AppLovin' It
11/10/24 Prospero.Ai Investing (168th) Edition (Weekend)
I have a confession. I've never personally been on a dating app in my entire life. Not even once. I'm a 51 year-old, Gen X man, that's been happily married for almost 30 years. Why does that matter? Because I started dating my wife in 1993, which was before the Internet or cell phones even existed! Back in the day, if you liked somebody and wanted to talk to them, you had to physically walk up to them and shoot your shot. That's what I did on that hot August day in Central Texas back in '93. I walked into History 101 class and saw a girl who's blue eyes and contagious smile lit up the room. As fate would have it, there was an empty seat beside her. I made my way through the room, and for the first time, sat down beside the woman that would become the love of my life, my wife and the mother of my children. Was that fate or chance? I don't know, but what I do know is this; out of 7 billion people in the world, I just happened to run into the one person that was perfect for me.
Now fast forward 31 years and for the most part, you don't have to hope you get as lucky as me and randomly meet the love of your life in some random way. There are apps that use high tech algorithms that screen its users and pair you with the "perfect" person. No need for the stars to align. It's just an A.I. matchmaker that can look at all the data and find for you the person with the highest probability of success.
You may or may not know this, but here at Prospero, we have an A.I. driven screener that can find stocks for you with the highest probability of success. It's called our "Bull Screener". A simplistic explanation is that The Bull Screener picks stocks with the best combination of Upside, Net Options, Net Social, Profitability and Technical Analysis scores. As "fate" would have it, last week our screener pointed to the stock market's equivalent of our soul mate.
9/15 a company ran to #2 in our Bull Screener. It's name is Applovin (APP), a company that specializes in the development and operation of mobile marketing platforms. Here at Prospero, that got our attention. As we shared in last week's letter, we've been pretty defensive in this crazy market, but the election is over and we decided to jump in. Here's why. It's a "Smaller-ish" Cap company. It had a Market Cap of about 37 Billion, which is a lot of money, but for a company of that size to show up in our Bull Screener is rare. Typically, that screener leans toward rewarding huge, Large Caps. It continued to find itself near the top of our Bull Screeners as well as “our picks” in the Prospero App.
Turns out, APP had earnings on Nov 6th after the closing bell and they absolutely CRUSHED earnings with massively growing revenue, profit margins and guided significantly higher than expectations. Over the next three days, the stock ran a whopping 79%. Congrats to our paid subscribers who got to see our latest mid-week entry. Watching this stock had the feel of many others we’ve seen in the past. The way institutions were betting on options so aggressively relative to the Market Cap it is almost as if they knew earnings would be that good.
Keep in mind, that not every stock that goes to #1 in our Bull Screener will have that kind of success. But, when out of nowhere, a smaller company suddenly appears on that screener, it's often a sign of amazing things to come. We saw similar results when VST (37 Billion Market Cap) showed up at the top of our screener, then ran for 30%. As of the writing of this letter, APP is still #1 on our Bull Screener. There was a comment on our Discord that “APP is the next SMCI” thanks to the user that pointed this out because as we thought about it these stocks did have a similar profile. They both were alarmingly Bullish in our signals relative to Market Cap. And those that follow our signals closely know that they also showed when to bail on SMCI. So if you are in APP make sure to keep a close eye because some of this quick runners can correct sharply. But the signals are still lovin’ Applovin’ so we will hold on for now! In the Macro Section of this letter, we're going to talk about how our Pre-Election recommendations are doing and where we go from here! Now a word from our CEO, George Kailas.
A WORD FROM OUR CEO
As we’ve been saying we were staying disciplined because we did not see clear signaling in the market. But when we did we pounced and had an absolutely huge week. We are currently beating the S&P 500 by 82% annualized, with a win rate of 60% against SPY benchmarks.
To help newer readers get up to speed linking our short intro + learning videos.
Normal streams this week! But we have a special guest we have had on before Monday 11/11 at 11 AM EST - Dave Lauer, and Wednesday 11/13 at 3PM EST.
Don’t have our app yet? Use it to track your investments with Prospero’s proprietary AI tech.
Applovin' It
Market/Macro Update w/ Cap/ Value Analysis
QQQ and SPY Net Options Sentiment
Sector Analysis
How we view the Sector performance and momentum
Portfolio Strategy
Putting it all together to make a portfolio that first controls for risks but also has upside
Longs
Adds —> Keeps —> Drops
Shorts
Adds —> Keeps —> Drops
Portfolio Summary
Portfolio Strategy
Unless you've been living under a rock, you know that the election was last Tuesday and Donald Trump emerged the winner. In hindsight, the markets were heavily leaning that way entering into the election. For a couple of weeks before the election, our QQQ Net Options numbers were Bullish (over 50), but our SPY Net Options Sentiment numbers cratered and were hanging out around a Bearish 10. In hindsight, Prospero's signals gave us a very detailed picture of what was occurring behind the scenes. High QQQ Net Options numbers and low SPY numbers signaled that institutions were betting on Trump victory with Tech, and hedging a market meltdown by buying puts on SPY.
