The Zigmont Report (Daily Market Recap for 7/17/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $12B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

It’s a raging kegger.  Netflix’s disappointment was the news of the day.  NFLX disappointed on its subscriber growth and lowered is sub guidance.  Last night the stock was punished and the pain carried through to the morning.  The stock opened down 14%.  Premarket futures were down small then too.  Things in the broader market were pretty contained though.  The S&P opened down only about 8 points.  The spillover from Netflix was small.  Then it was completely ringfenced.

Investors moved NFLX higher over the first half of the day and then it essentially flat-lined.  NFLX finished down about 5%.

Investors also moved the broader market higher over the day and the S&P finished up about 0.4%.

Capital flow wasn’t heavy but it was better than recent sessions.  Today the flow was 96% of the 90-day average.

Netflix didn’t deliver the goods but the stink didn’t stick to the market and it barely stuck to NFLX.  Investors have decided, for whatever reason, that earnings season is going to be bullish.  The morning’s dip was an opportunity for bulls to make their moves and that’s what they did.

Valuation is not a consideration in this environment.  That’s anathema to me but the market doesn’t revolve around me.  We need to deal with the facts on the ground.  One of those facts is that we are in a momentum market where growth is the only thing that matters.  And more important than actual growth is the perception of growth.

Netflix didn’t deliver the growth but it’s stumble wasn’t bad enough to shatter the illusion.  The notes from the analysts today shift the growth out in time and anticipate an awesome 3rd quarter.  Investors didn’t argue and are still believers, which is why they jumped once more unto the breach.

There is no good answer to the question: why is the market so bullish?  The narrative of earnings season is bullish and the atmosphere of the market is bullish and that’s the fact Jack.

The question is whether it’s worth piling in and going for a ride?

I think it is but I just can’t do it myself.

The party is raging.  The lampshades are on heads.  The feeling is giddy.

All I can think about is when the cops will show up.

See you tomorrow