Why won't 'sharing economy' companies go public?

Andreessen Horowitz recently shared their bull case on the Venture Capital Tech market.

The presentation of information is slanted, but it's still worth a view.  One of the key points made is this big shift to VC funding as opposed to IPO'ing.

Sharing economy companies are one of the largest growth stories in VC land.  With that, comes the perception the public markets just aren't as attractive as they used to be.  Is that true?  What's less attractive about the public markets?  Why is that?

Private markets are still nowhere near as efficient or liquid as public markets.  That said, it's seemingly becoming easier for private companies to access capital.

Then of course there's the glaring major downsides to being public:  being more in the public eye and having your financials open for the world to see.

Seemingly every week Uber or AirBnB or Instacart are getting higher private valuations. Every now and then, we get a peak at the underlying financials.  The latest provided by Uber's term sheet in a recent bond offering noting hundreds of millions in operating losses.  Which leads us to a meaningful quote.

"The ride-sharing company co-founded by Travis Kalanick remains fiercely secretive about its financial performance, even with prospective investors."

First off, everybody should be secretive about their financial performance as it builds the allure to potential investors.

Second, the name of the sharing economy game is fast expansion.  Thought leaders in the industry suggest customer loyalty will be won locally across the country and globe.  It's going to take years of massive losses to even compete, let alone win.

So you wonder...are these business models sustainable with the immense competition out there?  Is the idea to just create broad economic value and produce just enough cash flow to get by like Amazon?  Can that even be replicated in various businesses?

What's wild is we haven't even gotten to the fact that eventually these companies (in numerous cases) built largely of 'independent contractors' are going to face regulation at some point.  If history is any guide, they'll be largely over-regulated at first.

Shielding themselves from the scrutiny of the public is so important for the industry.  That combined with the incentive to keep things on the down-low outweighs everything else at this point.  We'll see how long it takes before that changes!

Rotation Report: Q2 Macro vs Micro

It's worth keeping in mind how these last two weeks have played out.  In this week's See It Market Linkfest, I noted this sense of calm in the blogosphere.  It's weird.  All quarter there was a prevalent sense of caution in that just kind of disappeared post Fed.

That tied in quite interestingly with this fear that built up on a micro level while the S&P 500 had it's second tightest quarterly range since 1950.  Something's got to give...eventually.  Economically sensitive sectors like the Transports and now Semiconductors have traded poorly while the speculative biotech group trades off sentiment and has blasted to new highs.  We'll see how long this can continue, maybe this is just the theme of the year.

Greece is what it is.  The apathetic sentiment towards it leads one to think the market has some pricing in to do.  We'll have to see if this has some affects on heavily indebted parties, but that'll be down the line.

Moving to the charts...

MACRO

Bounces in treasuries continue to fall short of technical targets, suggesting weakness.  We've got one giant piece of evidence to watch in the treasury market.

The 10 year treasury yield is testing a MAJOR resistance line

Also, High Yield Corporate Bonds are testing  the 200 day moving average.

The NASDAQ to 30 year treasury bonds ratio is testing a major boundary line.  It'd be shocking if stocks outperformed bonds this week.

China via the Shanghai Composite has dropped roughly 20% in less than two weeks as it tests the May low.  Even though we're at a support area, there are no signs of a sustainable low.  This could make for a pretty disgusting outside month.

Is this a topping pattern in the S&P 500 at the major Fibonacci extension level?  Yeah, yeah -  there's never a way to know the future, but that hasn't been necessary with an excellent level to trade against.

Breadth in the S&P 500 continues to deteriorate.  Upside moves still seem quite limited.

Checking in on the NYSE Dashboard we see the Advance-Decline lines still inline with price, but volume notably deteriorating.

Commodities: signs of life

The Ag commodities had a statement week.  It always happens after the market bores us to death and/or squashes all hope.  This kind of reminds me of the current action in the S&P 500 except the opposite (toppy).






Cotton may be completing it's bottoming pattern at this major low.

Oil failed to break below the 50 day MA Friday.

Groups

Consumer Discretionary relative strength is hitting new highs.

Biotech well tell us a lot about the market early in the week.

Regional Banks are a place to fish as the market corrects.

Industrials are testing the 200D MA

Apparel Retail is trading well

 Dana Lyons has noted this key level test in the rails.  Trucking is testing trend support from the 2009 lows once again.

It's looking more and more like the semi deal frenzy marked a climactic top in the group as SOX has started to lag the market and sell-off aggressively. The Rising 200 D MA is only 3% away.

