Bears not ready to hibernate
10/15/23 Prospero.Ai Investing (66th) Edition (Weekend)
Happy Sunday everyone!
Currently beating the S&P 500 by 85% on our 2023 picks, with a 64% win-rate per pick against S&P 500 benchmarks. On 10/13 we published our strategic analysis of our 9 month results and a shorter summary on Twitter.
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Bears not ready to hibernate. Outline:
Market Update
QQQ and SPY Net Options Sentiment and Portfolio Allocation
Portfolio Macro Strategy
How we are approaching the number of longs/shorts and sectors
Longs
Adds —> Keeps —> Drops
Shorts
Adds —> Keeps —> Drops
Portfolio Allocation Notes
The market was extremely volatile this week. How we added upside, while limiting our risk.
Market Update
For Tech: QQQ Net Options Sentiment > 35 = Bullish. < 25 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 20 = Bullish. < 10 = Bearish.
QQQ returned +.16% this week vs +.46% for SPY. It was a tale of two weeks, at the start we saw a continuation of a Bullish movement. But after both SPY and QQQ Net Options Sentiment led price up 2 weeks ago, we saw them both give a quick and decisive Bear warning at open 10/13. As both indexes ticked up to start the day, Net Options Sentiment wasn’t fooled, and was ready for the “rug pull.”
Not a whole lot to say here. If we don’t see a recovery in both QQQ and SPY Net Options Sentiment, it could be a very bad week for the market. Pay close attenion to the market on Monday. With all this volatility, it’s best to wait until around 11 AM EST before making any big moves.
For more information on this volatility, our YouTube livestream is tomorrow 10/16 at 11 AM EST and we have one more Wednesday 10/18 at 3 PM. To get calendar invites for them: sign-up link.
In talking to someone helping us write this week's letter, it came to our attention that people might not be clear what the Bull and Bear lines are. These lines are to give you something to take with you during the week, to for example, sound the alarm on a market dip before it happens. (As we saw with the drop into the Bear zone above)
We are moving our QQQ levels down in order to create more sensitivity, to detect if tech is flipping Bullish again.
For Tech: QQQ Net Options Sentiment > 30 = Bullish < 20 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 20 = Bullish < 10 = Bearish.
Portfolio Macro Strategy
Both key Net Options Sentiment indexes, are now matching up with our Macro Bear view, so that is an obvious case for pessimism.
We do like the downside protection provided by a few solid Bulls, so we’re going with 3 Bulls and 5 Bears; as well as continuing to target Consumer Cyclicals for our Bear holds.
Long / Bull Adds - Link to Below Picture
MOH is the only add we like because the technicals are so strong and the overall trend in Net Options Sentiment is good.
Holding onto META and AZO here, as they are the best stocks in the filter, without a “Sell” in any technical category.
Long / Bull Keeps
META is a keep and returned -.23% vs +.46% vs the SPY. META has kept a stranglehold on the top of our metrics, so there’s no reason to even debate cutting it as a Bull.
AZO is a keep, and returned +.14% vs +.46% vs the SPY. Strong profitability stock, performing well in the screener and good technicals too.
Long / Bull Drops
META is a keep and returned -.23% vs +.46% vs the SPY. META has kept a stranglehold on the top of our metrics, so there’s no reason to even debate cutting it as a Bull.
AZO is a keep, and returned +.14% vs +.46% vs the SPY. Strong profitability stock that is performing well in the screener, with good technicals too.
Short / Bear Adds - Link to Below Picture
We are targeting Sector diversification here for our new Bear picks and singled out NSA and IE because they had the strongest technicals for Bear picks. And both PEGA and NSA had the best trendlines for Bear picks in Net Options Sentiment.
PEGA is the exact type of Net Options Sentiment setup we look for. After routinely touching the 60’s and 70’s the last 2 days the highest value is 25 and it keeps finding lower lows. (Ending the week at 13 the lowest value in the last 2 weeks)
Short / Bear Keeps
WISH is a keep and returned -1.39% vs +.46% for the SPY. Because we are Bearish on Consumer Cyclical, and it continues to be one of the best Bear’s in that sector.
CBRL is a keep and returned 1.27% vs +.46% for the SPY. Because we are Bearish on Consumer Cyclical and it continues to be one of the best Bear’s in that sector.
Short / Bear Drops
Dropping DEI as a Bear, as it was filtered out of the above screen. Covered 10/8-10/13 and it finished -.34% and a Win, Beating the SPY benchmark by .79%.
Dropping TWST as a Bear, as it was filtered out of the above screen. Covered 10/8-10/13 and it finished -6.29% and a Win, Beating the SPY benchmark by 6.75%.
Portfolio Allocation Notes
2 Longs: META, AZO, MOH
5 Shorts: WISH, CBRL, PEGA, NSA, IE
Nothing too complex here. We have AZO as a Bull to balance out the downside of WISH and CBRL as Consumer Cyclical stocks. And we wanted one Tech stock (PEGA) to do the same with the META downside exposure.