We have a lot of new subscribers to Trading With Cody lately and all of the following questions come from people who have subscribed in the last month. Here’s the conference call part of the transcript from this week’s Live Q&A Chat.
Cody: I’m all yours. Your question please, sir.
Subscriber 1: All right. So I’ve been feeling like the market’s overvalued for a couple of years now, and I remember not too long ago… Maybe it was a year or ago, there was all these huge inflation worries, right? Seemed to be supposedly driving down the market here and there. And now it seems we have incredibly inflationary policies going, the market’s way more overvalued, and it keeps going up up up. So while I’m 100% with you that there’s got to be a downturn coming, what is it about it right now that makes you think that it’s finally the time?
Cody: Great question. This is the folly of trying to trade markets and trends. A market, we always have to remember, is made up of thousands of stocks. “It’s a market of stocks, not a stock market” if I may quote I believe Todd Harrison. He might be quoting someone else. And then we should clarify that I expect a market downturn, not a crash versus in 2007 when I closed my hedge fund and was writing everything about how “this won’t end well,” and I was truly bearish because real estate was collapsing and I thought it was going to hit the markets and the economy. And sure enough it did.
Cody: I wasn’t smart enough to go short a million dollars worth of CDOs and derivatives of real estate securities, but I was smart enough to close my hedge fund and take a TV job and I told my viewers all the time “I traded stocks for media into this crisis and you guys should be scared.”
Cody: Of course, it crashed and that was a different thing than right now. There are always potentials for black swans, but I’m not seeing the potential for an outright crash in the markets or the economy. I think if there was a black swan kind of event economic or market speaking that was coming in and/or hit, we’d probably have a little bit of time to get out. It might be 5% or 10% or 15% down from the highs, but if the true crash is coming, it’s not likely that we need to predict the very top before it happens.
Cody: Two weeks ago I was saying I thought the market would rally 3% and then would crash, not crash but then would pull back 5% or 7% and I highlighted that yesterday in that Trade Alert. We got that 2% to 3% rally — especially with the pop this morning here in 10 minutes when the markets opened. I think the QQQs and the NASDAQ will fully be up 3% from where I said I thought that 3% pop would happen. But to be clear, it’s not that I’m now saying “Oh, therefore it has to follow that my prediction will also be right about the 5% to 7% pullback or something.” I mean it’s simply that we’re here now, it is up 3%. And I’m looking around and day traders are high fiving.
Cody: I googled AMD yesterday after I sent out that Trade Alert and every headline, top stories, were things like: “AMD surges as shorts scrambles.” “AMD, $30 to $40, next?” “Don’t take profits in AMD stock just yet.” “AMD dethrones Amazon in investor money flows.” “AMD shares could be doubling in coming months.” “AMD’s efforts paying huge returns.” Those are the freaking real headlines from top stories on Google headlines when I typed in AMD!
Cody: I went, “Man, everything I just wrote about AMD is underscored by that.” It’s like the momentum, and the passion, and the euphoria around AMD itself at this particular moment is reflective of also other stocks in this stock market. You’re seeing every day billion dollar market cap, ten billion dollar market cap, hundred billion dollar market cap, stocks go up 3%, 7% and then come back the next day up 5%, 7%. It’s relentless and that to me raises spider senses.
Cody: That said, I should also be clear that this ISN’T a good risk reward scenario if you’re talking about if you just came in afresh to investing with a million dollars cash today and said, “I’m going to get in the markets. Oh. I’m reading Cody’s newsletter, he’s buying puts. I’m going to buy puts.” I would not recommend doing that. If you are, as I am, and most of my subscribers are, especially my long term subscribers, very long a lot of very high quality stocks that have gone up 500%, 1000% or even 10000% or more in the last 5, 10, 15, 20 years. And these stocks makeup 60%, 70% of the QQQs.
Cody: If you’re in my shoes, you step back and say “Uou know what, it’s probably not a bad risk reward scenario to just add some more puts on the QQQs right now. Let’s do some more hedges. Maybe trim a couple more of my stocks.” That’s all I’m saying. I think there’s a pretty good chance, better than 50-50 at this particular moment that the next 5% to 7% move in the stock market is down, not up. Did I answer your question?
Subscriber 1: So no crash, just a correction. Yeah, it does. I see the same thing. Actually, Tesla to me is another stock that I think is absolute insanity. It’s like how does that insanity happen, right? I mean I live in Silicon Valley. I see this craziness and it’s like, what the heck’s going on? You’ve got this like Tucker. You got this incredible dash, you got this snake oil salesman whose just got everybody enraptured but it’s like what? How can it be more valuable than BMW? You gotta be kidding me.
Cody: I issued a couple of me culpas in the last year and a half or so on Tesla because I’ve been very bearish on it. Mostly if you read a couple weeks ago, because the subsidies that it gets from Nevada, California that the buyers of Tesla cars get from the government in California and the federal government, the federal government subsidies, the factory subsidies. It’s just endless.
Cody: That being said five years ago, six years ago, I was hanging out with Bob Weir at his house outside of San Francisco and we went to his car, he had to get some … We drove down the street just because he wanted to drive his Tesla that he’d had for a few months. He proudly showed me how he had a solar panel on top of the garage that powered his Tesla and when he drove his Tesla down the block, it was completely emissions free.
