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Don't trust negative BETA stocks to move opposite the US stock market all the time. Today, all of the US common stocks with a negative BETA that we found a little while ago are moving with the US stock market. The synthetic ETFs with synthetic negative BETA are moving against the markets, but that is because they are designed to do that. All of the negative BETA stocks are lower with the markets today. 
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Here is our morning, premarket video on global stock and bond markets. Jeffrey Cohen US Advanced Computing Infrastructure, Inc. We notice a few things in the market this morning before the open. We did our review about 45 minutes before market open (and into the open) on Monday. The US equity indices were all down. Small caps were down more. US equity indices are all up lately...up about 10%, so this can be considered chop. In fact, if the S&P 500 can rise to 4200, they break the lower high trend of this bear market. We are facing consolidation and resistance to continued increases. US Treasury Bonds are very high these days, close to the peak. This means that long-term interest rates (US Notes and US Bonds) are falling. Not that they are as low as they were a year ago, but they are lower than they were a few months ago. Overall, we see signals into the future macroeconomic situation: Copper prices are up ~20% from where we remember it recently. This is a China reopening trade, and a manufacturing bet. Copper goes up with manufacturing goes up. It is also likely an inflation trade. Silver is up too. Like Copper, Silver has industrial and commercial uses, in addition to being a precious metal. This is likely also a China reopening and no-recession trade. The US Dollar is down 10% from where we recently tracked it. That is a big move, and means either the rest of the world is raising interest rates, or the US will not go through with its inflation fight. The world does now want US Dollars, nor the safety of US investments. Ten percent decline in the US Dollar is a big drop, although admittedly it had risen significantly before this recent fall (Euro/Dollar was under 1.0). This feels like a consolidation in the US Dollar. Gasoline prices are rising, but more importantly end-user gasoline prices are rising. We see this in Illinois, and worry that taxes may have increased, along with refining, transportation, and marketing costs. The international market was mixed last night. Hong Kong and South Korea were down, along with Europe. However, mainland China was up, and the rest of the markets were mixed. The Hang Seng may just be a small consolidation of recent gains. Slight consolidations. Same with the Kospi (South Korea). Equities are up over the past six months. Markets are up. In the US, the S&P 500 is up significantly and today could be a slight consolidation. The market bottomed at ~3600, and is now up to ~4100. This is just chop in our opinion. $CRBP or Corbus Pharmaceuticals is not looking up this morning. It is our worst nightmare, and is down 85% from where we started buying it. We are still very bullish on Corbus, and are afraid we might be the only bulls in this stock. We are long Corbus Pharmaceuticals common stock. We also reviewed these groups of stocks all in pre-market: Negative BETA High BETA Low BETA Leptokurtic Platykurtic Negative SKEW Positive SKEW Semiconductors Quantum Computing and quantum security pure-plays Transportation Cannabis Steel and mining The market looked very negative and not RISK ON this morning. It looked down with little regard to risk. Good luck in the markets today. Jeffrey Cohen
We were getting ready to make a video and do whatever it is we do at market open when BOOM all of a sudden the market falls dramatically. Twitter lights up. Stocks in the S&P 500 are halting. These are not small capitalization, MEME stocks, but big stocks worth billions or hundreds of billions of dollars in equity market capitalization. Stocks like $MCD, $VZ and $MMM. Some had earnings today.
We thought that this was terrible. It was a sign of market instability. Flash crashes are not helpful, and if they last for more than a few minutes they could trigger significant market instability through margin selling and forced unwinding of positions due to Value At Risk and Compliance issues. We tweeted something positive and life affirming, think it was the Kool Aid character and a statement that we were bullish, because we did not want to contribute to a possible crash. Not our style at all.
By the end of the day the market recovered. Not just that, but the stocks that sold off the hardest also recovered. In fact, they hardly moved at all and were flat on the day, along with the $ES_F which was down only -0.07%.
Here was a tweet of an analysis we did after the market closed:
In the end, this was a non-event.
