RAISING THE BAR
12/08/24 Prospero.Ai Investing (176th) Edition (Weekend)
As a reminder at the top this is the only week this year we will be running 50% off this letter we will extend it in some form for the holidays but it will be lower.
The term "Raising the Bar" comes from the world of track and field, specifically the high jump and pole vault, where the higher the bar is raised, the more successful the outcome. Over the last century, "raising the bar" is more often used metaphorically as a figure of speech that means "to continue to grow in excellence, or to improve and strive for greatness". I'm telling you this, because Prospero's signals keep raising the bar on its level of precision and accuracy. This following week serves as a fantastic example of how paying attention to our signals can make a world of difference in your stock market performance. Here's a direct quote from last Sunday's (Dec 1st) Investing Letter.
"Right now, if you forced us to pick two stocks we feel the best about, it would be Tesla (TSLA) and Coinbase (COIN). Two, Large Cap Growth Stocks that are showing REAL STRENGTH in Prospero's Net Options and Upside signals. META too, has a Net Options and Upside of 100!"
COIN, TSLA and META were 3 stocks we called out in our newsletter as stocks that were showing strong Upside and Net Options Sentiment numbers. Interestingly, COIN and META had been declining in recent days. Lots of talking heads were calling for a correction in the market, and/or a radical drop in Bitcoin if it were to hit $100,000. But our signals were telling a different story. Below are the approximate numbers of each stock's increase from opening bell on Monday Dec 2nd to closing bell on Friday December 6th.
1. TSLA $345.16 - $389.22 = Weekly increase of 12.77% or $44.06 per share.
2. COIN $296.20 - $343.62 = Weekly increase of 16.01% or $47.42 per share.
3. META $574.72 - $623.77 = Weekly increase of 8.61% or $49.45 per share.
On Dec. 2nd at market open, if you'd bought $10,000 worth of stock for each company, then sold those shares right before market close on Friday Dec 6th, you would have profited approximately $3000, a 10% Return on Investment in ONE WEEK. In contrast, SPY (S&P 500 ETF) rose only .90% during the same period. Once again, our signals accurately predicted those increases.
In light of that, let me make one final observation about the power of our signals. Let's take a look at the QQQ (Tech Heavy) ETFs compared to the SPY. Starting on November 18th, our QQQ Net Options sentiment stabilized firmly in our bullish zone. It began the week at 48 and ended the week at 48. In contrast SPY Net Options Sentiment started the week barely bullish at 40 and ended the week, slightly below our bull zone, at 39. Look at QQQ's vs's SPY's return from last week.
QQQ ETF: Increased +3.3%
SPY ETF: Increased +.90%
Once again, our signals were highly predictive of the eventual outcome of those two ETFs movements. Even during times when stocks were declining, our Net Options Sentiment numbers gave us a real-time picture into what institutions and hedge funds were doing. Because of those institutions' knowledge and ability to move the market, more often than not, our Net Options numbers reveal a picture of the eventual stock movement. Our signals, combined with smart technical analysis and the principles of value investing can be a powerful tool to gain an edge in this (or any) market.
We do want to share the disclaimer that no signal is perfect. Net Options Sentiment doesn’t give you a crystal ball into the future. But it does give you an accurate picture of what billion dollar institutions are betting a stock will do. But just because a majority of institutions are betting for a stock vs against a stock, does not mean that they will be right. But we built Net Options Sentiment, Upside and Downside in the way we did for a reason. While their data isn’t a lock, they beat any of the other predictive strategies we’ve tried in our last 14 years in AI. Why try to out-predict institutions that have decades and hundreds of billions more spent on data and tech? We don’t. We simply created a tool that allows retail investors to see their options bets with a speed that 20 years ago would have been unimaginable. It should come as no shock to anyone that we do so well by committing so much time to understanding and visualizing in real time where institutions are betting in aggregate. We provide you collective intelligence and our CEO teaches in these letters how to take that information and build portfolios that minimize risk, often creating outsized rewards.
What about next week? We'll discuss that more in the Net Options Section of the Newsletter, but last week, SPY began showing slight bearishness heading into the weekend, but QQQ remains firmly in the bull zone. This makes us a little less confident in non-tech stocks. On the other hand, Tech looks like it still might have some legs. Now a word from our CEO, George Kailas.
A WORD FROM OUR CEO
Our strategy of sticking to our guns after a bad week last week paid off and we are beating the S&P 500 by 90% annualized, with a win rate of 59% against SPY benchmarks.
To help newer readers get up to speed linking our short intro + learning videos.
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RAISING THE BAR
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
CAP/VALUE ANALYSIS
Check out the Cap/Value Analysis Table above. Look at the monthly numbers. What stands out to you? Growth stocks of all caps have dominated. One more interesting thing of note; Large Cap Growth had a stellar week. Large Cap Growth is dominated by the Mag 7. With that in mind, let me give you one more quote from last week's letter:
"META too, has a Net Options and Upside of 100! While we haven't picked them for our portfolio, the rest of the Mag 7 (NVDA, AMZN, GOOG, APPL & MSFT) are all showing real strength in our signals."
