Signs of a tech rebound?
8/27/23 Prospero.Ai (53rd) Investing Newsletter
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Signs of a tech rebound? Outline:
Market Update
QQQ and SPY Net Options Sentiment and Portfolio Allocation
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 > 30 = Bullish. < 20 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 20 = Bullish. < 10 = Bearish.
QQQ returned 1.64% this week vs only .79% for SPY. Considering we experienced such a fast and aggressive turnaround in QQQ Net Options Sentiment towards the middle of the week, this is in line with what our metrics suggested.
We speculated in our trading letter, that we might be seeing a big swing trade around NVDA optimism. We still think that may be the case, which is why we are more Bullish this week but still planning around downside. (3 longs and 6 shorts up from 2 longs and 7 shorts last week).
SPY Net Options Sentiment is still in the Bear zone. This is the biggest reason we’re staying defensive, but at the same time, giving ourselves upside through our favorite tech names. In our estimation, our tech picks could be the biggest beneficiaries if the market shifts back to rewarding big-tech growth.
For Tech: QQQ Net Options Sentiment > 30 = Bullish. < 20 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 20 = Bullish. < 10 = Bearish.
Long / Bull Adds
When we see a potential turnaround in tech optimism, sometimes simplicity is the best approach. In light of that, we’ll look to our most powerful short- and long-term metrics to find it. META and TSLA, paint a clear and positive picture, and therefore are still a few of Prospero’s favorites (META as #2, 12 points higher than #3 on this list). We believe those two are the simplest, most obvious choices as the market sentiment turns more optimistic about tech.
TSLA shows this through very positive, time-series developments in Net Options and Net Social Sentiment. TSLA has moved very well this year, when its Net Options Sentiment remains fixed near 100.
META has positive time series developments in Net Options Sentiment and Upside Breakout. Upside Breakout, as a solid line at 100, has been a great Bull signal for META this year.
Bullish this week if:
META/TSLA Net Options Sentiment > 70
META/TSLA Net Social Sentiment > 40
QQQ Net Options Sentiment > 30
SPY Net Options Sentiment > 10
Long / Bull Drops
We are dropping ORCL as a Bull, primarily because it ranks 155 on the above screener. This means, given our signals, there are many stocks we are more bullish towards. Covered on 8/20-8/27 and finished -.34% and a Win, Beating the SPY benchmark by .45%.
Long / Bull Keeps
SQ returned -1.79% vs .79% for SPY and is kept as a Bull because it is ranked 45 on the screener above. Given its recent price actions, we see SQ as more of a value, and we will discuss how well it fits with our short exposure in the portfolio section.
Short / Bear Adds
We are using a similar filter that we used for the Long / Bull picks and adding BOH, FOX, ZUMZ, ORA and ABNB as Bears. This list was littered with so many Financial Services firms, that we only grabbed the top one, BOH and eliminated the rest.
ORA was chosen over other Utilities - HE and MGEE, because we preferred the much lower Net Options Sentiment value. And in our estimation, HE has been so hammered recently (due to Hawaii events) that it’s too difficult to play it either way.
ABNB was added after we saw it as a short-term Bear in the app, because it has a scary, developing story for its revenue. Airbnb Hosts and Guests Scramble as New York Begins Crackdown NY has led the way in other harmful Airbnb legislation, and this could mean trouble is on the way for short term rentals. We don’t normally invest with Net Social Sentiment as a driver, but if there is a negative macro story developing AND social sentiment is souring alongside it, that gets our attention.
Bearish this week if:
Above Stocks Net Options Sentiment < 50
Above Stocks Net Social Sentiment < 60
QQQ Net Options Sentiment < 20
SPY Net Options Sentiment > 5
Short / Bear Drops
In a mid-week update, we dropped RXT as a bear, because a positive news story changed our thesis. Covered on 8/20-8/23 and finished -.88% and a Win, Beating the SPY benchmark by 2.05%.
We are dropping AAL as a Bear as it ranks 109 on the above screener. This means, given our signals, there are many stocks we are more Bearish towards. Covered on 8/20-8/27 and finished -3.06% and a Win, Beating the SPY benchmark by 3.85%.
We are dropping SWX as a Bear as it ranks 321 on the above screener. This means, given our signals, there are many stocks we are more Bearish towards. Covered on 8/20-8/27 and finished .92% and a Loss, Losing to the SPY benchmark by -.12%.
We are dropping WSBC as a Bear as Net Options Sentiment touched above 50 many times towards the end of the week. Covered on 8/20-8/27 and finished -4.72% and a Win, Beating the SPY benchmark by 5.52%.
We are dropping VEON as a Bear as it ranks 270 on the above screener. This means, given our signals, there are many stocks we are more Bearish towards. Covered on 8/20-8/27 and finished -.86% and a Win, Beating the SPY benchmark by 1.66%.
Short / Bear Keeps
XRX returned 2.44% vs .79% for SPY and is kept as a Bear because it is ranked 3 on the screener above.
Portfolio Allocation Notes
Long: TSLA, META, SQ
Short: XRX, BOH, FOX, ZUMZ, ORA and ABNB
One reason we kept SQ in, was as a hedge against ABNB. If there is positive news on the personal credit side, it could drive up ABNB. But that would also help SQ, which is one of the reasons SQ got to stay.