The market is increasingly resembling 1999. Focus on SPAC and crypto

In 1999, the stock market was driven by a bonanza in tech during the so-called Dot-com bubble. It was clear that if you pressed in .com in the company name, you could raise capital without major problems. Most companies are forgotten today except maybe Yahoo and the like. But the telecom companies that were included are still there, such as Akamai, Cisco, etc., but there the shine has faded.

A market logic that dates to the 1990s is the belief in total market dominance. In Silicon Valley, pretty much all that counts is size.  Unicorn such as Uber and Airbnb have almost unlimited access to capital to create a dominant market position. One of the business logics that exists in the United States, but not at all in the same way in Europe, is to inflate the venture capital companies with so much money that they can force the established players to their knees. Take for example, Tesla, which is bleeding heavily but despite this and questionable quality, has become a benchmark for an entire industry.

Today, it is SPAC and crypto companies that are the new hot things.

Above is an ETF that reflects SPAC which is probably the best entry if you do not want to go into the large flora of individual SPACs.

SPACs are driven by the availability of liquid funds. Central banks are increasingly pushing for liquidity. As we wrote in last weekly letter, there is more and more talk about YCC, which should be interpreted as yield curve control. The central banks can control the short-term interest rate in the market today. This is done by setting this interest rate and checking that everything bought and sold in the market adheres to this interest rate.  Now that speculation about rising inflation is picking up, long-term interest rates are starting to rise.  These cannot be controlled by the central banks today. The purpose of the YCC is to take power of this market as well. To control even long-term interest rates, central banks must buy so many bonds that they control this market. This means that additional capital is provided.

SPAC is the poor man´s path to venture capital companies. There are few investment companies that have succeeded in building their operations around companies that are in the early stages. These forms of business work better on mature companies that have achieved proper cash flows.

SPAC are companies that are capitalized to make rapid investments in start-up companies. By forming a blank check company and selling shares to the public for usually 10 USD per share, the SPAC sponsor, as the founder is called, can promise to use the sums to merge with a private company and thus place the company on the stock exchange.

The sponsors between SPACs range from reputable investors, business leaders or sports stars who have created a large network they can use when rising capital or finding a private company. Among the most famous names is Bill Ackman, who through his SPAC Pershing Square Tontine Holdings, has raised four billion USD, but has not yet announced which company he plans to take to the stock market. SoftBank Investment Advisers, which manages the well-known “100 b USD fund”, is another giant that sponsors a SPAC. SoftBank is a good example of the net working effect that can be used by SPAC sponsors to find a private company to take to the stock market. This is because their SPAC may be merged with one of their own private portfolio companies. Sport stars and celebrities, such as Shaquille O´Neal and Billy Beane, are other examples of people associated with SPACs.

For a private company, it is easier to get to the stock exchange through SPAC. This is because there are fewer regulatory obstacles and greater certainty that the process will be completed. This makes many people think that the trend is here to stay, but it can also go wrong. The company Nikola´s journey to and on the stock exchange is an example where more scrutiny and more regulatory obstacles would have been good. Despite this, more and more SPACs will be added in 2021, which is expected to be another record year.  

But the crypto trend continues as well. More and more investment banks are adding crypto to the group of investments in which funds can invest, creating underlying demand. It is so large that it lifts a whole group of different types of companies.

SOS is a crypto company focused on rescue services (but when we read about it, it feels more like a mining company).

https://investorplace.com/2021/02/sos-stock-why-blockchain-play-sos-limited-is-up-big-today/

For crypto companies, see also MARA and RIOT.

You can never tell when bubbles are bursting. In any case, the lesson from the dotcom bubble was that it usually lasts for several years longer than most people could imagine.

The Q4 2020 reporting season in the US                                                                                                                

During the past week, another 80 S&P500 companies reported their Q4 2020 results, which means that 75 percent of the companies have reported. The outcome is still good with 82 percent better than the earnings forecast, while 77 percent of the reports have been in terms of revenue. Technology continues to the best sector with 94 percent of the reports on the right side of the expectation line, followed by the financial sector with 88 percent and industrial companies with 83 percent. The health care sector has slipped to only 77 percent better results than expected.

Momentum

The market continues to rise as if the world will open shortly after Covid-19. The S&P500 index continues to rise in its channel. Momentum is strong with all moving averages rising as well as MACD.

The trading pattern looks very similar for Nasdaq with a strong momentum.

The FANG companies are leading the rise.

But FANG as a group has broken down. Google is leading the rise. Historically, it has paid off to buy the laggards of the group, namely Facebook and Amazon.

Facebook is supported by a short rising trendline but is having difficulties to really establish itself above MA50:

The Amazon share on the other hand is clearly under pressure, trading below EMA9. Also note that MACD has generated a weak sell signal:

The Tesla share (of course not part of FANG) is also under pressure trading below EMA9 and MA20 as MACD is trading downwards. The 800 USD-level serves as a psychologically important resistance:

Even though the FANG is breaking up, there is almost no divergence when looking at different stock indices in the US, Sweden, Germany, and China.

The German DAX index is trading above EMA9. With some good it may also be possible to read a reverse head-and-shoulder formation if the index manages to break the massive line of resistance.