Hard market to judge, be careful.
1/15/24 Prospero.Ai Investing (88th) Edition (Weekend)
For the last time, we’re quickly sharing our 1 year results where we beat the market for the 2nd year in a row by ~50%. And the good news is that we’re picking up right where we left off! 2024 picks sitting at a 50% annualized beat of the S&P 500, and off to a scalding win-rate against S&P 500 benchmarks 82%! (9 out of 11)
Adjusting YouTube streams for the short week: 1st tomorrow 1/16 at 11 AM EST and 2nd Thursday 1/18 at 3 PM EST. Simultaneously streaming on our X/Twitter too!
Since we are doing more midweek newsletter pick updates this year, we’re offering one last chance at 50% off to get access before we go back to full price.
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Hard market to judge, be careful. Outline:
Market/Macro Update
QQQ and SPY Net Options Sentiment
Sector Update / Portfolio Strategy
Now the Sector analysis will be roped into our allocation!
Longs
Adds —> Keeps —> Drops
Shorts
Adds —> Keeps —> Drops
Portfolio Summary
Market Update
For Tech: QQQ Net Options Sentiment > 35 = Bullish. < 25 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 35 = Bullish. < 25 = Bearish.
QQQ returned 3.23% this week vs 1.87% for SPY. IWM continues to soften and was down .01% and we will exit up on this trade. On the positive side, for two weeks in a row, our QQQ Net Options sentiment has provided excellent leading information on the market.
Bottom line, this has been one of the toughest markets to read in a long time!
There are LEGIT Bear concerns with a mounting credit crisis and a mounting consumer credit —> spending crisis. On top of that, the significant war risks alone, will mean a certain amount of hedging that will place a cap on top end growth, as well as cause an inherent amount of volatility.
Despite this volatility, the AI boom and associated tech and cloud upside is undeniable! As is the Bull trend, alongside the fact that we rarely see 2 Bear years in a row. Finally, the general idea is that the market goes up more than it goes down.
With the volatility this year, and a higher probability of the market going up than down…we could easily see a rally of 30% and quickly lose it all before gaining some back.
If you’re looking for more help, it's hard to not see the value in our trading letter that is now updating daily. The benefit of the letter is that it consistently gets people ahead of market shifts. On 1/8, after seeing a major Bullish shift, we pointed to the above QQQ Net Options Sentiment and did our biggest Model Portfolio change ever. Exiting 13 shorts and entering 12 new longs. Despite having made 619 investments in that portfolio we were able to move it up from 22% above the S&P to 29% the rest of the week.
We remain vigilant in watching for trouble however, and one picture is weighing heavily on me this weekend:
We’re starting to make a name for ourselves, based on the idea that the best way to get great returns is by not trying to beat institutions, but understand what they’re doing. Well, the only people that actually know more than institutions are insiders. And on the whole, they currently look a lot more worried than they have over the last year.
So despite the winning streak, we’re going to approach this week very carefully and leave our conservative levels from last week in the same spot.
For Tech: QQQ Net Options Sentiment > 35 = Bullish < 25 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 35 = Bullish < 25 = Bearish.
Sector Analysis / Portfolio Macro Strategy
Our Consumer Discretionary concerns were reinforced this week and we will continue to target shorts in that Sector for the foreseeable future. Tech and even more so Communications, (leaning on the 3 month timeline) have rebounded nicely. Other than Healthcare, nothing has done better than Communications over the last 3 months. As you can see from the much higher “sum”, Healthcare had a lot more room to recover or “snap back” from its previous lows. So the market is just that Bullish on Communications.
We will keep TDW (Bull) and EURN (Bear) because we’re only comfortable with Energy and Utilities on a pair trades (long and short) right now. These Sectors have been hit the hardest over the last year. But in our view, that makes them risky longs and shorts, because it’s easy to see a world in which these trends continue…or the market finds a bottom and “snaps back” toward the end of the year like we saw with Financials and Real Estate.
6 Longs and 5 Shorts this week because of the uncertainty we discussed above. Also, because of the uncertainty, we’re going to lean on the Sector’s where we have the highest conviction (Communications long and Consumer Discretionary Short)
Long / Bull Adds - Link to Below Picture
Could not be more straightforward on our adds. We added the best two stocks that avoided our worrisome Sector (Consumer Discretionary) and actually doubled up on Communications (our target Sector).
Not bad to own FICO with a potential consumer credit crisis either :)
Long / Bull Keeps
META is a keep, and returned 6.40% vs 1.87% for the SPY. However we are dropping it down to 1 position (from 2) because we added GOOGL, and don’t want 3 Communications positions. META is again at the top of our Bull Screener, which shows another strong start to the year!
CI is a keep, and returned -2.74% vs 1.87% SPY benchmark. Its metrics and technicals have stayed consistent and the Healthcare Sector has rebounded.
TDG is a keep, and returned 5.54% vs 1.87% SPY benchmark. Its technicals have shifted to an even better position than last week.
TDW is a keep, and returned -5.37% vs 1.87% SPY benchmark. After a horrible start to the week, it came on strong and improved on the technical side. We will give it another week, if for no other reason than to pair it with our EURN short.
Long / Bull Drops
AVGO was a mid-week add for our paid users via chat. It was dropped primarily because FICO looked stronger in the Screener and technicals. Covered 1/8-1/12, it finished +3.25% and a Win, Beating the SPY benchmark by 2.16%.
Short / Bear Adds - Link to Below Picture
The reason we added MED and not ESCA, came down to MED having a lower Net Options Sentiment and our comfort level was far greater for it as a result. Especially doubling up on Consumer Discretionary stocks, options sentiment was a priority.
Then RHI and SPWR were easy calls; as the only others on the Screen with good technical setups were for a Bear. You might be wondering how SPWR got in there as a tech stock after a strong Tech rebound last week? Well, they are a solar stock, which have been getting hammered. That does make it a risk to bounce back, especially as it was down almost 10% on Friday, but it’s EPS is on a very bad trend and that greatly increased our comfort with it as a short.
Short / Bear Keeps
EURN is a keep, and returned -0.23% vs 1.87% for the SPY. It continues to stand out on the list due to its maintaining low net options sentiment, while remaining high in our Screener.
LEG is a keep, and returned -0.62% vs 1.87% for the SPY. We picked it up even with a “Buy” on the Oscillators last week. We aren’t surprised to see it have a great week as a Bear, so there’s no reason to give up on it now.
Portfolio Allocation
6 Longs: META, CI, TDG, TDW, FICO, GOOGL
5 Shorts: EURN, LEG, MED, RHI, SPWR