Does This Rally Have Legs?, Crypto Ban, UBER, RKLB, And Much More

Here’s the transcript from today’s live Q&A chat:

Q. This rally has been incredible but it’s making me uneasy. What is driving this rally? AI? Expectation of interest rate cuts? Whatever the reason is, are these new valuations going to be supported by earnings or is the market setting itself up for a big pullback? What happens if the unemployment rate begins to tick up and that really hits consumer spending?

A. It can be hard to explain why millions of individuals and/or institutions are buying instead of selling thousands of disparate stocks over a few weeks of time. One thing to remember is that the market was probably pretty oversold and perhaps a bit undervalued back at the end of October and early November, so part of this big rally since November 1 has been a reversion to the mean. But yes, the risks of selling off have probably increased in the last few weeks and the markets are now a bit overbought and perhaps a bit overvalued. In the hedge fund, we’ve increased our hedges using puts and have trimmed some of the longs into this strength to help hedge our portfolio a bit more. If, as you suggest, unemployment starts rising or if interest rates go back up or if inflation gets hot again or if the wealthy people in this country are pulling back and we are starting a “rich-session” (ie, wealthy people’s recession) then the markets could pullback 10% or even 20% in coming weeks and months. We’ll have to navigate the pitches as they come while maintaining our cool.

Q. Since you said you weren’t very bullish, things have continued to rally (including names we had puts on). Are you thinking the rally still has legs, or are you now actually turning short-term bearish?

A. Hmm, I was pretty darn bullish back at the bottom as I wrote this, for example, on October 30, the day before the market bottomed: “Q. This market action is bad here. Could we be on the cusp of a 2008 credit event? Or another 25% from here left to go? A. This market action makes me a bit more bullish not more bearish. We’re getting the chance to start buying some Texas Instruments (TXN) and to cover some shorts and to fade this market fade a bit. There could be more downside in the broader markets but we’re definitely getting through part of the decline with the iShares Semiconductor ETF (SOXX) down 17% and the ARK Innovation ETF (ARKK) down 32% from their recent highs.” Over the last couple weeks or so, I’ve gotten less bullish but have still been riding many of our call options and longs that we were buying at the lows. As of today, December 8, I think this rally has gotten a bit overextended and while I’m not sure I’d call myself outright bearish, I’m not terribly bullish at this moment either.

Q. What are your top 5 positions and buys right now?

A. Top 5 largest positions in alphabetical order are: Intel (INTC), Cloudflare (NET), Netflix (NFLX), Uber Technologies (UBER), and Tesla (TSLA). Top 5 favorite buys right now are probably mostly puts on some of my favorite short hedge names like Bloom Energy (BE), WisdomTree Cloud Computing ETF (WCLD), SPDR S&P Semiconductor ETF (XSD), Marathon Digital Holdings Inc (MARA), and C3.ai Inc (AI). I’m not terribly thrilled with the idea of chasing our longs, most all of which are up huge in the last five weeks since I had been buying common/calls in them.

Q. Instead of your top 5 buys, what are your top 5 trims?

A. Hmm, I could see trimming a little bit of most of our names right now, as they’ve had some huge rallies over the last five weeks. In the hedge fund this week, we trimmed a little bit of Uber Technologies (UBER), Cloudflare (NET), ProShares Bitcoin Strategy ETF (BITO), Robinhood Markets (HOOD), Texas Instruments (TXN), and Snowflake (SNOW), for example.

Q. What do you think the near-term bottom of Tesla (TSLA) is? Last I saw, you were a buyer at $200. Is that still your buy point, or has it moved up?

A. Yes, I’d bought TSLA common and/or calls when it was at $200 back at the end of October as I’d said I would. Not sure that I’d call it a permanent bottom, but I’d probably nibble near those levels again if it gets that low.

Q. The rally in Uber Technologies (UBER) has been great to see. Per your guidance, bought a good amount of UBER in the $20’s and $30’s. UBER has become a sizable position in our portfolios. I trimmed some in the 50’s and trimmed some earlier this week on the S&P news in the 60’s. My question is how do we manage an outsized position in the portfolio while still having total confidence in the name and wanting to hold it for the long term? How much do you trim on each leg higher?

A. There’s no scientific, correct answer to this question. A lot of the answer depends on your own risk tolerance and financial goals. Uber has gotten to be a larger position for us but so have other winners over the years like Apple (AAPL), Google (GOOG), Tesla (TSLA), NVIDIA (NVDA), etc. I trim maybe 10% here and there but try to hold onto much of the positions in the winners forever.

