40 % decline form current levels.
Our Model portfolio was up +7.64 % last week, and has now recouped almost all its temporary losses.
The week before, we had switched our short SP500 positions by individual shorts on the US tech mega caps and last week we have taken profits and reduced exposure to China and European stocks while re-instating hedges on both.
Next week, we may increase our short Nasdaq 100 positions again and our portfolios now decidedly net short.
Precious metals were positive contributors last week with Platinum rising 9 %, Silver rising 5 % and Palladium up 3 %. Our commodities exposure is at 21 % of the portfolio for now and we keep our strategic positioning going into the coming risk-off phase.
Our US equity long portfolio is concentrated in the Apple-Fi scenario and Esperion therapeutics and we expect more and more positive news coming from this space . The portfolio was globally negative last week with LORAL losing 9 % while KRATOS is setting the stage for a sharp move up in not too long.
European equities were also a negative contributor but we took profits tactically on BMW, and Accor while cutting our positions on Total and EssilorLuxoticca. We also increase our short the Eurostoxx index fully hedging our portfolio of European stocks. For now, the European index is not yet negative, but its inability to decisively break above the moving averages puts it in a dangerous spot an d we do not want to be taken into a sharp move down.
Brtitish Telecom was a bright spot rising 9 % on take-over rumours.
Our portfolio of Chinese equities performed negatively last week with our two extreme value stocks China Zheng tong and Shanghai DongZheng falling by 19 % on liquidations in low volumes.
We believe the worst is behind for both companies and they trade at valuation metrics unheard of at 16 % book value for Zhengtong and 5% of Book value for Shanghai Dhong Zheng a company that is still highly profitable with an operating Margin of 44% and a 300 % increase in profits expected for 2021.
In 2020, Shanghai Dong Zheng should generate 331 million Yuan of net profits, a 50 % earnings yield when brought back to its 745 million market capitalisation. Finding a financial company offering car leasing financing in the Chinese luxury car segment that can be bought at 5 % of its accounting value and offering a 50 % return on investment per annum is a steal an we shall add to positions in the coming weeks.
Chinese equities have been weakening in the past few weeks and we took profits on JD.COM, sold our long leveraged position and built a short position on the FT50 China HK index as a glib hedge for our portfolio of H-Shares.
We remain very positive on Chinese shares for the future but do not want to be taken in a global equity sell-off in the coming weeks.
The big winner last week was our SHORT US EQUITY PORTFOLIO with our short Nasdaq 100 ETF rising by 17 % while each and every one of our individual short positions in US mega tech losing between 6 and 8.5 % last week.
Next week, we shall increase our short position in the SQQQ ultra short Nasdaq 100.
Our currency allocation is strongly bullish US dollar and we are currently witnessing a major bottoming out of the US currency against all other currencies with a clear higher low on the DXY index.
DISCLAIMER Mechelany Advisors FZ-LLC or www.mechelanyadvisors.com, is not a registered investment advisor, nor a capital management firm or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Mechelany Advisors FZ-LLC operates as a private advisory and research company where we provide consulting services to pension funds, investments funds and private clients. Our analyses and conclusions are ours and they only clarify and highlight the investment rationale behind our own investment decisions. The analysts and employees or affiliates of Company may - and usually do - hold positions in the stocks or industries discussed here. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. You understand and acknowledge that there is a very high degree of risk involved in trading securities. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns. The indicators, strategies, columns, articles and all other features of Company’s products are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company’s website are for educational purposes only. Such examples are not solicitations of any order to buy or sell securities, commodities, investment products or engage into any kind of trading activities. Accordingly, you should not rely solely on the Information provided in making any investment decision. Rather, you should use the Information provided only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment. By navigating on our website or remaining on our subscription lists, you accept our terms and conditions and discharge us irrevocably form all responsibility.