Cody: Side note. I once showed up at Bob Weir’s house in a Hummer because it was the only thing that they had available to rent in San Francisco when I landed at the airport and forgotten to book a car… This was before Uber. Long segue there unnecessarily. The point being that now that is commonplace in San Francisco and in many urban areas. That makes Tesla something more than Tucker ever was. Of course Tesla still might go bankrupt because they’re not profitable. They’re far from generating real cash flow and real profits if they didn’t get all the subsidies from the government, but I walked away from it. I’m never going to buy or sell Tesla. I can’t get my head around it and it’s too much of a battlefield.
Cody: I do think Tesla’s lack of momentum loss here if it continues, if Tesla falls to $250 in the next month or so it probably will underscore that the markets got a 5%-7% pullback. It might be leading it, it might be part of it, it might be already showing us that that’s happening, and I think AMD would be the next one major momentum stock to turn if it were to.
Subscriber 2: Today I’m going to try and look into $SPY and try to buy puts on that. If it doesn’t work today, I will try tomorrow.
Cody: What do you mean “try?” Are you bidding underneath the market or something?
Subscriber 2: No. I was wondering how the market is going to go today.
Cody: The fact of the matter is that I have zero idea how a market made up of 10s of thousands of stocks will move from this minute at 9:30 ET till 4:00pm ET and I think trying to game something like that is futile. If you heard what I said a minute ago about buying those puts — unless you own a lot of stocks and have a lot of technology stocks already, I wouldn’t suggest buying puts just to buy puts. This is part of a bigger 30 year strategy of trying to maximize gains and minimize risks in my own personal portfolio and I just want to be clear that … Let me ask, do you own Google and Apple? Do you own-
Subscriber 2: I have Apple.
Cody: Okay. Do you have Facebook and do you own these stocks for a long time?
Subscriber 2: I have Facebook.
Cody: How long have you owned them?
Subscriber 2: I think Facebook I bought it at $128-
Cody: Okay, good. If you own some technology stocks and you want to put a tiny bit of money into some puts just to help hedge against a possible correction, then you might want to go ahead and do it. But to go back to your question about the markets today and trying to do it, I would just do it. You’re not trying to sneak in there and if the markets go the right direction today, then you do the trade or something. No, it’s just part of a bigger strategy. If you think you should buy the puts, go buy them. You go buy them. You take the asking price, you hit it, and you buy them and get them done if you want to do it. Again, I’m not telling you should, because I don’t know your personal situation. I don’t want you to just throw some money and hope that you make money because the markets go down and AMD goes down in the next month and a half. It’s part of a bigger strategy –but if as part of your bigger strategy you do think you need puts, you just go get them done today.
Subscriber 2: Okay, Cody. I just bought a tiny position of SPY puts.
Cody: Okay. Good luck and please don’t count on that for your savings and retirement. What you should depend on for your savings and retirement of course is just two words: “Bit-coin.” Joking, guys. Joking.
Subscriber 3: I should actually mention something that I think is extremely interesting, I’d be curious if you know what that is. N-V-T-A. They’re in the medical device market. The goal is to take genetic analysis down to the individual medical doctors office. I think it’s a brilliant incredibly big market with amazing opportunities. It’s really nailing it. I’ve seen some other companies that only do genetic and analysis space really doing well in more or less the lab market area. Take it all down to the doctor’s office and the low end blood test centers. Stuff like that. It seems super interesting and I see that the stock is doing really well. I’m curious of your opinion.
Cody: I have not heard of it, but I’m looking at it right now and what I find interesting about it is they grew 100% this year, and they’re expected to grow another 40% on the top line next year. It’s not off of like a $1 million base. We’re looking at doing $200 million sales in 2019. They’re nowhere near profitable so that makes me want to go look at the balance sheet. The stock has gone from $4 to $13 in the last 52 weeks, but it was at $13 two years ago when the company became public. Let’s look at the financials here. Gross margins are not very exciting. Holy crap. They just finally got the positive gross margins. I wonder what they’re selling. Their margins are still 35% and gross margins in at AxoGen, my big home run medical device supplier play, from the last three years it’s gone up 1000% has got gross margins of over 80%, so I don’t like that.
Cody: Looking at the income statement is depressing enough, because losses are exploding. even as their gross margins have finally gone positive, losses have gone through the roof. Their operating expenses have gone from $50 million to $200 million and they lost $117 million dollars last year, which is four times what they lost in 2015.
Subscriber 3: NVTA talks about how they’re focusing on growth over profits.
Cody: Yeah. Blah, blah, blah. That’s all fine. I don’t mind that. I just don’t like the way they’re doing. It’s not a good looking trend. I don’t mind focusing on growth, but that looks almost fishy how the expenses are out growing revenues that quickly. It also looks fishy to me that they’ve gone from negative gross margins five quarters ago to the last quarter they did 45% gross margins. I don’t know what the hell they’re doing. Something’s either going really right or they’re doing something really fishy. I don’t know. I’ll write it on my whiteboard and keep an eye on it, but it’s not for me right now.
Cody: Have a great day everybody. Something amazing is going to happen today!