In my opinion, based on my active imagination and some anonymous twitter vibes, I think what happened is that some options activity which required hedging by selling the underlying S&P 500 stocks happened. It happened in error, and there was the equivalent of a fat finger mistake (or just adding a few zeros to the position sizes). In other words, some trading desk made a mistake and sold liquid, highly capitalized stocks to hedge an options or derivative bet. The NYSE and NASDAQ exchanges figured it out quickly, halted trading, and the janitorial crew came in and put Humpty Dumpty back together again. There was "nothing to see here" by the end of the day and the halted stocks (the few that we read about on Twitter) were equally up and down and the median move was ~ equal to the overall change in the index. Nothing to see here, but wow will I be careful about putting in out of the money buy orders unless I really want those shares. Good luck tomorrow. Jeff By Jeffrey Cohen
US Advanced Computing Infrastructure, Inc. It looks like the entire market is falling today. The US equities market was trading higher in the morning, but economic news was negative. Now, we see long-duration bonds trading higher, and stocks falling. Gold is flat to down slightly. What is interesting is that up until the poor economic news from the US Commerce Department the highest-BETA stocks were trading higher. Now, everything is falling. Good luck in the markets. Looks like we are easily maintaining our ~4,000 S&P 500 Index range for another few days. By Jeffrey Cohen, Investment Advisor Representative, Illinois US Advanced Computing Infrastructure, Inc. We saw a few articles today about Q4 earnings. People say they will be disappointing. People are worried that companies are not earning as much now as they did a year or two ago. Well, we have a different explanation for this concern over earnings. This has the potential to be a very long BLOGpost or a formal article, so we will just 'cut to the chase' and share our methodology and high level findings very casually. We look for time to write this up more formally. 1. We read the law. Here is the text of H.R. 5376, and we attach the file below. I think it says that any firm that has $100M in profit on average over the past three years has to pay it (tax is on net income, as stated in financial statements, not tax accounting). It also applies to any company that earns $1B in any one year. It excludes sole proprietorships, REITS and other specialty investment firms. 2. We run our model and as part of it we produce a spreadsheet. It lists all firms that pass our data validation, and includes the firm's net income for the past year. One key data validation is that they are actively traded and another was they had to have an equity market capitalization of $100M or more. They also have to be US listed stocks, and we manually remove non-US companies that are US listed. Could be errors in the data provided by our premium market data services provider, and could be firms with positive net income > $100M that are worth less than $100M or don't trade very often. It also completely excludes privately held firms. 3. We removed stocks that have errors in their net income. We produce a value of '999,999,999' and then delete it. In total, there are 1,100 high liquid stocks that have $100M or more in net income this past year. 4. We sum (like in excel) the total net income of all the stocks with net income this year of $100M or more. The total earnings is $2.05 Trillion US Dollars. The total is huge, and I am surprised by the net income of US corporations. If the Q3 2022 US GDP is $25,723 Billion US Dollars (Source: FRED GDP here), then 8% of our US GDP is earned by large US corporations, and that amount will now be taxed with an AMT of 15%. 5. The Alternative Minimum Tax casts a wide net. Large, publicly traded US Corporations that are headquartered in the US report a net income of $2.05T, or 8% of our $25.7T economy. That seems reasonable. Their minimum tax will be $300B in 2023. We don't know how much they pay currently, so the incremental amount is up to $300B 6. Now, what did we miss with the $300B / year estimate? a. Any companies that are owned by multinational corporations. The law could be read to reach in and take 15% of all of their global income, but let's assume it is 15% of the total net income (absent transfer pricing shenanigans), of the US business. b. Any privately held business with $100M of net income or more. A simple estimate of foreign owned firms (e.g., Honda, Samsung) and privately held businesses (Maritz, Cargill, and private equity owned firms) could add ~30% (+/- 50%) to this total. So, we add 30% to the $300B estimate and we hit $390B in potential corporate tax raised. Finally, we know how much money the US Federal Government collects in Current Tax Receipts on Corporate Income. That amount is $340.6B per year. Source: FRED Taxes on corporate income, series B075RC1Q027SBEA found here. So, we know that current taxes are $340.6B and AMT taxes will be $390B. How to calculate the 'extra' tax revenue raised by the AMT? This is where it gets complicated. What do we know vs. what have we heard as rumors? Fact:
Rumor:
Intuitive Sense:
So, by way of an intuitive guess, I would say that firms will take a harder look at their net income reported by their business, and this could overall reduce net income reported by US corporation, although that amount of reduction may not be significant. Finally, we SWAG that the revenue raised by this Corporate AMT will be $200B / year in 2023, and is highly dependent on the top 50 most profitable corporations. If they take tax avoidance action, then the funds raised may be significantly lower. 
