Watch out for Bears
8/6/23 Prospero.Ai (48th) Weekly Newsletter
What a week! For those that do not know we did our 1st midweek update on 8/2 and effectively sounded the alarm on a Bear turn. May start doing more as part of bonus picks. You are receiving this if you downloaded our app or subscribed via Substack.
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Even with our strong intervention 2023 picks are now at a 76% annualized return above the S&P500 and a 70% win rate per pick against their S&P 500 benchmarks.
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Watch out for Bears - more detail on our YouTube tomorrow 8/7 at 11 AM EST on how to play this market
For Tech: QQQ Net Options Sentiment > 40 = Bullish. < 30 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 25 = Bullish. < 15 = Bearish.
QQQ returned -2.98% this week vs -2.21% for SPY. We are proud to say even though we took aggressive portfolio action on 8/2 on 7/23 we first observed the pattern:
This makes sense as for the first time in as long as we remember we saw QQQ Net Options Sentiment fall into our neutral zone and SPY stay in the Bull zone as they are astoundingly closing in on the same values
No rosy picture to paint here. We are steering hard in the Bear direction from our signals but something like this has us even more concerned:
Seeing how closely these numbers have tracked makes us think as least part of that gap has to close. Which even if yields go up would mean the NASDAQ 100 has a dip coming meet it. Lowering our guidance levels accordingly.
For Tech: QQQ Net Options Sentiment > 35 = Bullish. < 25 = Bearish.
For Non-Tech: SPY Net Options Sentiment > 20 = Bullish. < 10 = Bearish.
With what we deem to be such a big shift in our thinking we are pressing the reset button and looking at a pretty broad screen of what we would call our 6 most important metrics. We use Short Pressure as a filter as we do not want high short pressure ratings causing us to risk a short squeeze on our position as we have been seeing an increased frequency this latterly. Our two Bear adds will be obvious based on this list.
Bear Potential - MRNA (Moderna, Inc.)
Since most of the key metrics are already listed we are going to look at the main trend that we like for this Bear which is a 30+ point drop in Net Options Sentiment the last two weeks without much volatility, just a fairly stable downtrend in that AND price.
Another standout on MRNA was that we noticed Downside Breakout was lower than other stocks in the screen, which had us looking deeper. Growth + Profitability + Net Options Sentiment + Net Social Sentiment was astoundingly low. It totals 62 the next lowest was VIR at 97! Which is also biotech and the reason we did not pick it as our 2nd Bear pick here. These deeper screen are essentially “struggling businesses that institutions and retail are both not excited about in the short term." For those curious the next 20 stocks on the list: SAVA MGNX PPBI ARVN AFMD RXT PSNL PRQR GLPG SMG CUBE E ARWR WSBC SGMO ASMB PTEN VYGR FHB SWX.
Bearish this week if:
MRNA Net Options Sentiment < 50
MRNA Net Social Sentiment < 60
QQQ Net Options Sentiment < 35
Bear Potential - XRX (Xerox Holdings Corp)
XRX has a nice 20 point move up in Downside Breakout the last 2 weeks. And with and our general thesis that tech will get hit we think this is a great Bear bet.
Bearish this week if:
XRX Net Options Sentiment < 50
XRX Net Social Sentiment < 60
QQQ Net Options Sentiment < 35
Bull Potential - BKNG (Booking Holdings Inc)
BKNG is the exact kind of Bull we could add this week. Extremely high profitability forecast coming off great earnings with high Net Options Sentiment and Net Social Sentiment.
Bearish this week if:
BKNG Net Options Sentiment > 75
BKNG Net Social Sentiment > 50
SPY Net Options Sentiment > 20
Keeps - Staying as a pick but unchanged guidance
Bear review - AVT (Avnet) from 7/30 letter and Bullish this week if:
AVT Net Options Sentiment < 50
AVT Net Social Sentiment < 60
QQQ Net Options Sentiment < 35 (Updated Guidance)
AVT returned -4.71% this week vs -2.21% for SPY. Was #10 on our Bear screener above so no reason to pull it out now.
Bull review - ELF (elf Beauty Inc) from 7/30 letter and Bullish this week if:
ELF Net Options Sentiment > 70
ELF Net Social Sentiment > 50
QQQ Net Options Sentiment > 35
ELF returned 10.53% this week vs -2.21% for SPY. Rewarded even more for our patience through earnings! We love the story on ELF, it shows the power of our metrics to make stocks standout. We were not expected to see a retail stock anywhere close to the tops of our lists but when we saw it as a standout in Net Options Sentiment and Upside Breakout it made us immediately dig deeper and we liked what we saw. We thought about “purging” it but with a lot of people just now hearing about this stock and aggressive growth forecasts upward we think it is worth holding even in an even concerning market.
Bear review - AROW (Arrow Financial Corporation) from 7/30 letter and Bullish this week if:
Bearish this week if:
AROW Net Options Sentiment < 50
AROW Net Social Sentiment < 60
SPY Net Options Sentiment < 10 (Updated Guidance)
AROW returned .99% this week vs -2.21% for SPY. Net Options Sentiment and Net Social Sentiment stay low so we are sticking with it despite less than ideal price action.
Bear review - NNOX (Nano-X Imaging Ltd)
NNOX was a special add from our midweek update so this is the first guidance produced. We like it as a Bear because of low Profitability (27) Net Options Sentiment (30) and Net Social Sentiment (36)
NNOX Net Options Sentiment < 50
NNOX Net Social Sentiment < 60
QQQ Net Options Sentiment < 35
Drops - the end of an era. It was a fun ride up this year for our Bull picks but we are not optimistic about tech in the short term so we are dropping all of it.
PYPL is dropped as a Bull as disappointing earnings sent Net Options Sentiment to 59. Covered 7/16-8/4 and finished -12.97% and a Loss, losing to the SPY benchmark by -13.29%.
CFLT was dropped as a Bull in the special midweek edition. This is going to begin a temporary embargo of stocks during earnings. Net Options Sentiment and Upside Breakout were both heading down into it and we were deciding if we should drop PYPL or CFLT both reporting the same day. The clincher for us was that one of the reasons we picked up CFLT was with the AI boom lots of cloud companies were guiding up and we were excited going into their investor day June 13th. But the market reacted poorly to their guidance there with the stock down 6.92% that day. Annoying to see our thesis turn out right after we drop it. But such is life. Covered 6/4-8/2 and finished -6.37% and a Loss, losing to the SPY benchmark by -10.78%.
META is dropped as a Bull as its stranglehold on our two most important signals ended, Net Options Sentiment drops to 53. Our longest time held, it was covered 4/30-8/4 and finished +29.30% and a Win, Beating the SPY benchmark by 21.87%.
TSLA is dropped as a Bull not as much based on specific signals as it was one of the stocks dumped pre-market 8/2 without the benefit of live signals. We would have considered adding it back but we aren’t going long tech until QQQ Net Options Sentiment is out of the Bear zone. Covered 6/4-8/2 and finished +19.44% and a Win, Beating the SPY benchmark by 13.52%.
RXT is dropped as a Bear despite being #1 on our Bear filter due to it reporting 8/10 and our new embargo on that. Covered 7/30-8/4 and finished -9.73% and a Win, Beating the SPY benchmark by 7.52%.
CCOI is dropped as a Bear due to it also reporting 8/10 and our new embargo on that. Covered 8/2-8/4 and finished -1.60% and a Win, Beating the SPY benchmark by .18%.