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:
- The bears, of which I counted myself as one until about mid-week, had a chance to capture the flag and recapture their glory. Instead, a Fed induced rally completely dismantled the bear case from a technical perspective.
- The jobs report on Friday, followed by the ISM report, both came in much better than expected. The case for a recession anywhere in the near-term is a non-starter at this point. Anyone tooting that horn needs to be medicated and put down at once.
- Rotation taking place here is pretty impressive. Financials are resting while technology is resuming its leadership role. I have taken note, adding to our tech holdings on Friday, with plans to continue buying in the week ahead.
- Bond yields are mispriced to the point of absurdity here. Much like during the first part of January, I've taken a large position on the long side of yields. The current pace of economic growth paired with an indecisive Fed may translate into inflationary pressures that surprise both the Fed and Wall Street. Inflation or not, a ten year below 3% at this stage of the expansion will be rectified in what should be relatively short order.
- Gold and silver look extremely susceptible to weakness in the next few weeks. Investors have embraced the sector with great excitement in recent weeks. A resumption of the uptrend in equities should lead to a general "risk on" type sentiment among investors. Higher interest rates should create some tailwinds in the US Dollar, as well. In any case, a rinse in some capacity is due to take place. Currently short KL in the sector.
- One positive divergence that took place for equities was how strong crude oil was into the end of the week. I've been talking about the positive correlation between crude and equities for sometime now. Seeing oil continue its strength on the upside should provide support to U.S. equities, in general.
- Another positive divergence was how strong the Semiconductor Index (SOX) was to close out last week. Healthy tech rallies are always led by semis and we're seeing that at present.
- Hate to say this because I have such an adversarial relationship with AAPL as an investment, but the stock looks like it may test $200 at some point in the next few months. The reaction to earnings by the market this week looks like a somewhat significant turning point. No position here.
- While I'm hating to say it, may as well mention that FB looks like it could become the leader of the FANG names over the next few months. With AMZN going sideways and GOOG being as lackadaisical a stock as ever, the leadership of the sector now falls on FB and NFLX's shoulders. FB is such a hated name, with so much doubt and pessimism surrounding it that a sustained rally on the upside set off by this type of positive fundamental earnings news is a significant probability. Currently long NFLX in the FANGs.
- Went long MSFT on Friday. MSFT is a very generic way for us to gain exposure to tech in a liquid stock with very little sustained or unexpected downside risk. It's more of a sector play for us as opposed to an opinion on the company itself.
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