Hello. Glad to be back! Hope you all had a great holiday season.

Table of contents.

  1. The S&P 500 tends to rally after big drops.
  2. EWA is holding on…barely.
  3. Buyers have stepped up again for Skywork solutions.
  4. Apple holds the average + some cool charts.
  5. Cheer up, the world is getting better.
  6. Fred Wilson’s predictions for 2019.


1. The S&P 500 tends to rally after big drops

This chart shows the returns during the next 12 months after a big drop in valuations per Axios.

The only the stock market didn’t bounce back was Sept. 20, 2001 (red highlight).

From chief investment strategist at LPL Financial, John Lynch:

“Over one-year periods, if the PE drops by at least 3 points, the subsequent average return is nearly 17%, with gains in eight out of nine observations. The S&P 500 currently meets this criterion even after Friday’s big rally, suggesting stocks can generate above-average returns in the coming year.”

Our view

We don’t use these data points to make investing decisions. We view these charts as a fun way to look at the most likely path going forward.


2. EWA is holding on, barely…

What’s going on?

The above chart is iShares Australian ETF (EWA). EWA held trendline support at $18 dollars and is starting to rally. How far is the question…

How to trade it

If you are looking to trade this, a long position here ($18-$20), stopping out with a weekly close under $17.90, and targeting the previous range top at $20, gives you a reward/risk of ~3.7 to 1. Meaning you would make $3.7 dollars for every $1 dollar risked.

Further information about EWA:

  • This ETF gives you exposure to mid and large sized Australian companies.
  • Net assets: Just over $1 billion
  • Options available: Yes
  • P/E ratio: 15.42
  • Div Yield: 4.48%
  • Expense ratio: 0.49%

Top 10 holdings

TickerNameSectorCountryWeight (%)
CBACommonwealth Bank of AustraliaFinancialsAustralia10.09
BHPBHP GroupMaterialsAustralia8.01
WBCWestpac Banking CorpFinancialsAustralia7.02
CSLCSL LtdHealth CareAustralia7.00
ANZAustralia and New Zealand BankingFinancialsAustralia5.74
NABNational Australia BankFinancialsAustralia5.33
WOWWoolworths GroupConsumer StaplesAustralia3.10
MQGMacquarie GroupFinancialsAustralia2.92
WESWesfarmersConsumer DiscretionaryAustralia
2.88
WPLWoodside PetroleumEnergyAustralia2.46

3. Buyers have stepped up again for Skyworks Solutions (SWKS)

What’s going on?

Since peaking in late 2017, Skyworks Solution (SWKS) has fallen ~50%. Recently, price tested and held support at $60 dollars and is starting to rally. Let’s take a quick look at the stock and the company.

If you only care about price

Currently, the stock is trading at $70 dollars. If you buy it here, with a stop below $54.50, and target the previous high print at $117, you get a reward to risk ratio of ~3 to 1. In percentage terms its 70% for the upside and 22% on the downside.

A little background on Skyworks Solution

On their about page they say they are “empowering the wireless networking revolution.” They make semiconductors for product categories like aerospace and defense, the connected home, and mobile devices.

They believe their growth segments will be mobile, IoT (internet of things) and emerging technologies such as artificial intelligence machine learning, and smart cities (see above).

Investing tip

A good way to find investing ideas is to list all the companies that make products in a category. For example: Make a spreadsheet with all the categories in the picture above (AI, machine learning, etc…) and track the category leaders. We want to own category leaders, especially if the category is expected to be huge, such as AI and autonomous driving.

Additional information


4. Apple holds the average + some cool charts

Apple (AAPL) tested and held the 200 WMA (week moving average: green line). There are only two times price has closed below this average

  1. Briefly back in May 2016.
  2. Back in March 2009, when the market was putting in a bottom.

It’s safe to say buying when the price reaches this average has been a good bet.

Apple’s China problem

In recent weeks, Apple has lowered expectations for their business in China. Here are a few charts that will help us size up their situation.

Source: Statista

This chart is the growth of Apple’s business in China, mostly iPhone sales, since 2010.

Source: WSJ (paywall)

These are four homegrown competitors to Apple. All four grew their market share from 2017 to 2018. Apple held steady at 8%. Why?

Ben Thompson has three good reasons why China is a different market than the U.S.

  • In most of the world, Apple is differentiated first-and-foremost by its integration between hardware and software; the company has a “monopoly” on iOS, which allows it to sell its hardware at much higher prices than the competition.
  • However, in China iOS is much less of a lock-in, thanks to the dominance of cross-platform Chinese-specific services, particularly WeChat (WeChat, while the most important factor, is not the only one: indeed, given that Android in China is specifically tuned to the Chinese market by Chinese OEMs, iOS is if anything a hindrance).
  • The net result is that Apple in China competes not on the basis of integration, but rather on the attractiveness of its hardware; in other words, Apple is, to far greater degree in China than anywhere else, simply another OEM.

He is saying in China, they don’t view the iphone as luxury, like customers in the U.S. do. In China, it’s just another phone…

Our view on Apple

Despite their growth rate slowing, Apple still generates gobs of cash. Unit sales aren’t growing at the same rate they did a few years ago but revenue is still rising because consumers view the iPhone as an essential part of their lives and are willing to tolerate price increases.

Whether or not Apple is a good investment depends on your time frame and expectations. The iPhone built the monster they are today, and unless they find the “new iPhone” we believe their highest growth rate, percentage-wise, is behind them. But that doesn’t mean they don’t have a great business, just a mature one.


5. Cheer up, the world is getting better

Source: WSJ (paywall)

How blessed we are to live today and not in 1850:)

A story from that article really drives the point home:

Nathan Rothschild was the richest man in the world when he died in 1836. He died from an infection that today can be treated with antibiotics sold for less than a couple of cents.


6. Fred Wilson’s predictions for 2019

Fred Wilson is a VC (venture capitalist) for Union Square Ventures in New York City. He was an early investor in Twitter (TWTR) and Twillio (TWLO).

I follow VCs because they are often correct about the ultimate end state (technology wise), and they invest in companies that public investors will one day get the chance to own.

Specifically, Fred is really into crypto. Here’s what he is thinking:

  • I think we are in the process of finding the bottom on the large, liquid, and lasting crypto-tokens. But I think that process could take much of 2019 to play out. I expect we will see some bullish runs, followed by selling pressures taking us back to retest the lows. I think this bottoming out process will end sometime in 2019 and we will slowly enter a new bullish phase in crypto.
  • I think the catalyst for the next bullish phase will come as the result of some of the many promises made in 2017 coming to fruition in 2019. Specifically, I think we will see some big name projects ship, like the Filecoin project from our portfolio company Protocol Labs, and the Algorand project from our portfolio company Algorand. I think we will see a number of “next gen” smart contract platforms ship and challenge Ethereum for leadership in this super important area of the crypto sector. I also expect the Ethereum open source community to ship a number of important improvements to its system in 2019 and defend their leadership in the smart contract space.
  • Other areas of crypto where I expect to see meaningful progress and consumer adoption happen in 2019 are stablecoins, NFT/cryptoassets/cryptogaming, and earn/spending opportunities, particularly in the developing world.

Here is the full article.


Thanks for reading and have a great day,

Caleb

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