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...
Weekly Note Preview: A Transitional Period Ahead; Buying Mystery; A Great Long-Term Asset and Short-Term Liability In the NDX….
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 10 page note we discuss: The potential for a transitional period in the market Buying mystery and selling history A great long-term asset in the NDX A great short-term liability in the NDX The pattern forming in the S&P 500 Zillow and Redfin A review of a potential new earnings play this week 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, 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 in, the transmission thereof to the user. With respect to information regarding financial performance, nothing on this website should be interpreted as a statement or implication that past results are an indication of future...
Zenolytics Flashback 2018: Making The Case For Gold
Coming into 2020, one of the two events that I had taking place during the year was gold going parabolic. Now that gold is getting there in terms of a parabolic move, it's a good time to flashback to late 2018, when the idea of gold as a long-term investment was presented here in an extensive write-up detailing all of the ways gold could go right in the years ahead. Here is a small excerpt from that note. The link to the full research is at the bottom of the page: Apart from an abundance of data showing that both gold and even more so, gold miners, are absurdly cheap. There is anecdotal data such as the fact that Vanguard recently changed their metals and mining fund name to the “Global Capital Cycles Funds,” taking down exposure to miners to just 25% of the fund from 80%. This leaves Vanguard investors, which, by the way is the largest mutual fund company in the world, with no way to participate in the advance of gold or gold miners. As an aside, the last time Vanguard made a similar move was in 2001, before the secular bull trend in gold started from $300. Needless to say, Vanguard follows demand by its investors. Investors have abandoned the sector, creating a highly asymmetric opportunity. As is usually the case, investors tend to follow each other blindly over the proverbial cliff, without doing much in the way of thinking about liquidating asset classes that are either overwhelmingly in favor or taking positions in sectors that are overwhelmingly out of favor. This leads to vast discrepancies between price and actual value during periods of exuberant enthusiasm and despondent pessimism. The job of the investor is to capitalize on these discrepancies, which is often times an exercise in absolute isolation. The act of buying into despondent pessimism is extremely difficult because you are effectively alone in your opinion, without evidence, other than your own, to substantiate a thesis. For a majority of investors, this is an extremely uncomfortable place. Others tend to thrive, seeking only situations where few other investors are present. T11's strategy dwells heavily in the latter discipline. Gold falls right into the classification of an extremely uncomfortable place where few other investors are present. It doesn't simply stop at gold being a sentiment and value driven play. There are events unfolding in the geopolitical and macroeconomic landscape that leave very few scenarios where gold doesn't appreciate in value: 1. The Fed stops raising rates = dollar bearish/inflationary ramifications/bullish for gold 2. The Fed continues raising rates = substantially...
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...