Here at Prospero, we recommended caution going into the election, but stated that if you were going to buy anything before, TSLA and COIN would be the best options. Both TSLA and COIN were showing strong Net Options and Upside Numbers. Again, in hindsight, that was Wall Street betting for a Trump victory. TSLA because of Elon's connections with Trump; and COIN because of Trump's comments regarding his support of the Bitcoin community. In hindsight, our recommendations of TSLA and COIN were good calls. Especially compared to DJT, where we reccomended those two vs. DJT in the “Trump Trade.” Since that letter 10/27/24 DJT is down 24%, TSLA is up 19% and COIN is up 27%. (Keep an eye on this trade with the “Trump Trade Tracker”)
With the election behind us, which direction the market will go, depends on the analyst. But one subject seems to be reaching consensus, and that's Bitcoin. Bitcoin broke through a months-long upward trendline last week and looks poised for a breakout. As of the writing of this letter, COIN is still sitting at a very Bullish 100 Upside and 100 Net Options Sentiment. Check out this Bitcoin chart below:
This is a weekly chart of Bitcoin. For those that are new to investing, that technical pattern is called a "Cup and Handle". The right side of the chart looks like a huge cup, with a handle to the right side of it. The Cup and Handle pattern is one of the most bullish patterns in all of trading. The blue line signifies the top of a resistance line that Bitcoin has been rejecting off of for several years. We just broke through it. When you combine that bullish set up with November and December being historically bullish months, we might be in for quite a run. Definitely worth watching over the coming days. There is a reason we will hold 2 COIN positions heading into this week!
CAP/VALUE ANALYSIS
Check out the Cap/Value Analysis Table above. It was quite a week for the stock market, but one thing stood out to me. Small Caps led the way. For the daily, weekly and monthly numbers, Small Cap Growth came out on top. One more point of interest. Small Cap growth has quietly jumped into the #2 spot for the YEAR! With all the volatility of the last several months, that is a little surprising to me, but here we are. Coupled with the strong look from Large Cap Growth stocks (fueled by A.I.), this bull run might have some more strenght. We'll be watching our Options Sentiment Numbers to make sure.
NET OPTIONS SENTIMENT
SPY and QQQ Net Options Sentiment > 40 = Bullish < 30 = Bearish.
Look at the QQQ Net Options Chart above. As you can see, on November 4th, the day before the election, the numbers made a massive Bullish jump. By the end of the week, they leveled out in the high 50's which is firmly in our Bullish Zone. What this tells us overall, is the market is feeling confident moving forward. We're feeling more confident overall about taking some risks, but we'll be watching those numbers closely for a sign of a reversal.
Look at the SPY Net Options Sentiment above. As you can see on November 4th, those numbers are about as low as you can go. It was only after the election did SPY Skyrocket from 0, to a solidly bullish 50. These low numbers were institutions hedging as we entered an uncertain election. But once the future became clear, the market seems to be heading in a solidly Bullish direction. Trump himself stated that he believes the market is one of the indicators that he measures his own personal success by. That alone is reason enough for Wall Street's optimism.
SECTOR ANALYSIS
Check out the Sector Analysis Table above. There are a couple of things that stand out of me regarding this chart. First of all, check out Consumer Discretionary. It has quietly jumped into the #1 spot for the 3 month period. That is a good sign regarding the consumer's view of our economic outlook. Financials and Communications also showed strength over the short term. So if you have to feel good about all of the following Sectors in a Trump presidency, we'd pick Tech, Consumer Discretionary, Energy, Industrials, Communications and Financials.
PORTFOLIO STRATEGY
Following the post-election week rally, we’re growing more bullish on the market outlook. The focus is now on sector diversification, supported by a recent uptick in SPY Net Options Sentiment. With reduced uncertainty, we plan to increase our net exposure to capture potential gains in a strengthening market. 10 longs, 6 shorts.
Long / Bull Moves
Long / Bull Moves - UNH, COHR, VST and CEIX adds / APP, APO, GTLS, TSLA and COIN holds/ MCK, SHW, CCJ and CAT drops
Adds
We chose UNH for its strong Techical Flow, solid Momentum Score, and positive Net Options Sentiment, providing valuable exposure to the Healthcare sector for added diversification. COHR also ranked highly in Tech Flow, adding strategic mid-cap tech exposure. VST stood out as a utility sector play with excellent momentum, high tech flow, and positive options sentiment, enhancing portfolio balance. Lastly, CEIX added energy sector exposure with small-cap positioning.
Holds
We retained APP and APO due to their high Tech Flow scores and Upside potential. GTLS remained in the portfolio for its industrial sector representation, small-cap positioning, strong tech flow, and favorable net options sentiment. TSLA and COIN both demonstrated outstanding metrics across our screener, so we decided to keep both, despite them initially being screened out.
Drops
MCK was removed in favor of UNH, which ranked higher on our screener. SHW, CCJ, and CAT were also dropped due to lower scores on the screener.
Short / Bear Moves
Short / Bear Moves - NAVI, CCI, BALL, OTIS and CMS adds / SWKS hold / NOAH, CME and DUK drops
Adds
We added NAVI as it ranked highest on our screener. CCI, BALL, OTIS, and CMS were all included to help balance the larger-cap long side of the portfolio. These stocks also exhibited lower Tech Flow and Net Options Sentiment, which helped diversify our positioning.
Holds
SWKS was retained to provide balance to the tech-heavy long side of the portfolio, given its low net options sentiment.
Drops
NOAH was removed because NAVI was ranked higher. CME and DUK were dropped because of their poor rankings in our tracker.
Portfolio Summary
Long / Bull Moves - UNH, COHR, VST and CEIX adds / APP, APO, GTLS, TSLA and COIN holds/ MCK, SHW, CCJ and CAT drops
Short / Bear Moves - NAVI, CCI, BALL, OTIS and CMS adds / SWKS hold / NOAH, CME and DUK drops
10 Longs: UNH, COHR, VST, CEIX, APP, APO, GTLS, TSLA and COIN 2X
6 Shorts: NAVI, CCI, BALL, OTIS, CMS and SWKS