Google on the Line

A trip to $85 on a dip

Adobe too, but seems like more bounce potential given the drop is on earnings, guidance and a buyout.

What the h?

The h-pattern is hell for bears in bull markets and hello new lows in bear markets. Some h-patterns are at their moment of decision right now. Others are at various stages, some bounced where a bull would want them too, some broke, some are still early in formation. The most important and imminent two are ARKK and FB. Both are near their 52-week lows.

Mushroom Cloud Software

Technology advances such that what was once expensive becomes so commonplace one doesn't even think about it. If you are of a certain generation, you may recall "Game & Watch" versions of Super Mario or other popular games that were simplified versions on cheap LCD screens:

Today, there is a "Game & Watch" with Legend of Zelda games, the complete versions that ran on game systems such as the Nintendo and Super Nintendo.

In software, what was once expensive becomes cheap or even free. Nintendo's games and characters survive because they are copyrighted, but more importantly, popular. If another could make Mario games, Nintendo would be in deep trouble.

In the case of productivity software, the most important function is the task itself, which cannot be copyrighted or patented. "Paying a bill" is not a patenable function. Some have tried, like Amazon patenting "buy with one click," but that is more evidence of USG corruption than a repeatable busines model. Moreover, the shift to the cloud makes switching software easier than ever. If blockchain realizes its potential, consumers will gain more control over their data, forcing companies into greater competition for customers.

Many software and platform companies are valued on their platforms. Their growth is a function of the customer base growing into the future and collecting more dollars from their users. Instead, most are headed into a future similar to Docusign. Innovative to start, how much should it cost to digitally sign a document? What's to prevent competition? This is the classic case of a company built on a feature that will ubiquitous and free. The market has already figured out that day is coming:

I haven't done a deep dive into software companies. That is for after the decline, when picking the survivors will deliver great profits. For the foreseeable future, most companies will suddenly be valued as if Docusign's fate is their future.

Kill List

I started going through a screen list and then just started looking at high-priced stocks. The same pattern keeps appearing because the whole market looks ready to plummet.

BTC and SMH Break, Amazon Loses 2008 Trendline

The two strong horses are broken, semiconductos and BTC. Apple is broken. Nvidia. Facebook. Microsoft. Paypal. Google is rolling over. Amazon broke its 2008 trendline. Nvidia. The stocks below are the top-10 holdings in the Nasdaq 100 ETF (QQQ). Previously, this setup was almost always a bear trap. It feels like the bears know this, so I believe the risk of a major plunge today is higher than normal. Right now, I plan to be back in cash by the close. I am currently at 67 percent cash.

Ugly Adobe

As I go through charts, it's looking like Tuesday was trash day.

More Bear Signals

I took a flier on a deep OTM Adobe put (ADBE) at the close, a weekly that expires on Friday. Just a general sense of bearishness, along with wanting to take a long-shot in honor of Norm Macdonald. It beat on earnings and revenue after the bell, but the stock sold off. Maybe that will be erased tomorrow, but if not, it is good news for bears. Adobe will be rejected at long-term resistance and despite good news. The only time above was the 1999-2000 blow off top for the dotcom bubble. I take a line as valid if it holds for all but an extreme move, simlar to how I will ignore the March 2020 drop when drawing support lines. It's best not to ignore them, but if a line holds and offers predictive value, then I keep it.

Far worse news came from FedEx (FDX). Inflation is taking the corporate margins down, namely higher labor and energy costs. The stock is already down 25 percent from its 52-week high.

This is the "game over" moment I've been waiting for. Maybe it won't kick off tommorrow, but the end game for the Fed is when their easy money sinks stocks via contracting corporate margins and higher unemployment, aka stagflation. Their two main choices are painful once this point is reached. Nip inflation in the bud, send the stock market down at least 20 percent and risk a recession or let inflation run and risk sinking the stock market more than 70 percent, plus mass unemployment, a bond market crisis and possible currency crisis. I know which door I'd choose, but the Federal Reserve hasn't shown it thinks beyond what the S&P 500 did yesterday. If they decide to save stocks yet again, there could be a rip roaring rally or even another leg up into a blow-off top later this year or into early 2022.

Software Still Looking Weak