Rampant, Unabated Distribution Rules
There is distribution taking place in literally every sector. It's in your face, intentionally malevolent, unrestricted selling. It's happening across sectors from finance, technology, retail and biotech. Individual names such as C, BAC, BRK, CAT, AMZN, FB. There's no discrimination taking place. Whether the stock is sitting near its highs or well below, shares are being distributed. In the most obvious illustration possible, there are significant entities that want out of equities. All the meanwhile, there are groups attempting to sooth investors into a sense of complacency about this current downturn, with a "this too will pass" attitude. While a confident sense of bullish enthusiasm may have been the default stance for the majority of this decade, the current situation warrants a much more cautious approach. Not simply because of the distribution taking place either. As I have been saying for a majority of this year, everything has changed in 2018. Let's look at the most obvious fact of all: If you are long equities, you are now officially fighting the Fed as quantitative tightening (QT) has shifted into 5th gear as of October. Keep in mind, the QT that took place throughout a majority of this decade injected literally trillions of dollars into the financial system that allowed companies to function against an environment where the cost of doing business became extraordinarily cheap. So cheap, in fact, that a majority of corporate executives decided that nearly free money would be best used to buy back their own stock, boost the valuation of their companies, collect inordinately large bonuses , eventually walking away as heroes with flower wreaths, lipstick on their cheeks and chests puffed out with a mission accomplished swag few could muster. The QT that will continue for the next few years, as of Q4 2018, is now removing $50 billion MONTHLY from the Fed's balance sheet. Not only does that put pressure on rates to move up, but it effectively acts as steroids to the monetary tightening taking place. The QT that started last year, up to the end of Q3 2018, was at a much more moderate pace. The move up to $50 billion in QT that started in October was preplanned. We have all witnessed the reaction of the markets to this tightening, as we are now in the midst of some of the steepest losses of this bull market to date. All the meanwhile, there is an adversarial tone taking place from the White House with respect to any measures of monetary tightening. Should the equity markets continue to decline, then the growls will grow louder and eventually, there will be need...
Considerations
The technical damage taking place in the current market environment is so extensive and pronounced that rallies are going to be selling opportunities for some time to come. With that said, it becomes incumbent on market participants to develop a means of gaining alpha in the midst of chaos. As usual, the answer to the question of achieving alpha is a simple one. Of course, execution of the strategy is another story that has far too many variables to go into here. This environment will, very simply, reward those who manage to: Avoid exposure entirely Pick select names having fundamental attributes that prove so overwhelmingly positive that the market recognizes their value Add short exposure The old 2016-2018 methodology of picking momentum, growth and/or whatever is popular among investors at the moment without regard for quality, analysis or rationale is dead in the water. This effectively means that trend following, which had knowingly or far too often unknowingly, become the default strategy of most every fund manager out there is also finished for the foreseeable future. The remainder of Q4 and the first half of 2019, at the very least, will look nothing like what investors have become accustomed to. The methods to achieve returns will have to be modified. I've opened up the scans to short selling opportunities on future rallies in select financial, real estate and related names where I feel a tangible edge exists to merge technical and fundamental data points moving forward. New long opportunities are shot for the time being. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion...
Key Levels, Seasonals and A Transformed Market
Technology names, in particular, are starting to get into some rather scary areas from a technical perspective. The 6,600 level on the NDX is one of the most important the markets have recently faced. That's the hook and anchor for the markets until further notice. There are schools of thought that cite statistical data showing seasonal strength into the final weeks of the year following mid-terms during a year when the markets were up until a couple weeks ago. The question is....Does the market completely ignoring what were some pretty compelling statistics about market performance into the end of this year make this a buying opportunity because the markets will eventually fall in line or is it a sign that the markets are broken? If the technical damage wasn't so well defined we could very easily say it's the former. However, given the persistence of the decline along with the accompanying technical damage, it can be said with a good deal of confidence that the markets spitting in the face of compelling statistical data saying we should be soaring here adds to potpourri of negative data with respect to the condition of equities. Markets that are broken only care about one thing: Going lower until psychology dictates that prices can stabilize. Those who think this is a simple aberration, with the markets quickly returning to their former self are sure to be disappointed. As I wrote earlier this year, everything has changed in 2018. The markets going forward, while continuing the general bullish trend in 2019, will look nothing like the past several years. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration...
What Have You Avoided Lately?
This has become a market where avoidance is the best strategy. That's the essence of the current market environment, in fact. The more selective you are, the more chance you have of actually outperforming. The more you attempt to pick, probe and think, in any form whatsoever, the more chance you have of creating or compounding a loss. Sloppy markets make avoidance an actual strategy. Wall Street will never tell you this because investors doing absolutely nothing creates no revenue and no liquidity for the markets. If you're not creating revenue or liquidity by trading, then you are useless. I have attempted a couple of new long investments in the past few months and had to cut both loose a short time later because the weakness in equities is so blatantly profound and well defined that you have to play defense. Even with positions you are absolutely convinced with. If they aren't acting right, you have to let them go. Over the past few weeks I have looked at all types of opportunities on the long side. Companies that I liked 30 or 40 percent higher have suddenly become downright cheap. In each and every circumstance, I have been thankful that my discipline in holding off until general market conditions improve has saved me valuable performance in a year that I can't afford any mistakes. There is no reason to believe that this situation will change anytime soon. Simply because it's the end of the year doesn't mean the market HAS to rally. It doesn't. It can keep going down into year end, completely ignorant of how convinced everyone is that markets have to rally because its Christmas. Until the market begins presenting definitive evidence that the positive attributes of avoidance have been replaced by the positive attributes of engagement, then it may be best to stick with what has been working. Avoidance is a strategy. It just isn't talked about because it doesn't do anyone any good to present it to you as such. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital...