TMTB Weekly

Happy Sunday! A couple of housekeeping items before we get to the weekly:

First off, I wanted to thank everyone who subscribed this past week – the paid launch exceeded my expectations and I couldn’t be happier to continue this journey with all of you - lots more to come. I’m still working out some kinks – if you have any issues or not receiving the right emails, please feel free to reach out to me tmtbreakout@gmail.com

Second: This is a unique substack in that subs pay for content that go

es out twice daily.  Since I had to take the day off from writing Friday, and I will likely have to take another day or 2 off in the coming weeks to handle some personal things, I want to be transparent about expectations. I think setting the line at 15 trading days off is a good over/under for the year which should cover vacation days, days I’ll be at conferences and unable to write, and personal days off. Anything after 15 days off, and I’ll add a commensurate number of days to everyone’s subscription for free.  That feels like a fair deal to me, but I look at this substack as a collaborative endeavor with all of you, so if you have any thoughts on the matter, I am happy to hear you out.

Ok onto the good stuff:

Items I’ll cover today:

1.     A look at the big picture: where do we stand after our bullish call mid-week?

2.     Bigger picture Tech thoughts after a wild week of TMT earnings

3.     Key quotes from earnings this past week

4.     Earnings previews – DDOG, UBER

5.     Tables/Screens

Bigger Picture:

What a week it with a move up starting on Monday and accelerating mid-week as the fuel was lit to bring the QQQs up for the week. 

So what caused the rally? The ex-post narrative is that a confluence of factors conspired to work in the bulls favor: sentiment reaching extremes, seasonality, Treasury shift towards bills from coupons, lower yields on the back of somewhat weaker data (goldilocks?), and a less hawkish Powell pointing to the end of rate hikes. That all rings true, but I think it might be helpful to re-wind to last week and play back the set up to better understand what transpired in “the anatomy of a turn.”  We here at TMTB are big believers in reading price action and narrative tea leaves to help guide us in our market positioning and this past week provided plenty of “tea leaf” action — before Powell, before weaker ISM/unemployment data, before the QRA release and before the ex-post narratives took hold.

Heading into the week, sentiment had shifted dramatically and there were cracks in the bearish macro narrative. We wrote last weekend:

Sentiment has also shifted – while it doesn’t feel like a large amount of fear has entered the market, the frustration when I talk to other investors is palpable.  Folks have shifted their view from “we need to catch the end of year rally to catch up in performance” to “maybe end of year rally doesn’t happen and let’s try to keep our pnl intact 2 months before bonus season…we have seen a few shifts in the bigger macro picture – while geo political fears and the concerns related to the economy remain (META’s/SNAP’s commentary might have added some fuel to that fire), the narrative has shifted a bit on yields to a potential bottom (peak growth) and while heavy treasury issuance remains on the horizon, the QRA release tomorrow might auger in a change.”

Words like “seller exhaustion” and “extreme negativity” were floating around as investors were reticent to put on risk before Powell and AAPL.

These narrative tea-leaves were enough to have us completely abandon our short disposition heading into the week, but post-earnings px action was still decidedly negative – the one tea leaf I had my eye was MSFT.  After a good earnings print, it was trading below where it was pre-earnings.  I find that earnings gaps can be key indicators of where the market wants to go: If many positive earnings gaps are filled and broken or vice versa – this is usually a very strong tell of market direction.

By end of day Monday, we began to notice a change in character. We wrote:

“A welcome change in character today as we saw some strong follow through in price action from the companies that reported last week: AMZN, NOW, MSFT, INTC etc . META and MSFT are now back above where they were pre-earnings.  This is the type of price action that I said yesterday would continue to make me less cautious as sentiment bounces of the bottom.”

MSFT:

META:

At this point, my spidey sense was really tingling and I was itching to get more bullish. 

But my logic said: “this market is schizophrenic, wait for another day of confirmation.”

And my fear said: “Why are you going to get bullish right before the bottom falls out post-powell and a bad aapl print…How about all those 1987 lunar calendar comparisons…What will happen to your paid launch if you are dead wrong on a market call in the middle of it…”

So I was still in “wait and see mode.”  Tuesday confirmed the positive price action as we had continued earnings follow through from large-cap names and now we saw two names hit 52wk highs post-earnings: ANET and PINS; fresh 52wk highs had been a missing ingredient. 

When I woke up Wednesday, I realized that the fears of getting bullish pre-powell and pre-aapl were the same fears other market participants were feeling; after seeing AMD reverse from down 4% post-market to begin to rally in the morning – the opposite character MSFT exhibited when it reported then sold off the next day the week before – the evidence became too overwhelming and I knew it was time to get off the fence.   The price action was a convincing enough tell that whatever news came out during FOMC (unless a huge surprise) was likely to be interpreted positively. 

This was a case where price led narrative. I think it’s a helpful illustration of how inflection points in the market are usually not a complete surprise – as large-cap tech has become such an overridingly important influence in market direction, it’s become increasingly important to read the tea leaves the price action is sending us. 

So where do we stand now? QQQs are overbought, there was massive short covering on Thursday and Friday, we are heading into a v positive seasonal period for stocks, yields have fallen from 5 to 4.57%, and sentiment has turned back to people talking about a potential year end rally and goldilocks period. However geo-political risks remain and economic data is clearly weakening.  We don’t have a strong view of which side of the macro narrative we fall on (although it seems clear to us economic data is weakening), but price action and seasonality continue to point to more strength.

In the meantime, we’ll be on the lookout for any tea leaves that might portend another inflection point.

Wild Week in TMT Earnings

Software has been an earnings minefield over the past two weeks with large T+1 moves in both directions causing a large rise in cases of PTSED (Post-traumatic Software Earnings Disorder).