Weekly Note Preview: How To Handle Coming Resistance Levels in Nasdaq & S&P; A Forecast For September Trading; A Rotation Based Trade Idea; Further Research On Newest Portfolio Holding
What follows are the topics covered in this weekend's note to subscribers. To become a client of Zenolytics Turning Points or to learn more click here. The excerpt from last weekend's note is available here. In this weekend's 11 page note we discuss: Fed's new inflation policy and what it means for equities moving forward. How to handle coming resistance levels in Nasdaq and S&P. A forecast of what September trading should look like. Detailing a rotation based trade with significant upside and little risk into year end. Further research on a new portfolio holding introduced last week. MARKET UPDATE The failure of the bears to make even a slight dent in August trading sets the tone for the remainder of 2020. That tone is decidedly bullish, with very little in the way of downside volatility to take place. Moves to the downside should be no greater than 5% into December. The backstop for continuing persistent buying support for the market is based on the following: 1. Fed policy now forcefully weighted towards an inflationary outcome after this week's announcement. Stocks and real estate have significant upside for possibly years to come, as cash becomes worthless under such a scenario. 2. There remains a significant amount of cash sidelined that needs inflation protection. Inflation protection can only come via investment in stocks, real estate, precious metals etc. 3. Performance chasing via underinvested fund managers is just beginning. With the S&P nearing the double digit percentage gain mark and the VIX about to fall through 20, the performance chase is set to intensify. 4. Earnings in October/November for Q3 will continue to be impressive, leaving little in the way of the excuses to not be invested. The cat is already out of the bag with respect to this, providing a supporting bid to equities on any weakness whatsoever into Q3 earnings reporting period. 5. There remains a vast contingent who believe somehow September/October have to be weak due to seasonal factors. Seasonals have been irrelevant for all of 2020 and they will continue to be irrelevant. This market is functioning according to its own set of rules during a very unique period in time. To view the entirety of this weekend's note, you can subscribe by clicking here. 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...
One Single Sentence To Sum Up The Bullish Thesis Into Year End
To isolate this market into any box that resembles any correlation to the past is folly to the highest degree. In fact, since the very beginning of this rally, attempting to extrapolate any future results from the past has only been an exercise that would end in disappointment. Two once in a generation events made historical comparisons irrelevant from March onward: A once in a generation virus A once in a generation reaction by governments worldwide, involving both fiscal and monetary stimulus The situation has only been exacerbated by the realization that the data relied upon to make sure decisions may have been flawed from the outset. Where does that leave the markets? With record stimulus that is impossible to take back without inflation that can only be cultivated via an increase in asset prices. And there you have it: The thesis for being bullish since the March lows and continuing to be bullish past the elections in one single sentence. Enjoy your evening. Zenolytics now offers Turning Points Market Intelligence premium service Click here for details. 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 or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding capital markets or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption...
Weekly Note Preview: An Illustration of How The Market Should Look This Year; What The Nasdaq and S&P Are Telling Investors After This Week; Concept of a Parabolic Ladder; Portfolio Additions
What follows are the topics covered in this weekend's note to subscribers. To become a client of Zenolytics Turning Points or to learn more click here. The excerpt from last weekend's note is available here. In this weekend's 12 page note we discuss: Viewing the market in proper context An illustration of how the market SHOULD look this year The proper way to view market internals against the current backdrop What the Nasdaq and S&P are telling investors after this week The beginning of a "parabolic ladder" led by AAPL and TSLA What levels the S&P will be attracted to next The next names down the "parabolic ladder" that can make substantial moves New portfolio additions Market Update It's essential to view this market completely apart from the various market statistics that attempt to box this rally into a historical context that is largely irrelevant. In recent months the death of investors has come from viewing this rally against rallies of the past, disallowing them to participate in the upside given the false signals that will naturally be derived from comparisons that have no place given what we have faced during this unique period in time. From the very beginning of the March virus crash, my own view of the market action was that it was a mistake. In other words, the market made one of its largest estimating errors in history in terms of what the overall effects of the virus would be to earnings and the economy at large. The market also made one of the largest estimating errors in history in terms of the duration of stress to the economy. What made this estimating error especially potent for the financial markets is that it infected every single level of the market ecosystem. From the very bottom (retail investors) to the very top (institutions, including the Federal Reserve), everyone reacted simultaneously in the same way to what was seen as a Armageddon like scenario based on the vast exaggerations of its intensity. The most consequential overreaction, by far, has been the Fed injecting the economy with trillions of dollars in stimulus while fiscal policy has been equally generous to prevent fear from collapsing the system entirely. This overreaction has virtually guaranteed investors a positive outcome for a time period that will be longer than most anyone currently suspects. In order to properly gauge this market then an investor must essentially disregard the big V bottom for the S&P 500, instead looking at the market as basically being flat on the year, with a massive stimulus cushion now behind it that didn't exist prior to the great panic...
