Finally: check.markets shows sell signal

Markets have tried to recover these days, but they didn't

One point that's cost me lots of money was the sign of recovery, of a (in my view) totally logical bounce-back like we've had in the second week of January. Tough days we had had before, but that was quite about it. Not this time. And this is usually a very bad and discouraging sign.

When market prices try to recover but get sold-off heavily in the end, this shows that there is lots of selling power behind the trading desks. This may happen once (can happen, so what?), but not twice. We've had two days in a row in this constellation indicating a top building.

We have to acknowledge what we seem to be confronted with

The US-American market tries to tell us something. It's on us to understand it. We are becoming part of a new downward trend in the US that's trying to pull the European and Asian markets down with it. European companies try to withstand (some do greatly!) but not many can resist. Two short-term trends that have showed up so far seem to fade away:

• "Value" plays such as the cyclicals, financials and industrials can't withstand the general market trend any more.
• Even a great deal of commodity-related stocks lose track on their ways up (most UK oil and commodity stocks lost between 1 and 2% of their market cap today)

The only pattern that seems to stay strong are beaten-down Asian stocks like Baidu, JD.com or Alibaba. They are volatile, unreliable and politically endangered but their long-term potential seems to be recognized and played by some investors.

What's our preferred scenario now?

There is only one scenario that would help us like no other to enjoy some great upcoming stock market years and this is a total sell-off, a market panic. You may ask how we dare to say that. Giving an answer to that question is easy. 

The reason why we wish for a market panic (I don't like the overinflated word 'crash') is that all stop loss marks get smashed, all the 'I wanna become rich quick kids' are blown away and only the mentally and emotionally stable investors remain. And many of them would understand this market situation as a huge long-term chance (which it would be) and invest. Markets are cleaned out and dynamics would start from the very beginning. 

Just imagine how many low-cap high-margin businesses would wait for us! There is only one thing we haven't discussed so far:

Does this downward move come along with economic or financial problems?

Speaking of today, we do not think so. As we discussed throughout the last posts, interest rates will rise and the Fed will stop buying financial instruments. We consider the American government to introduce another short to middle-term investment plan to help businesses of troublesome sectors and to 'renovate' the American infrastructure to start another successful chapter in history under American leadership. There are several business sectors that should profit from the upcoming years (especially Germany!):

• alternative energy stocks (solar/wind/water power)
• CO2 neutral or emission-free companies offering sustainable long-term plans to respect nature, humanity and equality (= ESG stocks)
• privacy-focused and platform-offering All-in-One companies (like Apple or Tesla planning a huge gaming and charging platform for its vehicles and its own network only; no other operating system vendor may sell things on or for the Tesla OS)
• consumer staples that are especially strong in emerging and developing countries 

The first two assumptions are mostly backed by governmental action and enforcement. These companies should not have to worry about sufficient financing as no government could avoid giving bank guarantees for these companies just to realize the governments' plans for the world's future. We will not expect financials of these companies to be attractive. They will be shaken by high debt ratios and weak investor returns. 

Our third assumption will be valued at highest market prices. Companies that offer an all-in-one platform with an uptrending trademark being behind it will attract lots of customers and brand enthusiasts. First movers will benefit most. Other companies that try to play the same game will suffer from high advertising expenses and debt levels. But it won't work out the way it does for the first mover. First movers will be faster, months or years ahead and set the benchmark in terms of pricing and margins. The only way to stop or overtake them is innovation. And innovation costs lots of money. Will there be as many (willing) investors left after several interest rate hikes by the Fed? We doubt it. That's why we love first movers so much.

In my view, there is something problematic going on in the consumer staples industry. At the top level (speaking - among others - of Coca Cola, McDonald's, Unilever, Nestlé, Procter & Gamble or Kellogg's) it is observable that there are several companies that try to turn their beloved favorite brands to premium (Apple-like) brands challenging middle-income out of and erasing low-income people from their target group. We do not view this action as inconceivable. We regard this move to be brave but risky. Let me give you an example for this:

Having 5 leading companies in an industry producing the 10 most successful products from which 8 try to market their products on premium level creates a market environment in which there remain 2 brands for lower-income, 4 for middle-income and 8 for higher-income people. The immediate consequence of this is that there are several brands to choose from for the higher income people that won't appreciate these trademarks as much as the target group did before. Sales quantity decreases, price level increases, margin increases but the company hardly grows (if so) anymore. The intangible value of these trademarks start to decrease and the company would start a difficult journey founding a new premium brand that hardly anybody appreciates or investing in developing markets trying to find people to buy their former beloved brands at lower prices. The last step of this journey are desperate acquisitions which show at last that the company's board misses the point completely. The result is a so-called blue chip with decreasing market value, known brands and dissatisfied customers. 

I see this development coming in the upcoming years for several top level brands in the consumer staples industry. They dare and risk too much with their infinite wishes to become 'sexy' in a world of Instagram starlets and TikTok newcomers. They lack what they would need most: clear knowledge about why customers buy their products and stay with them. 

It will be the brands that understand their customers most that will survive any attack from a new trend (vegan respectively healthy food or sugar less and non-alcoholic drinks) or lifestyle. 

So, to put it short: What we have to think about next is what the lifestyle of future generations will look like. In these thoughts, I try to exclude technology as nobody knows what future entrepreneurs and scientists will enable us to do what we currently don't even know or think about. 

Got a picture? Perfect! At the point of time that the stock market recovers, try to implement this vision in terms of investments. Some vision have made entrepreneurs, some millionaires, some even billionaires. Think hard about your vision. Wait for the right point of time to invest again. And then go all-in!

You can do it - you only have to believe in yourself!