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Market Beast Mode Will Return, IBM Will Not, And A Nikola Update

Jun. 10, 2020 7:14 PM ETIBM, NKLA52 Comments


  • Stock sell offs will be good for our markets. It's a warning to neophytes and old hands alike. Stocks can go down as well as up.
  • Did you let trades get too heavy with profits? Did you get into a stock that already has gone up 20%? Take your profits and losses.
  • IBM backs away from facial recognition. In reality it's because they lag in AI, and not because they are social justice champions.
  • Nikola Trucks created a lot of alpha for me in its warrants. After the stock doubled on Monday, and the warrants lagged, it's time for me to say goodbye.

Sell offs are healthy, though not comfortable

There was no specific reason that the market sold off yesterday and sold further today. Market participants took the market up too far and too fast. Of course, I have been saying this for weeks at this point, and you are all probably tired of me saying so. This is good for market participants, especially the neophytes who have recently joined our ranks. I hope this action serves as notice that stocks can go down, which is all to the good. A sell off is the way that a market renews the rally. I know the concept that market volatility to the downside being a positive occurrence is counter intuitive. Just look at it from the classic “supply and demand” rule of economics, selling ultimately creates a new supply of buyers. Also, there are a lot of investors and traders that have missed this huge move and are looking for a chance to get in. A few days of selling may prove enticing to those who thought themselves smart money who are now on the outside looking in and want to get into the game. It also serves as a caution to many of us who were in on the rally from the start and perhaps let some positions go too far. If you took a big hit on a position whether because you were late to the party or you let something grow too far, time to trim those positions. You will feel better.

Fed conference, “We aren’t worried about asset prices”

Powell was asked whether he regrets the boost in asset prices since it contributes to wealth inequalities. He fairly swatted the question away and stressed that the fed had to act in order that the financial markets would not seize up. He

This article was written by

David H. Lerner profile picture

David H. Lerner is an analyst with a decade of experience utilizing his professional background in software consulting and technology to identify market trends and provide long and short trade ideas. David employs a combination of technical analysis and market psychology to capitalize on narratives for outsized returns. He also utilizes “Cash Management Discipline,” a simple trading style to hedge against the volatility of today’s market climate.

He leads the investing group Group Mind Investing where he uncovers actionable trading and investing ideas nearly every day. Other features include: long and short swing trade alerts, daily macro analysis, weekly articles, and chat for community interaction and questions. Learn More.

Analyst’s Disclosure: I am/we are long NKLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I own NKLAW these are the warrants of NKLA. I sold half my warrants today, and intend to sell the rest this week

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (52)

Sandy Singh Siwach profile picture

Excellent article.

The neophytes are likely to believe the myth that investing is easy until they writeoff the vast majority of the money they put into their accounts. Please see the below website which has turned investing into an Instagram type of popularity contest.

One can generate reasonable alpha by buying what is trending (particularly low priced/market cap stock) and jumping off two or three days later. (Please note that the Sharpe Ratio is almost always poor due to the very high volatility). But when stocks move 200% in a day the volatility is not particulalry relevant.

I use this to short VAL which ran up enormously despite having declared a default event. Please see Alex Henrik's excellent article on VAL.