Portfolio Update: What Next?
In the perpetual, everlasting saga of of the equity markets adaptation is a key trait that often gets glossed over by generic rules like "never average down," "cut your losses short," "you never go broke taking a profit." The very simple saying of "adapt or die" is a much more fitting approach to investing than any list of so called rules that you see and hear on a daily basis. Adaptation means that you don't sit out on a historic rally because you believe the market is being propped up by the Fed, being prone to collapse at a moments notice. Adaptation is realizing that if it is true that the markets will collapse at a moments notice you will adapt to that scenario with equal efficiency as being long since April. Adaptation is not trying to sound smart by dismantling TSLA's balance sheet, income statement and product quality when the stock was $300 per share and sticking to those same arguments as it breaches $2000. Adaptation is not trying to flex your cerebral muscle by discussing useless economic statistics that are backwards looking and professorial in nature, at best. Adaptation is making money in the markets, plain and simple. When we last left off here on August 10th, I discussed our move to cash after putting together a double digit percentage gain to begin the month of August. The general stench emanating from in everything from software to FANGs at that time created some level of concern. What has happened since then has not just been one or two brutal fumbles by the bears, but nearly a dozen. The bearish camp, especially into the middle of this week, had every factor possible leaning in their favor to take the markets down, however temporary. Instead they completely gave up their position to the bulls, with a close a record highs for both the Nasdaq and S&P to close the week. Beginning Thursday in T11 and Zenolytics portfolios we began to systematically increase exposure. The increase in exposure for these portfolios will likely continue through the early part of the coming week. Simply consider this single fact: The S&P has taken from June to late August in preparation for this move to new highs. A generally tight consolidation, as the S&P digested its gains. This week it very calmly moved to a new all-time high as if it was a routine action, without cause for much of any attention at all. These subtle hints of underlying market strength should not be overlooked. Nor should it be overlooked that we are now at new highs, with very little left in the...
Weekly Note Preview: The Psychology of Stalling; A Surprise Outcome For Markets Into Election; Shifting Conditions….
What follows are the topics covered in this weekend's note to subscribers. To become a client of Zenolytics Turning Points or to learn more click here. The excerpt from last weekend's note is available here. In this weekend's 11 page note we discuss: The psychology of stalling right beneath new all-time highs for most of August A surprise outcome for the markets into elections that few are discussing Adapting to shifting trading conditions Four areas of concern for the market after this week A potential event bearish catalyst this upcoming week Market Update The psychology of the present market is one that deals in a great degree of certainty versus where we were even a month ago. The revelations of the past several weeks especially, with Q2 earnings shattering expectations on the upside, and guidance being equally as bullish, has caused a certain confidence to emerge that has done away with many of the fears plaguing investors over the past several months. A foundation of confidence, however, comes at a cost to investors. That cost is in the form of exactly what we experienced this past week: Equity prices that are seemingly wading through molasses with little in terms of predictability or overall direction. The fluidity with which stocks were moving during the first phase of this rally has turned, as fear has been removed from the equation and a certain sense of confidence has emerged. Let's take, as one obvious example, the issue of the S&P 500 sitting right beneath its all-time high for a majority of August, while nearly all of Wall Street is preparing for that all-time high print. If you look through the financial media, there are no less than a hundred articles discussing the coming new all-time highs for the S&P 500. To view the entirety of this weekend's note, you can subscribe by clicking here. 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,...
