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As entrepreneurs who aspire to either become a publicly traded company or be bought by one, understanding the dynamics of the public markets is fundamental to achieving your ultimate liquidity goal. It is one bookend of valuation.
Macro and micro velocity trends were the game last week. While the market macro was negative and momentum turned negative on indexes, at the micro level of individual issues, the lessons of momentum couldn’t be ignored. The cake is in the oven.
Last week’s performance of SPY (-) 3.35% took away SPY gains YTD (-) 1.02% and chopped market index gains almost completely for the year except for SMIDs (IJR +6.17%, MDY +1.44%) and in sum re-positioned index momentum downward
A new source of free money – squeeze the shorts – played out last week in the GameStop (GME) incident. One more or less concludes that human nature doesn’t change but the ways in which human nature can be leveraged may. This seems a good example, as if we needed more at the moment, of technology amplification.
It struck me as supreme cosmic irony that the name of the stock that served as the proband of this market evolution is called GameStop (GME). As there is no stopping this game. Clearly gamification has come to stock trading broadly. It was already there but adding an online, real-time predator-prey game that caught the prey sleeping and used real money was probably foreordained.
The recipe for this cake was pure cosmic flow – the juxtaposition in time and space of people and events unknowable and uncontrollable. We mixed unprecedented debt driven liquidity + infinite instant network communication + free trades + fractional shares + identification of a fat target + ease of access to all trading methods + no prior experience of many of the initial players to muck up experimentation. Voila! A tasty concoction that is now baking.
For an up-to-date analysis, see this week’s Healthcare Segment Scorecard below.
Something new in recent times, a broadly down week. Significantly so. The nature of the S&P healthcare sector (XLV) is to perform at market or a little less in bullish movements and a little better during down price movement. This is well illustrated in the scorecard where XLV outperformed SPY this week (less negative) but lags SPY during the long bullish move over the last twelve months.
Looking at seasonality over the last five years, six months of the year XLV performs at market, i.e. equal to SPY. Three months better and three months worse. It is its nature. It is why some classify healthcare stocks as both “growth” and “defensive”, a classification not of much use.
Part of the reason for this behavior is due the large low volatility and slow growth large pharma and large equipment firms. Last week had an exception.
Abbott Labs (ABT) revenue was up +29% and EPS was up YoY +53%. The jump in performance was largely due to the ramp in rapid diagnostics, i.e., rapid lateral flow SARS-CoV-2 testing. In the US this is the BinaxNOW test. Manufacturing has ramped to >100million per month and they were doing about 48 million rapid antigen tests per month at quarter’s end. This test which can be done at home and reported via a smart phone app is having rapid global uptake.
On the flip side, iRhythm Technologies (IRTC) that develops monitoring and diagnostic solutions for cardiac arrhythmias lost (-) 33% last week on the announcement of investigations over reimbursements as reported in Barron’s. eHealth, Inc. (EHTH) that provides internet-based health insurance agency services lost (-) 40% last week related to a strategic investment per Barron’s. Nothing is ever all that easy.
As I See It: The market made a rapid reversal that has weakened the short-term upward trend in the indexes. The significance of GME while entertaining is still conjectural. But that cake is baking.
February 1, 2021
Bob Teague, MD
Chief Medical Officer
Green Room Technologies
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