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...
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...
A Different Market Reality Than Expected Has Become Apparent, But It Comes With A Price.
The current market environment has been beyond expectations and precedent since this rally kicked off in March. Given the liquidity mixed with the pessimism of the time, the natural move for the markets was to expand on the upside beyond the realm of what anyone expected, despite the seemingly negative fundamental headlines, whether earnings related or with respect to the broader economy. Now investors are beginning to come to terms with a different reality. That reality is that the bearish reality they suspected to be concrete just a few months ago, turned out to be completely false. This has become cemented with tonight's onslaught of positive tech earnings, proving that the Nasdaq was precisely right in not only being a pocket of relative stability during the March crash, but being a bastion of massive strength during this recovery. Investors now know, beyond any shadow of a doubt, that earnings for technology are resilient and will continue to be resilient over the short to intermediate term. The act of "knowing," however, creates market dynamics that have the potential to be counter-intuitive in nature. This is where the danger currently lies in the current market. To be clear, the type of danger I'm speaking of isn't a March type of crash or anything resembling that event. It is rather a confusing period for the markets that continues to be choppy, greatly punishing the vast army of investors who choose to chase rallies like the one we are almost certain to have tomorrow. If you had the intestinal fortitude to purchase along side us at the March bottom, where I explicitly laid out the case for what is occurring presently, then you have done well enough that you don't need to play the performance catch up game that nearly everyone who is buying presently is playing. All that's happening at this point is the market moving into the top end of its range with the afterburners racing due to the heat of all of these bright, shiny fundamental positives. Seemingly a green light for investors to go all-in, which is always reason to take a step back. Be bullish, but now isn't the time to press the gas at all. 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....
A Complicated Spot
After moving past the halfway point of a week that was supposed to be fraught with event driven volatility, we are looking at an S&P that is up a little more than 1% on the week and an NDX that is up close to 2%. Both averages remain largely range bound, sitting in the same spots they have for the past couple of weeks. This is a complicated spot for the market. We have various pieces of bullish fundamental information, mostly in the form of earnings and guidance, that have been off the wall positive. These are pieces of information that should have driven the markets out of these ranges. Yet, here we are, midway through the busiest week of a significantly positive earnings season, with the market embracing investors by seemingly saying "earnings are great, I'm sitting in the same spot I have all month, come along for the ride." There's something I like to call absorption theory, which very simply states that when the market absorbs positive news within a bullish uptrend without moving much at all, the situation has underlying layers of complexity that are yet to be revealed. In other words, markets should never be accommodative in BOTH price and fundamentals. If fundamentals are good, as they are now, the market should be forcing the chase, creating an uncomfortable buying proposition for investors. Perhaps after being long since late March, most often upwards of 350% until we lightened up in June, I am being protective of our profits, overthinking things a bit here. I will concede that possibility. However, at the same time, while being extremely bullish for the months ahead, the markets are more than due for some shenanigans that throw investors off balance. What we are experiencing presently may be the first steps towards the deception to come. While remaining long primarily technology, both T11 and Zenolytics portfolios have a significant amount of cash to deploy in case of any misbehavior in the offing. 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...
Called An Audible Today
For the second time in July, I called an audible today that took down risk significantly. I just finished going over the reasoning for the move with clients. We took profits on positions in Zillow, Redfin and Tesla. I had this week as having one day with inordinate downside volatility. Of course, there is a possibility that today was that day and the rest of the week will be up. However, FOMC days are typically torrid affairs, which is why I expected tomorrow to be the down day. I expect that tomorrow will take some digesting once the FOMC decision is announced and with renewed conflict on the Congressional front with respect to further stimulus, odds are that investors could be greeted with another down day tomorrow. That is going to leave a bunch of investors who begin buying on hope of good earnings out of the army of mega-cap tech companies reporting on Thursday. However, the situation could be setting up, with two down days in a row, for continued sell the news type of price action. The low probability scenario I outlined in the weekend note could then come to pass, with some ugly action into Friday-Monday. We have had a good month of July at T11, being up a double digit percentage for the month. There is no reason to take on this type of risk, when we could move into situational plays in the near future, while potentially avoiding forfeiting some valuable gains. On a technical basis, there is a broad deterioration of patterns in tech that need to be resolved in a quick fashion either tomorrow or Thursday. What we absolutely do not wanna see as investors in growth is an expansionary move down from here. That would change things here over the next couple of weeks. We'll cross that bridge once we get to it, however. If there is one thing this market has taught us in 2020, it's that moves have to be made on a dime. We can always reinitiate risk, whether through individual positions or leveraged ETFs. That's it for tonight. 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...