Our Net Options Sentiment was showing strong bullish numbers for the Mag 7 (Large Cap Growth), and sure enough, Large Cap Growth dominated the week.
QQQ/SPY NET OPTIONS SENTIMENT
Let's look at our QQQ Net Options Sentiment chart below and let's discuss where we've been and where we think (based on the data), we might be headed. Take a second and look back at Nov 18th. The price of QQQ ETF had taken a sharp downturn. But our QQQ Net Options took a sharp bullish turn. Immediately after, the price of QQQ began to rise. Around the beginning of December, the price of QQQ ETF rose above our options sentiment numbers. Do you know how many people were calling for the end of the bull market back in the middle of November? So many folks on X & television were calling for the end of the world. But as I've said already, our numbers simply told a different story. What are they saying now? QQQ Net Options ended the week firmly above our bullish line at 48. On top of that, it's currently in a bullish uptrend. What that tells us, is that tech stocks are still a good bet until the data tells us otherwise.
Look at the SPY Net Options graph above. SPY is showing a little bit more of a bearish sentiment. While it's stabilized near our bull zone, it's still slightly under our 40 bull line. Also, while QQQ Net Options was trending upward last week, SPY was trending downward. Trends matter. While this is not cause for worry, it's definitely worth watching in the coming week to see if that downward trend continues.
SECTOR ANALYSIS
Check out the Sector Analysis Chart above. Consumer Discretionary had a great week. Some of you may not know this (I didn't until George told me) but Tesla is classified as a consumer discretionary stock. It had a massive run up at the end of the week, which certainly contributed to that sector's success. But we are also seeing a clear Santa Rally that we are taking into account. After Tech had a slow start to the week, it had a nice rebound by week's end (QQQ Net Options!!) One final note of interest is that most sectors were in the negative last week. Only Tech, Communications and Consumer Discretionary were green. That demonstrates a slight narrowing of the market breadth we've been seeing over the last month. But if 2023 taught us anything, Tech and Comms can carry the market for a long time.
PORTFOLIO STRATEGY
With QQQ showing increased bullish momentum this week and SPY trending below its bullish threshold, we are shifting toward a tech-overweight strategy with a focus on market cap diversification. Our priority remains stocks with strong secular growth tailwinds, while maintaining positions in the Trump trade picks we've held over the past few weeks. On the short side, we are equally mindful of market cap diversification to balance our portfolio's exposure. Our short positions will target specific sectors to offset some of the risk on the long side of our book. 9 longs, 6 shorts
Long / Bull Moves (link to sheet)
Long / Bull Moves - META, LLY, APO, DOCU and ULTA adds/ APP, VST, TSLA and COIN holds/ WIX, SRPT, CNK and RSI drops
Adds
META was added to the portfolio as it came out as the top pick in our screener with top scores all around, especially in Upside Breakout and Net Options Sentiment. LLY was added for sector diversification with great Tech Flow and Net Options. APO was also added for similar reasons with good all around performance. DOCU and ULTA looked like great mid cap picks with excellent Tech Flow and top Momentum.
Holds
We continue to hold VST due to its consistently strong performance although we will be monitoring its Momentum closely. TSLA and COIN were retained for similar reasons as last week. APP was an easy hold as it continues to star in our Screener.
Drops
WIX and SRPT were removed as we found better mid cap names to add. CNK and RSI were both axed as they performed poorly in our screener.
Short / Bear Moves (link to sheet)
Short / Bear Moves - PBR, XRX, LYB, FYBR and HSBC adds / NVS hold / WEN, BCH and INFY drops
Adds
PBR was added as it had favorable Net Options Sentiment and Tech Flow, placing at the top of our screener this week. XRX and FYBR were added for tech and Communications services sector exposure to counterbalance the long side of our portfolio. LYB was added as a higher cap short, with very low Momentum. HSBC was added for market cap diversification, with low Tech Flow.
Holds
We retained NVS to counterbalance LLY on our long side with low Tech Flow and Net Options Sentiment.
Drops
WEN, BCH, and INFY were removed due to their lower rankings on our screener.
Portfolio Summary
Long / Bull Moves - META, LLY, APO, DOCU and ULTA adds/ VST, APP, TSLA and COIN holds/ WIX, SRPT, CNK and RSI drops
Short / Bear Moves - PBR, XRX, LYB, FYBR and HSBC adds / NVS hold / WEN, BCH and INFY drops
9 Longs: META, APP, LLY, APO, DOCU, ULTA, VST, TSLA and COIN
6 Shorts: PBR, XRX, LYB, FYBR, HBSC and NVS
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