Q. Do you make much of companies that are added to the S&P 500 [like UBER] and stock performance is kind of stuck in place?

A. Historically, it’s usually better to trim/sell names that go into an index and to buy/trade long on the names that get removed from the index. Frankly, stocks being added or removed from indices is not something I think we should try to game much.

Q. Can you please provide your thoughts on the Google (GOOGL) AI development?

A. One of my friends who has been a long-time Trading With Cody subscriber is one of the lead people at Google’s Gemini AI division. Gemini is an order or two of magnitude more powerful and “smarter” than Google Bard and probably also than Chat GPT. It’s the real deal. Google has been a leading AI company for a decade or more and their DeepMind/Gemini is amazing and will get more amazing in coming years.

Q. The Robinhood Markets (HOOD) rally has been great to see as well. Do we know what is causing the outperformance over the last week or two? Is the HOOD performance tied to Bitcoin?

A. I can speculate about why it’s rallied so hard the last couple weeks, but it’d be totally a guess really. The stock was oversold and undervalued at $8. It’s closer to being fairly valued now but is probably a bit overbought near-term.

Q. Anything specific driving the big move in Rocket Lab (RKLB)?

A. Probably mostly a reflection of the speculative assets / small cap rallies in the broader markets.

Q. How did the meeting with DallasNews Corporation (DALN) go? Any noteworthy items to share? Thank you!

A. The meeting went well. Met with the CEO and CFO and toured the facilities. We learned a lot. I’ll write up some new analysis and updates in coming weeks.

Q. Could you shed a little more light on why you decided to exit the MP Materials (MP) position? According to Yahoo, revenue growth next year is projected to be 64% higher and earnings plus 57% at the midpoint.

A. The MP stock never recovered from about six months ago when Elon said Tesla (TSLA) is going to try to not use any rare earths in their cars anymore. That, along with the fact that the price of the NdPr dropped dramatically over the last year has put MP in a tough spot. Also, I was never comfortable with the fact that it was a Chamath Palipatlya SPAC.

Q. Any thoughts on Adobe Inc (ADBE) and AI integration and how their earnings may go?

A. Adobe is a great company and has already done some amazing AI integration into their products. Revenue was up 10% this year and analysts expect it to go up another 13% next year. The stock trades at nearly 40x next year’s earnings estimate so it’s not cheap. I don’t have any edge on how their earnings might go relative to those expectations though.

Q. Hope you and the girls are smiling. Chat room question: Snap Inc (SNAP) is up YTD. Am I right in assuming this is a really bad time to wade in? What do you think of them? Thanks and God Bless.

A. Thanks for the kind words. I’ve not done much work on SNAP lately but I just looked to see what the analysts expect here. The stock is up nine days in a row, is trading at 100x next year’s earnings estimate, and had 0% revenue growth this year, which analysts hope will rise to 10% next year. That doesn’t sound like something I would chase right now, but the momentum in many of these names has been wild so who knows if it can rally a bit more for a trade. Not sure it’s a good investment though.

Q. Thoughts on the MongoDB (MDB) after this pullback?

A. We’ve been working on MDB this week and it’s just so overvalued and hyped up right now that even with the recent pullback post-earnings, I’m not interested in buying it.

Q. Any thoughts on Samsara Inc (IOT)?

A. I stumbled across this stock last week and spent a little time analyzing it and was impressed with what I found. The stock is trading at 20x sales and is barely profitable but is growing 30-40% revenue per year which is impressive. At the right price, I’d be interested in it but that price is probably 30-50% lower than here.

Q. We’ve done pretty well with our ProShares Bitcoin Strategy ETF (BITO) holding over the last couple months. Would bitcoin (BTC) have to return trip to the low $30k range before you would consider adding back to the BITO position?

A. Maybe not that low, but I’m definitely not chasing BITO/bitcoin or buying more right now. The greed is strong in crypto right now, or as Yoda might put it: “Strong is the greed in crypto.”

Q. What are your thoughts on Jamie Dimon saying he would ban crypto if he had a government position? How would that even happen? Could the government even do that? Thank you!

A. The government can certainly outlaw crypto but enforcing that would be a bit difficult. But if the US government outlawed crypto, a lot of us would bail regardless of whether they could enforce the law or not.

Q. Do you think the government will actually outlaw crypto? Feels unlikely?

A. No, I don’t think the US government will outlaw crypto.

That’s a wrap. I leave you all with a shot of the sunrise from Amaris’s bedroom Monday morning: