No shutdown. Bull Party?
10/1/23 Prospero.Ai Investing (63rd) Edition (Weekend)
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No shutdown. Bull Party? 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 —> No 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 +.1% this week vs -.68% for SPY. Our Net Options Sentiment indexes had some very nice predictive behavior on the market turn this week.
It looks like our Net Options Sentiment readings, especially for QQQ, provided an excellent leading indication of the Bull turn. The fact that there was so much optimism in SPY and QQQ options to end the week, leads us to believe that the government shutdown delay passed over the weekend was not a surprise to everyone.
Not only were the metrics clear, but again, even earlier we provided some lead time via our trading letter:
As we enter the trading week, we are leaving our levels as is. We are expecting the shutdown aversion to cause some short term Bull sentiment, but this may be minimal and we advise a close watch of these levels for a potential Bull trap.
For Tech: QQQ Net Options Sentiment > 35 = Bullish < 25 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 20 = Bullish < 10 = Bearish.
Portfolio Macro Strategy
The quick turnaround in QQQ and SPY Net Options Sentiment coupled with good news over the weekend is swinging our portfolio all the way around to net Bullish with 5 Bulls and 4 Bears on the way.
Macro Bear factors like consumer credit, inflation/interest rates (and more) limit our ability to be more Bullish than this.
Long / Bull Adds - Link to Below Picture
Our decisions this week were fairly straightforward. We wanted to add our best Bull picks in signals with matching Bull technicals. We also looked to diversify the portfolio, to manage risk around the “Macro Bear picture”. We control for this with the fact that this Bull portfolio contained 5 different sectors.
Long / Bull Keeps
Bull review - META (Meta Platforms Inc) Bullish this week if:
META Net Options Sentiment > 80
META Net Social Sentiment > 50
QQQ Net Options Sentiment > 35
META returned +.38% vs -.92% for SPY and is kept as a Bull because it is ranked 1 on the screener above.
Short / Bear Adds - Link to Below Picture
There were some good bear candidates, but we ultimately picked EQC because we preferred Real Estate exposure vs. adding another Healthcare stock. Additionally, EQC had the best trend in Net Options Sentiment amongst that Sector to go along with good Bearish technicals.
Short / Bear Keeps
WISH is a keep and returned +4.75% vs -.68% vs the SPY. It did get filtered out and Net Options Sentiment is much higher than we’d like, but we view this as a good hedge. If the market has a bad week that hurts our Bulls, we think WISH will lose bigger.
PTCT is a keep and returned -6.31% vs -.68% vs the SPY. We debated taking the profits here but with PTCT ranking #2 in the screener we held on.
CRBL is a keep and returned +.67% vs -.68% vs the SPY. This was our toughest call. The oscillator technicals turned to a buy, but we’re still worried about the Consumer Cyclical sector. CRBL was the highest ranking stock in the Sector.
Short / Bear Drops
Dropping ABNB as a Bear, as it performed terribly in the above screen, burning us for the 2nd time! Covered 9/24-10/1, and it finished 3.79% and a Loss, Losing to the SPY benchmark by 4.47%.
Portfolio Allocation Notes
5 Longs: META, AZO, LPLA, CEIX, ODFL
4 Shorts: PTCT, WISH, CBRL and EQC
This week will be very interesting, and while we’re still concerned about the broader Bearish forces, we think there is too much upside from avoiding the temporary shutdown, to not get ourselves into a net Bull position.