Time to Lighten Up

Brit Ryle

Posted June 16, 2023

So, as a kind of disclaimer, it is not my plan to talk about things I see on Twitter all the time. Because, Twitter is mostly a cesspool and very little of the content is worthy of even reading, much less repeating…

BUT — some pearls do get strewn from time to time. Like this ad I saw this morning…


Now, that’s a “promoted” ad, paid for by the company BigBear.ai (NASDAQ: BBAI), calling attention to a contract between BigBear and the US Army that was just renewed. $8.5 million, ok not much, but not nothing either.

But why? Why is BigBear paying to advertise a business development on Twitter? 

Because the company is trying to create some investor excitement for itself and it’s stock. I can’t tell you for sure that BigBear management is jealous of the gains other AI stocks have enjoyed. But I can imagine insiders saying  something like “it’s not fair, we’re AI too, how come our stock’s not launching?”

Now, I gave BigBear a pretty good look under the hood when I was doing my due diligence on AI stocks earlier this year. And I recommended two AI stocks that were worthy. On February 13, I gave C3.ai (NASDAQ: AI) the thumbs up when the stock was between $21 and $23. And I laid a really under-the-radar Schrodinger (NASDAQ: SDGR) on you on April 3, when the stock was just under $27. 

C3.ai is up 108% since then, so, pretty good. Schrodinger’s been a bit of a laggard, up just 77%…

But BigBear? It’s actually lower than it was when I made my calls on C3.ai and Schrodinger, US Army contract notwithstanding.

Now here’s what I think is going on with that Twitter ad. I think BigBear is trying to get its stock price higher because it wants to do a secondary offering of stock to raise money (it has just $21 million in cash). Obviously, it would be better to sell stock at, say, $4, than it would be to sell stock at current levels, around $2.60. 

Now, secondary offerings of stock almost always take place at a price lower than what they price is at the time the offer is announced. If BigBear’s little ploy works and the stock rallies $4 (which I picked as a completely random target, in no way intended to be a forecast), then the secondary offering will probably get priced around $3-$3.25 and the stock will tank to that level immediately after the pricing is announced. 

And if BigBear fails to pump its share price higher, well, it still needs money. If the stock continues to trade around $2.60, I’d expect a secondary offering to get priced maybe $2-$2.25. Either way, it seems likely to me that a whacking is coming soon. 

Buy Low, Sell High

Buy low, sell high is the single-most important rule for investors. Now, obviously, deciding exactly when prices are low or high is a different challenge – one I take on with pretty much every article I write here at Pro Trader Today

I think it’s pretty obvious that BigBear, for example, would like to sell high in its stock…

But what about the rest of the market? I mean, if you looked up “rip-snorting rally” in the dictionary, you’d get a definition much like what we’ve seen over the last month. 

Now for some shameless self-promotion: I’ve anticipated this rally very well. 

May 3, I wrote

I first coined the phrase “Big Tech Piggy Banks” back on March 31 when it was clear that the “flight to safety” after the first stage of the mini-bank crisis was into big tech stocks. And those big techs like Meta (NASDAQ: META), Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA), and to a lesser extent Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOG) haven’t disappointed. 

The lowest risk bet is that Big Tech will continue to outperform. And I think Amazon (NASDAQ: AMZN) is the one. It’s sitting just below its 200-day moving average at $106.74. A break over the 200-day moving average should lead to a further 20% gain pretty quick. 

On May 19, I told you the market was breaking out in a cleverly titled article We Have a Breakout:

The S&P 500 has now broken above resistance at 4,165. It is challenging resistance at 4,200, and could make a run at the 52-week at 4,300.

And then on May 31, you got the timeless classic Bring on the Bull! No explanation needed, and any more shameless self-promotion would just be obnoxious. 

So instead, let’s have a look at what’s ahead and what you should do about it…

What’s Ahead and What You Should do About it

My cursory review of the financial media tells me the general consensus right now is that this rally is done and that the next move for the S&P 500 will be a drop to the 50-day moving average, which currently sits 250 points lower, at 4,180…

And really, a 5% drop is reasonable, perhaps likely and certainly nothing to panic about. A little drop relieves the overbought pressure and gives money on the sideline an opportunity to buy. 

Let’s not forget that Goldman Sachs’s bullish end of the year target for the S&P 500 is 4,500. 

Now, I don’t base my expectations on what Goldman or anybody else says. But I do understand that Goldman isn’t stupid and that a lot of institutional money will use Goldman’s analysis as a guidepost. And given how far the market’s come to get ~70 points from Goldman’s target for the rest of the year, it’s worthy of consideration.

Then there’s that fact that it’s June 16. Summer is basically here, and the summer months are typically a weak time of year. 

Prudence says that it is a good time to take some loot off the table, and have some cash ready to re-enter at lower prices. 

Ok, that’s it for me this week, take care, have a great weekend, and I’ll talk to you on Monday!

Briton Ryle
Chief Investment Strategist
Pro Trader Today 


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