Groups standing out: publishing, steel, restaurant, tourism, water.

Trade 'em well!

NEXT Series: The intersection of Playmation and Virtual Reality

Whenever I come across a new exciting investment theme, I'll tag it and include it in the NEXT Series (eventually it'll be a site page)

Earlier this month Disney and Hasbro announced this new playmation toy initiative.

Fortune with details on Playmation 

This seems like it'll be a big hit with millennial parents; who want their kids to be active and use their imagination.  

The question for the near term is of course, will the kids like it?

The question worth asking for the long term might be:  How does the bridge into virtual reality?  Does V/R become part of the playmation experience?  Which got me thinking...

Is the biggest misconception of virtual reality detractors the idea that oh we'll just slap a headset on and sit there? 

It seems until Virtual Reality headsets can plug into our brains. V/R would be a much more immersive experience if it were an activity.  How do we reach that point?  Who knows, but there is a TON of investment opportunity here in the whole complimentary system around virtual reality.

Check out this cool contraption Hyve made to compliment V/R and physically exhaust us.

Thanks for reading!

Rotation Report: Signs of life

Germany and China are in major corrections, but things appear pretty good here in various U.S. groups.

Sentiment is amazing these days and continues to drive the market.  The Fed Statement lit the wick (just as it did in March) and ripped the guts out of The Fed must raise rates now crowd.  Check out this week's link-fest for a full primer on sentiment.

MACRO

Germany is 10% off the highs, Shanghai is 14% off the highs.

Then there's the major U.S. indices at or near all time highs.  We could say that's a sign of relative strength, but the U.S. markets have just done their own thing year-to-date.

This week's candle in the S&P 500 sums it all up.  Resistance in the 2120's, support in the 2060's

The market saw it's sharpest buying pressure since the last FOMC press conference.

The put call ratio is at the toppy end of the range.

Breadth is still pretty much in-line with price.

The 2-10 year US Treasury yield curve made a lower high as longer end Bond ETFs staged bullish outside weeks (EMB, HYG)

Groups

The homebuilders stood out Friday.  They're at a key point, trying to break out of a multi-month base

Industrials have consolidated for months and touched the 200D MA.  If this group is going to rally, now is the time.

Materials have formed a symmetrical triangle near all time highs.  Names that stand out: DOW, ECL, VMC

Biotech broke month long consolidations to new highs...

...just as seasonality is turning higher.

Defense & Aerospace is at a key point.

Apparel retail has formed an apparent durable low near the 200 day moving average.

Other Markets

It sure looks like there is more downside coming for Europe ETFs just looking at weekly charts of Germany and France(not shown)

Brent Crude is at a key price point after seeing weaker bounces at trend-line support.  Energy ETFs like OIH and XOP can't seem to hold a bid.  This is the key space to watch early the week.

Gold ran to the 40 week moving average.  The larger structure is very interesting and will eventually lead to a monster move (direction yet to be decided).  The waiting is the hardest part.

Other Thoughts and Commentary

Uber's court battle in California is highly relevant.  A large portion of the 'new economy' is reliant on this independent contractor classification.  We'll see how big this gets, but the uncertainty could weigh on valuations/possibly offer opportunity for awhile.

Looking around the world, what market's actually look good?  Yes China(thanks to government pulling 3 levers a week to increase/open up investment) and some emerging Asia.  It's a global shit show and not that great of an investing environment in general.  That said, the U.S. could be the main beneficiary in the second half of the year.

Trade 'em well!

Thoughts into FOMC

In last week's Top Trading Links, I shared this under-appreciated piece by @MylesUdland.

Myles notes that the market is slow to react to tightening cycles as evidenced in the mid 2000's hiking cycle courtesy of @RobinWigg 

Now as the FOMC statement approaches we have numerous macro technical tourists discussing how the Fed Funds Futures aren't expecting a rate hike here as if the market is all knowing.

Well if these Futures are what the market expects, and they're slow to expect rate hikes - this tells us where the risk is.

This is all very un-comforting given where the market is here.

Again, we'll turn back to the golden ratio fib extension from the 2007-2009 range in the S&P 500 via @andrewnyquist

Then we look at the NASDAQ Composite and we see it testing the 2000 high.  

Where else would be a more appropriate spot for an intermediate market correction?  

The risk is evident and it's no wonder why there was selling into the Fed announcement.  