The Asset Blitz Has Arrived
We are on the verge of an asset blitz. An asset blitz is when a moment of realization strikes a mass audience who have been absolutely oblivious to what has been occurring, forcing them into an emotional reaction that has them chasing stock, commodity and asset prices, in general, with reckless abandon. With Congress about to approve another round of "spend at Wal-Mart and buy stocks to your heart's content" stimulus, while the Fed will likely disclose ever increasing creative measures to inflate their balance sheet this week, the bid in the market for the remainder of July has potential to get cannibalistic. Investors ripping flesh off one another in an effort not to miss out on another tick. The parabolic run in gold and silver is telling us of the outcome in equities loud and clear. What has been amazing is how few investors have caught onto this brilliant correlation since the March low. Gold has been telling investors exactly what equities would do with a lead time of 3-5 days for months now. I'm not sure if the present iteration of Wall Street investor are a group of mouth breathers who have difficulty digesting relevant information, however, this correlation between gold and the S&P should have been taped to the wall of every investor to remind them that the inflationary, "QE until the sun comes up" trade is just getting warmed up, with gold paving the way. The parabolic run in gold leading to a parabolic run in the S&P that I was discussing in April to take place in Q3/Q4 is arriving just in time. We added nothing today because we are already leveraged on the long side, with an extreme focus on the best performing tech names with a definitive theme, leveraging the current environment to their favor. The fun is just getting started at this late date in the month of July. 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,...
Weekly Note Preview: Institutional Money Coming, Utilizing TSLA as a Gauge For Speculative Capital Flows…..
What follows is an excerpt from 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 13 page note we discuss: Institutional money about to flood the market Utilizing TSLA as a gauge for speculative capital flows What speculative capital flows mean for the markets Technology names with parabolic potential A profile of a new portfolio addition in the restaurant space Bank earnings Taking advantage of tight inventories and constant bidding wars in residential real estate via equities MARKET UPDATE There remain many indications that a vast majority of investors, especially within the institutional space, remain reluctant to step back into the market. There are two imminent events that will essentially force the vast amounts of institutional capital back into the market: 1. The VIX moving below 20 2. The S&P 500 moving firmly into positive territory for 2020 and staying there There is a strong probability that the catalyst for both of the aforementioned events taking place will be Q2 earnings and forward guidance that we will be learning about in the coming weeks. What is especially impressive, and potentially profitable for investors who properly take advantage, is that we are at a juncture in the market cycle where speculative juices are beginning to flow. This means that parabolic moves in stocks can take place that will be mind-numbing in nature, going beyond levels that most anyone expects. As institutional investors begin to step back into the market, with the qualifications above being the trigger, there is strong potential for some very real fireworks to be set off through the remainder of July and throughout August. To view the remainder 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...