Complacency Not Allowed, Some Creeping Cause For Concern
After pulling in a 13% gain to start August, putting us up close to 90% year to date (gross return), there was little harm in moving to a 100% cash position on Friday after watching with some sense of trepidation as the markets started wobbling. Leadership in the markets is a funny thing. Investors love to talk about how impressive leadership is while it's on its best behavior. However, once that same leadership begins to fumble the ball repeatedly, those same investors will turn their attention to the next comfortably sized bullish thesis, in an effort to soothe themselves out of worry. There are, however, very real concerns when the five star generals of the market begin violently vomiting up recent gains, while investors seem less than concerned. In this instance specifically, FANG names and especially software companies are putting together some terminal looking price patterns that, at best, tell of an unpredictable period ahead. It used to be in the early days of this bull that situations and scenarios had a 7 in 10 chance (often times much better) of success. However, recently it has become a coin flip. There isn't a real edge remaining in the market as of right now. Since we don't do coin flips, it's best to step away for the time being until clarity is achieved that will allow for another 7 in 10 or better opportunity to present itself for investment. Let's see how this evolves in the days ahead. There's no harm in sitting out for a few plays. Zenolytics now offers Turning Points Market Intelligence premium service Click here for details. 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 or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of...
Weekly Note Preview: Air Pockets; FANGs; Software Names; Gold & Silver; Financials; Resurgence For Real Economy Names; Zillow
What follows are the topics covered in this weekend's note to subscribers. To become a client of Zenolytics Turning Points or to learn more click here. The excerpt from last weekend's note is available here. In this weekend's 15 page note we discuss: Potential for air pockets beneath the market during August What FANG names are telling us about the market What software names are telling us about the market Important signals conveyed by gold and silver late in the week Financial names A resurgence for "real economy" names in the offing? A review of what may be in store for Zillow after we took profits on Friday. Market Update Coming into August, I had this as a month that had a high probability of seeing some act of barbarianism towards what has become a significant herd of rampaging bulls. The key to outperforming during a month when the probability of such an event exists is to do whatever possible to avoid the downside move, looking for signals within the market of shifts in capital that nearly always precede market calamities of every amplitude. Of course, our risk in avoidance is missing out on greater gains in the market by being in a cash position, as we are now. However, performance must also be considered when making these decisions. After our Zillow trade, T11 portfolios are already up a double digit percentage for the month, allowing for some measure of defense to be taken without fear of underperforming an S&P that is up 2.45% month to date. This isn't the first time we have taken a sudden evasive defensive maneuver. In fact, we have taken similar measures, moving to a cash position, during June and July. We had the added benefit during those months of being allowed to take this type of defensive maneuver, removing us from harms way, while still greatly outperforming the market. I do realize that in the future we may not get so lucky, with the market moving away from us more quickly than we can react. This is the obvious risk of making such a decision. The reason to take such defensive measures in a rather sudden fashion has to do with primarily technical signals that I will go over here shortly. There are broader reasons, however, to take on such measures as a trend matures. As a bullish trend matures, participation in the trend increases. That participation comes from two sides. The first is those who have grown optimistic about the market, putting capital to work. The second comes from those who have grown less pessimistic about the market, covering their short positions....
Zenolytics Flashback: There Are Few Things As Reliable As Zillow Outperforming During The 1st Half of Any Year
We took profits on our Zillow position on Friday after the company reported an impressive quarter of earnings, further signaling that Real Estate 2.0 has arrived. Zillow is one of the most reliable performers during the first half of any year, bringing in an average gain of 50% during the first half of the year with remarkable consistency. This is a trend we noted in detail in the 2018 note below. What follows is the 2018 note in its entirety. The same note can also be viewed by clicking here. Zillow is a company that has some very defined seasonal characteristics. It makes sense. Real estate is a highly cyclical industry not just from a broad macro perspective, but within any calendar year. Spring and summer are traditionally the busiest month for new residential real estate purchases. Zillow tracks these buying patterns almost perfectly. The stock tracks not just the seasonal characteristics of real estate with uncanny consistency, but it also moves inverse to interest rates. The cost of borrowing to buy real estate as expressed through the ten year yield is just as important a consideration of when and where to buy the stock as the seasonal aspect. On average, Zillow returns 50% during the first half of the year with remarkable consistency. The only time it has been down during the first half of the year was during 2015, a year when rates rose 7.6% from the beginning of the year through the end of Q2. Here is a look at first half performance in each year since the stock went public with the ten year yield plotted (blue) to further demonstrate its negative correlation to rates. Zillow 1st Half 2012 Return +71% Zillow 1st Half 2013 Return +103% Zillow 1st Half 2014 Return +75% Zillow 1st Half 2015 Return -18.08% Zillow 1st Half 2016 Return +41% Zillow 1st Half 2017 Return +33% Zillow 1st Half 2018 Return +47% Zillow 1st Half 2019 Return +19% as of 3-15-2019 Further, the last time Zillow traded at a multiple of 6x revenues was 2016, a year that saw the stock return 41% during the first half of the year. A combination of persistently lower rates, seasonably favorable factors and a relatively low valuation puts the company in a very attractive position with the recent pullback. $50 looks highly likely during Q2, which would put the stock within a frame of the average return of 50% for the 1st half of the year. Should interest rates persistently move lower in Q2, $60+ is not out of the question. Zenolytics now offers Turning Points Market Intelligence premium service Click here...