The people getting played today are those who expect anything.  Going with the flow has paid and it will again. 

Trade 'em well!  Read and react!

KITE

KITE bounced right in that 50/20 day moving average area and formed a bullish engulfing candle.  Is it setting up to take out the downtrend line above?

It's an explosive look.  Now we have some decent stakes in the ground to trade against in the 55s.  I'm long.  If it works the plan is to peel 1/3 into that resistance and move the protective stop to break-even and let this thing ride.

Trade 'em well!

Greece

What's the main difference between this Greece debt negotiation and all the others over the years?  It's just sentiment.  The consensus sentiment among market commentators is 'Greece doesn't matter'.

We can read that as 'i'm positioned as if Greece doesn't matter'.  In the other most recent Greece debt crises, the sentiment was exactly the opposite.  We'd hear things like Greece is going to lead to the end of the European Union etc

The question is how long does it take for that sentiment to turn?  Given how negative sentiment has been, maybe it's sooner than later.

More:

Over the weekend in the Rotation Report, I penned this

Frankly, it doesn't matter if Greece gets kicked out of the eurozone, defaults or whatever.  What matters is they're challenging the status quo of an antiquated system.  When all the cards are on the table, they know they have less to lose than the IMF.  It'd be quite easy for this rationale to catch on across the globe, given there are so many highly indebted parties everywhere.

It should be noted that's long term potential concern and nowhere near sentiment that's driving the market near-term. 

Thanks for reading!

Rotation Report: Same Ole'

What's new?  Not much in the markets.  Individual equity bulls continue to make the most money, while the S&P 500 continues to hold under monster Fibonacci resistance extension around the 2140 level.

Yellen's on deck Wednesday as the Fed lays out their economic projections.  Sentiment around the Fed is so bifurcated.  There are brilliant market minds convinced the Fed won't back down from their easy money stance and other brilliant minds sure that the writing is on the wall for a rate hike.  Yellen is studied enough to know they need to raise rates while they can..Draghi and Abe on the other hand....

Be sure to check out my favorite reads of the week over at See It Market (will add link when it's posted)

MACRO

We could argue resistance is strengthening in the S&P 500 while the ease of movement index starts to move lower.  The 4 month support line will tell us plenty near term.

The VIX ended the week testing the 10D MA from below.

Breadth is still disgusting, even in the S&P 500.

Stock Groups

XLE's Advance/Decline line has hit new lows.  Price is masking the underlying damage.

Biotech continues in this tight range.  It looks like a rollover setup to me.

It's worth repeating that Utilities have broken this long term trend

Cyber Security flashed major relative strength on Friday.  What a beautiful group.

Other Markets

Numerous global indices and have been under substantial pressure in Q2.  GAF has broken a two year support line

Also India is breaking a 9 month 12% head and shoulders top

This global weakness comes after massive flows have piled into international ETFs via @RyanDetrick

Smarter men than I are looking into the Yen:  I want to piggyback here soon.

@hertcapital points out a potential massive shakeout.

Yen remains in a key LT price range. A shake-out below sets up a major mean reversion rally. $FXY pic.twitter.com/LaQmo6LI19

— Sheldon McIntyre (@hertcapital) May 28, 2015

@kimblecharting notes the key resistance level in the dollar / yen pair

The 10 year US treasury yield tested long term resistance this week.  How long does this pull-in last?

Is that a golden cross in the 30 year treasury yield?  Fade 'em.

Base Metals are trying to base out (ha)

Nat Gas is also still working on a bottoming base

Other commentary:

Mike Shedlock wrote a provocative piece on Greece this week.  Frankly, it doesn't matter if Greece gets kicked out of the eurozone, defaults or whatever.  What matters is they're challenging the status quo of an antiquated system.  When all the cards are on the table, they know they have less to lose than the IMF.  It'd be quite easy for this rationale to catch on across the globe, given there are so many highly indebted parties everywhere.

How do we tie that into a trade is sure as hell NOT the right question to ask.  However, that short the S&P 500 versus the good ole' 2007-2009 fibonacci extension level around 2140 is still in play with this whole mess unfolding and the market looking for a downside catalyst.

RE: Dick C stepping down as Twitter CEO - It's almost like the market wants to see more of an 'emptying of the cupboard'.  It's worth noting the 'old boys network' is still in affect since Costello is still on the board of directors.   Kick all of the Gilfoyle and Erlich Bachman types to the curb and Twitter shares could get back on track fast.

Trade 'em well!