It’s Still Time For Investors To Be All In On Equities
As we exit Q2 and move into Q3 of a mind-numbing year of volatility, now is a good time to review the thesis surrounding our bullish stance coming into Q2 and moving forward through Q3. In my note from March 29th titled “It's Time For Investors To Go All In On Equities,” I asked investors to adopt the following mental framework in order to properly align with what was actually occurring in the markets: 1. This is not a bear market 2. Poor economic performance over the next few months doesn't necessarily equate to poor stock market performance 3. Far from being irrelevant and out of ammunition, the Fed is more relevant than ever 4. There is no historical reference to this market. It is completely unique and unprecedented in scope. Future results will reflect this fact. At the time, the reason it was important to adopt this framework was so that investors would not be led astray by data points that were largely irrelevant and in fact, harmful to creating alpha moving forward. Understanding that we were not in a bear market was key to properly constructing a beneficial technical framework for the market moving forward. Understanding that poor economic data moving forward was largely irrelevant was key to remaining bullish through the turbulence that would be created through lagging economic data. Understanding the Fed would move the markets significantly through expanding their balance sheet was key to determining that overall risk/reward in the markets was in its best position since the 2009 lows. Understanding that there was no historical reference to this market was key to staying put in leveraged long positions without getting thrown off the scent of the market with irrelevant comparisons to past technical or fundamental indicators. Now that we have experienced a historic rally in the markets during Q2, with all of the aforementioned foundations for a properly aligned mental framework proving beneficial, the question becomes does this framework continue to apply and if not, what mental framework can we adopt to maximize gains during Q3? The most basic fact that is commonly misunderstood by investors, leading to all types of errors in analysis, is classification of the market during any tumultuous period as a bear market. The virus correction during Q1 was just that...a correction within a secular bull market. Coming into 2020, I said that the markets would experience a decline that would be viewed as catastrophic. The reason for that view is a very a simple understanding of how bull markets function as they mature. Within every secular bull market, the investor psychology within the bull market is identical. Investors...
Investors Should Stay For The Crescendo To Come
On March 29th, I published a note titled “It's Time For Investors To Go All In On Equities.” The note started off by listing four contrary facts regarding the market that went against ingrained thinking that was significant to a degree not witnessed since the 2009 lows. The four contrary facts were as follows: 1. This is not a bear market 2. Poor economic performance over the next few months doesn't necessarily equate to poor stock market performance 3. Far from being irrelevant and out of ammunition, the Fed is more relevant than ever 4. There is no historical reference to this market. It is completely unique and unprecedented in scope. Future results will reflect this fact. Some 40 days later, after much reflection in the midst of a historic market rally, the ingrained nature of these thoughts is slowly dissipating, although not at the pace one would expect given the velocity of the upside. We've learned that this isn't a bear market at all, as the Nasdaq is close to making an all-time high. We've learned that poor economic data can cause shock and awe among the pundits while the market rallies. We've learned that the Fed is indeed very relevant, as they literally rescued the economy from the brink of a catastrophic meltdown. We are, however, yet to learn that there is no historic precedent for this market. This last point may be the most important as this year progresses. It's a point I want to focus on briefly here, as understanding this single fact may be the difference between a good and great year in the portfolios of investors. Over the past few months all of us have grown exhausted of hearing the word unprecedented. In fact, if you look at trends in the media, the use of the word unprecedented has grown exponentially in recent months. It should strike everyone as odd then when investors and analysts pull out historical comparisons of this market to any in recent or distant memory. This isn't 1929. This isn't 1987. This isn't 1998 or 2000. The only thing those periods have in common with 2020 is the market went down significantly, within a context of a historically relevant market panic. The impetus to make historical comparisons in the financial markets is driven by the desire to gain insight into what future events may hold for investors. It's only natural then that investors will turn to past to determine the future without thinking how the financial world has been turned on its ear, making all previous periods a moot point. A number of developments have taken place leading up...
Market Rinse Cycle Is On, Here’s The Move To Make As We Start The Week
It was bound to happen. Coming into last week I said that resistance for the Nasdaq was 8950. It was going to be the first real resistance point for a major market average since the March lows. The high for last week on the Nasdaq was 8957 and then this happened. While I was expecting some type of reaction, with Friday falling in the standard range of expectations, the futures action this Sunday is a little more than expected. We are now pushing the envelope of the 5% maximum peak to trough drawdown on the S&P. With that said, investors are extremely quick to jump off the bull train. Along the entire path of what I expect to be a much bigger rise than most are expecting, we will experience multiple days of downside volatility that will have investors expecting a replay of March. It won't come. That makes opportunities like this fleeting in that they provide a tight window for investors to take stock away from the overwhelming majority of weak hands and eager bears who make up the majority of market participants presently. The pullbacks will be steep and violent, but also short-lived in nature. With that said, a gap down opening on Monday morning is an opportunity to gain exposure, not cut and run, with large cap technology being the favorite target. We remain long leveraged ETFs from late March and wide variety of mid to large cap tech names. Zenolytics now offers Turning Points and ETF Pro 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...