A Confluence Of Overreaction That Only Has One Possible Outcome
In early May I published a note titled "Investors Should Stay For The Crescendo To Come." Quoting now from that May 10th note: Essentially, what you have here are layers of overreaction from every single front. Much like a torrent of water from a tsunami, the overreaction is reaching different parts of the economic and financial market ecosystem at different times and with different levels of intensity. However, what is important to understand is that the entire market ecosystem will be touched by an overreaction. The Fed is overreacting with monetary stimulus. The government is overreacting with fiscal stimulus. The markets will overreact on the upside as a result of stimulus. Investors will overreact to the market by allocating vast swaths of capital in an incremental fashion. The economy will overreact to all of the above via what can only be accurately described as a drug induced frenzy as multiple waves of stimulus in various forms create a Q3 and Q4 surge in economic activity. Layers upon layers of overreaction, all ending in a crescendo the likes of which we have never seen, as there has never been this confluence of factors all working in the same direction at once. Here we are now beginning August. The overreaction element of this market is still the most misunderstood component of the current environment. If overreaction was understood, all of the nonsensical, plebeian sentiment studies that have caused investors to miss out on nearly the entirety of this rally would have been discarded long ago. If overreaction was understood, the worship of backwards looking economic data that does nothing to capture the essence of what is occurring in the current economy would have been ignored since April. If overreaction was understood, all of the "unprecedented" technical studies that suggest this market was overcooked in June wouldn't be gaining the same, if not more traction, here in August. The confluence of overreaction from all entities, whether government, central bank, institutional, individual, corporate or otherwise has never had a singular convergence quite like the one we are experiencing presently. How would anyone in a correct state of thought even consider for a moment that the output from this confluence of overreaction can be anything but extraordinary scope? It HAS to be extraordinary because failure is simply not an option. I've been saying this March and I will reiterate it again here: The greatest thing to ever happen to equity investors is for the Fed and every other central bank globally to fear for their continued existence while having more than a decade of practice and thought with QE. Zenolytics now offers Turning...
3500 On Tap For The S&P 500
What follows is an excerpt from yesterday's Market Update, sent to subscribers, discussing the reasons the S&P was going to accelerate in the days ahead. To become a client of Zenolytics Turning Points or to learn more click here. The markets have moved through another period where the bears had an opportunity to seize some semblance of control. Once again, they have failed miserably in the first two days of trading in the new month. These type of failures by the bearish camp around key spots have served as signals that have been worth their weight in gold since the March lows. This time has a high probability of being much the same. To put it simply, the bears had a window in time coming into August as the markets were up against resistance to turn the bulls around. It's not, however, just the failure of the bearish camp that's important, it's the manner in which the markets are choosing to proceed. Let's look at the chart for the S&P in order to better understand the importance of the path of progress: This is the only chart we need to review tonight as it tells an investor everything they need to know. The nature of the movement in the S&P to start this week here is astounding on so many levels: 1. Notice the calm, deliberate manner the market just busted out of the resistance zone it has struggled with over the past couple of months. This is a massive continuation pattern/signal, suggesting a ton of accumulation beneath the surface. 2. The S&P closed at 3306 today. The lack of volatility while piercing a round number is also a signal, especially as we are so close to new all-time highs. Round numbers on major averages attract investor attention. That attention normally brings in both buyers AND sellers. In this case, it looks like only buyers, with very light selling. Another continuation pattern. 3. The daily range is seeing compression during the ascent, as witnessed during the past two trading days. Another continuation signal. What makes this pattern so attractive from a trading perspective is that we have the S&P cornered here from a behavioral perspective. We know that this low volatility ascent should culminate in either further low volatility upside OR an expansion of volatility on the upside to quickly reach the 3500-3600 level, which I outlined as an upside target for the S&P by August 15th some weeks ago. Should the S&P suffer a range expansion on the downside, then we immediately know that something is wrong, allowing us to hit the eject button with minimal...