Here we are again!
While this is exactly the dip we expected (our SQQQ 2024 $30s are at our $25 goal) – it’s still scary to watch it happen as the Nasdaq 100 tests our Strong Bounce line at 12,000. Below this, we’re likely to re-test 11,000, which would be another few weeks of downturn – and we certainly don’t want to see that.
12,000 is the line we expect to drift around into next year but that doesn’t mean 10% up or down is out of the question along the way. The main thing that got worse in the last month, is the Energy Crisis in Europe as well as the Global Drought, which is also contributing to the energy crisis as it diminishes hydro-electric capacity while heat waves drive up the need for energy.
Keeping things in perspective: Europe was getting as much as 40% of their Natural Gas from Russia for the last few years and now it is down to about 15% so 62.5% less from Russia but “only” 25% of 100% of their Natural Gas has gone missing. Natural Gas itself makes up 24% of EU Energy so 25% of 24% is missing – that is 6% of their total energy.
The rest of the energy mix in the EU, meaning the range of energy sources available, is mainly made up by four other sources: Petroleum Products (including Crude Oil) (35 %), Renewable Energy (17 %), Nuclear Energy (13 %) and Solid Fossil Fuels (Coal) (12 %). While the EU may not want to use more Coal – that and oil are the most likely swing replacements for natural gas and, while it won’t happen overnight – it is not a situation they can’t overcome over time.
It’s also not something that will collapse the economy. In fact, it may be the inflation-fighter the EU does need to tame other prices – as higher energy costs and conservation measures will slow everything down for a while. That also means there’s less pressure on the ECB to raise rates while our Fed has no reason not to. In fact, the higher Natural Gas and Petroleum Products have added hundreds of Billions of Dollars to our own GDP as we are a net exporter of both.
I’m not saying everything is great – but it’s not as terrible as people are making it out to be and therein lies the opportunity for value investors. AAPL is having their iPhone 14 event this afternoon (1pm, EST) and, with the stock down at $154, which is “only” $2.5Tn and we’ll see if they break back up to $3Tn ($185) or down to $2Tn ($123).
With “only” $100Bn in earnings to support that $2.5Tn valuation – AAPL could go either way – but that is the range we expect them to trade in – plus or minus $500Bn, which is the GDP of Sweden.
On the whole, this is the dip we expected for the reasons we expected and it came faster than we expected and we also expected this (12,000) to be a point of contention, which is why we cashed in about half our long positions. Now we are at the tedious “wait and see” portion of the show – we’ll just have to sit back and see what happens next.
