Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance.
The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved.
These are simply thoughts (some completely random) as I attempt to connect the dots:
- Financial names have the look of a sector that will be accelerating to the upside during the second half of this month. A majority of financial institutions report earnings this week, which will set the tone for the remainder of the month after what will likely be a choppy week of trading ahead. The overreaction that took place in money center banks, in particular, should become apparent to investors this week, setting a bullish tone if all goes as expected.
- A short-term allocation into defensive longs is likely a decision with a positive expected value. This doesn't mean I would consider selling some of our more aggressive tech or financial long exposure. What it does mean is that defensive names have lagged this month and with the market decelerating, risk/reward on some names looks juicy.
- Gold and silver names are in a highly confusing spot. We rode the uptrend in the names for a nice gain in December, liquidating in the new year. Since then, a confluence of conflicting signals has taken place that likely dictate a period of being a bystander on the sidelines watching. Long-term, metals are in a bull market. I will be patiently seeking a re-entry point.
- It used to be that bond investors were the "smart money" on Wall Street before the information curve flattened. There really isn't a smart money contingent on Wall Street any longer. With that being understood as fact, interest rates are absurdly off base in what their expectations for the economy are. Recession is a near zero probability this year with economic growth moderating, however, still moving along. Ten year yield should be nowhere in the vicinity of sub-3%, yet PTSD of a a repeat of 2008 has caused a dislocation to take place that should be taken advantage of.
- Nasdaq 100 and Russell 2000 are real close to their first major test of resistance since this rally kicked off. How they handle these areas will be telling. I'll be watching the rhythm of their feet carefully to make sure nobody has become drunk, ready to tip over.
- The range expansion that has taken place in corporate credit as reflected in JNK is the most substantial since the 2011 Euro Crisis lows. That says something. Especially when you consider that corporate credit was the soul slayer of the bulls among nearly every single bearish narrative in 2018.
- I'm always hesitant to comment on this name because it has more crosscurrents than any company I have ever witnessed. However, TSLA looks like it's about to pummel bears into submission with a substantial move up. I don't have a position and won't take one because of its unpredictability. Nevertheless, it looks ripe for ignition.
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