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My first article was about Veeva Systems (NYSE:VEEV) on March 6. It’s a great growth story.
- The company offers cloud-based software solutions for the life science industry.
- Great growth
- The margins increased during theLast 10 years, which indicated that the company was achieving scale economies
- The company had great cash flow.
The charts were not so great, even though the fundamentals were excellent.
The weekly chart (left), shows that the stock reached a multi-year peak last summer. It has been falling since then. The daily chart (right), indicates that the stock is in an acceleration downtrend. There have been several gaps, one of which was recent.
Veeva (VEEV), a stock that is experiencing great growth, is a great stock. It is currently in a sharp selloff. Wait for a bottom before you buy.
Remember the basic formula. The fundamentals tell us which product to buy. This is clearly true for VEEV. Charts can help us decide when to buy. Technicals were terrible at the beginning March.
Unfortunately, since then, both the chart and the fundamentals have deteriorated, so VEEV is still on the sell-list.
VEEV is a story of pure growth. It needs strong economic performance in order to achieve its sales goals. Unfortunately, the macroeconomic environment is getting worse. Let’s start at the Federal Reserve. Since the last meeting, all Fed presidents have endorsed higher interest rates. Most Fed presidents have indicated that they would support a 50-basis rate hike. Bullard, however, is stating that a 75-basis rate increase should be considered.
As a result, interest rates are on the rise:
Treasury yields for years 1-10 (FRED).
All treasury yields over the 1- to 10-year range have increased. This will lead to a rise in capital costs, which can slow down growth.
We are also beginning to see rising yields on the commercial paper markets.
30, 60, and 90-day yields on nonfinancial commercial paper (FRED)
All three commercial paper yields on nonfinancial corporate paper of 30, 60, and 90% have risen
Commercial paper yields on financial papers (FRED) of 30, 60, and 90%
… and the rates for financial commercial paper.
These yields can spike between 12-24 month before a recession and cause liquidity problems.
We also see other areas of caution in the primary indicators of economic performance:
Long-leading, leading, or coincidental indicators (Data from FRED; author’s tableulations)
The table above is my shorthand tabulation of the long-leading and leading indicators. All of the financial numbers have been colored red to warn us of an imminent economic slowdown.
Let’s now turn our attention to the internals market.
EMA image for the four index-tracking ETFs (StockCharts; author’s tabulations)
The table above shows the EMA picture of the four index-tracking ETFs. Because they are more weighted to the most recent data, I use exponential averages. Notice how bearish most EMAs seem to be.
Markets are performing poorly since the beginning of the year.
YTD SPY and QQQ, DIA and IWM (StockCharts)
All the charts are negative for the year. There has been only one rally at March’s end. All other time periods are negative.
All of these factors have a negative impact upon VEEV’s chart.
Weekly and daily charts of VEEV (StockCharts)
The weekly chart (left), has been in a downtrend from October. The chart on right shows (daily), an extremely bearish picture. All EMAs are falling; the shorter EMAs have fallen below the longer EMAs. Prices are also lower than all EMAs.
VEEV is a great business. However, its business model is better suited for the front-end economic expansion. Although I don’t believe a recession is imminent, we are clearly in a slower growth environment which favors larger, more established businesses. The charts clearly show this, with a solid downtrend.
Keep your eyes peeled, but for now, keep your eyes open.