what are your best tech bets with room to run?
Microsoft really blowing up your theory, but otherwise pretty spot on..
It appears NKLAW can be bought out by the company at $11.50 as soon as 30 days after NKLA starts trading. Why hold the warrants at any price above that? With NKLA at around $50, warrants may be "called" in as little as a month as long as stock stays above $17. Why take the risk?
MikeyFL profile picture
That's not how warrants work. For each NKLAW warrant you own, you can trade that in with $11.50 for 1 share of common. So, the warrant is profitable if your buy price + $11.50 is LESS than the share price of the common. That's if the owner decides to do that. If the company calls the warrants, they can do it for cash or cashless, where the value of the warrant is used instead of the $11.50.
Here's the actual SEC info:
After holding IBM stock for 25 years, I liquidated my entire position about 2 years ago. IMHO, IBM has all but missed out on the current tech boom that we're currently in. As such, IBM's problems run much deeper than the exit of their facial recognition business.
terryongarland profile picture
Facial recognition software is scary stuff. Yet, its likely we will see it implemented..yes ,it will be rationalized as a benefit to society..the greater good. I suspect human freedom and privacy will become antiquated concepts. I don't know if it will happen, but if people are not aware..then it is more probable. Visions of life depicted in movies like "Minority Report", and George Orwell novels , are a distinct possibility. Crazy ?..not at all..humans can rationalize anything.
Tactical111 profile picture
There is also a recognition program that looks at your body build and gait so the face is not even required to I.D. someone.
Facial recognition as a general technology has some serious flaws. Neither Amazon nor IBM's pious prattling can change that. Would have been better to just have been up front about the technicals and leave the moralizing to the legislative branch. There probably is a place in the security area for this technology but obviously a necessity to avoid the Chinese model.
The Author had been SHORT for months ! Then he flips long with this article the other day "Stocks Soar, Detecting A Recovery Ahead Of Everyone. Resistance Is Futile" As , his FOMO just got to much to bear ! I'm now waiting for him to flip again ! Be careful SA readers .. Read, learn but then do your own diligence. The only service on SA that nailed this sell off is the BOOX team / Harrison Schwartz. Go read his articles. he had conviction and stayed with it all the way through ! Amazing young guys.
John Naccarelli profile picture
i had sold almost all of my IBM earlier this year, bought it back again and sold it again. Based on what I read (re attitude toward use of the technology and/or its technological capabilities), I am not inspired to buy back even at $90.
What did Amazon do today with their facial recognition software and the US GOVT.
Great article, very well reasoned.
Thanks David, I trimmed yesterday and took some retail and cruise line gains. Will be a buyer today from my watch list...
If you are long NKLA why are you selling all your warrants?
I'll be looking to snap up your IBM (if they get under 1$20. The new CEO wants to get into medical self serve and drive through. Cutting costs on losers is positive. I'm worried about China shake downs but not IBM's direction.
SilentRage profile picture
This stock market rally is the only "free lunch" we will see in our lifetime. We should take full advantage of it...
GameBuzz profile picture
"No, the vast majority will buy the riskiest, and "toppy" names. How do I know? Well, I was once, a beginner too, just like you all were."
Also because they can't bet on sports yet! Trader Dave from Barstool Sports is a prime example. As soon as sports return and DKNG and others take bets again, methinks many of these Robinhooders may turn in their bows.
As much as I would like to take profits, I am holding my Nikola warrants. I fully expect them to continue to be highly volatile but I am holding them at way too good of a price to bail now. They will have to give some sort of update before the end of June if in fact they do plan to start taking preorders for the Badger then. If it's legit, the stock price will likely shoot up again. If it's garbage, well, then, F me.
GameBuzz profile picture
@Rmplstltskn Great trade. Can't you just take out your cost basis and play with the house's dough?
@Rmplstltskn I imagine this stock will drop another 75% or more by Labor Day- to 15-20 area- the warrants should be much cheaper by then.
To my knowledge, Nikola can redeem them if the stock price is above $18 for 20 days out of a 30 day period. At this point, it seems likely that will be the case come July 6th when they can first be exercised. So i'm not sure if the warrants exist at Labor Day. I'm priced in at $19 a share (7.50 for the warrants + 11.50 to exercise). Like I said, i'm in good enough to ride it for awhile.
Agree IBM missed the AI wave. Deep Blue designed for Chess and Go. Calling it racist is hackneyed and tired.
Rgstarn profile picture
Good article.
VTIQW were too complicated for the average user to understand so a lot of people stayed away (including me who got VTIQ at 30, even when VTIQW came at a discount); also RobinHooders can't trade Warrants, and that's mostly who's buying into the NKLA dream, so it made sense that they would lag. Secured quite a bit of profits Monday, waiting for a good dip to re-renter if i even do. Thanks Dave, great article!
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