We published this article on Medium.
https://medium.com/@chicagoquantum/up-to-200b-tax-increase-on-us-corporations-inflation-reduction-act-4f67d01d6514 By Jeffrey Cohen Investment Advisor Representative, US Advanced Computing Infrastructure, Inc. Data provided by Intrinio (and we apologize for any mistakes provided by our data provider) We discuss these stocks: $HOOD $RRGB $WBD $SAVE $RXT $RBLX $WIX $TRIP $INFA $BYND $UBER $BKR $FLR $CCL $DNUT $Z $BSGE $SABR $CHWY $WRBY $UAL $SPLK $SMG $PWP $GILT $XRX $PANW $AAL $BA $JBLU $UTZ $ZS $SPOT $ETSY $ADT $DNB $SASH $BAX $ALL $RILY $GE $AL $CAH $AES $RCI $YELL $KKR $ARES $DOCU $TTD $W $MARA This list of stocks of money losing US companies surprises us. There are large, aged, established companies that should be able to make a profit. Others are eCommerce companies and 'new economy' firms. Overall, we believe all of these firms should be able to make a profit. We discuss them all ad-hoc and on the fly. December 19: We discuss the stock market today, stock volatility, and the companies that lose money. We review a list of money loser companies that we are surprised to see on our #stockstoavoid and stockstoshort lists. These companies we highlight (3 hand written columns of stocks) are large, well known firms that should be profitable in our opinion. Probably yours too. We discuss the list of these stocks and what we think has gone wrong. Hope it helps you think about companies that lose money, and how they can do better. How we all can do better to find value and give value to others. BTW, we closed our bank stock short on Friday. Finally, we discuss Chicago Quantum's analytical services and investment advisory services and how client can work with us. We have a holiday sale, and have discounted our one-time CQNS Up and Down runs to $100 apiece. We are discounting our primary service to a nominal amount to give you, our listeners, a chance to experience the model and data and to see how it works for you. We want more people to try it out, learn, and see what having a wide-spread market scan can do for you.
Our focus today is on interest rates and money supply. Money supply is very high, and has been coming down slightly (overall supply down $400B, excess reserves down $200B) and this impacts stocks negatively. Interest rates have risen, and continue to rise today. This is not a surprise to us, but could be to the market. Risky investments and 'bets' are less attractive when interest rates rise. We see that this morning. Stocks of US banks are down today. We are also amazed by the movement in Dollar Tree since they raised their prices from one dollar to one dollar and twenty five cents. Every item in the store, except for greeting cards, is now 25% more expensive. This has doubled the stock price due to the increase in profits. If a 25% raise doubles the share price. Why not raise it another $0.25 to 1.50? Why not two dollars? It sure seems 'too easy' for this company to be valued so much more highly from such as simple change. We also looked at other stocks in banking and they are down. We looked at stocks that have higher market capitalizations ($10 Bln and up, then $200Bln and up) and those are falling today. As a final thought, without giving any detail, we believe we see ($CS or Credit Suisse) the reason why the FED FOMC has so much trouble with Quantitative Tightening and removing excess liquidity and excess reserves from the banking system. We believe it is time for Chair Jay Powell to accelerate QT as much as possible, but also understand this could destroy our banking system and 'pop' the asset bubble even more than has been done so. Did I mention that the S&P 500 Index is trading above 4,000 again? Good luck in the markets today. We are absolutely bearish on a personal perspective, and our personal portfolio is net short. Our model portfolio from the CQNS / SV algorithms is always net zero long = short. However, we are less confident that the market has the ability to rise in the short term to make this model really profitable. We personally like a rising model better than a falling one, maybe because it seems more patriotic to have stocks go up (and profit), than to have stocks go down (and profit). Either way, the model has been doing well, but the feeling is different. Finally, the model does need orderly markets with sufficient liquidity and trading volumes to work. That is why we stopped our trading and went 100% cash about two weeks ago. Liquidity and volumes fell around Thanksgiving and we are waiting for them to come back. GLTA 
Jeffrey Cohen, US Advanced Computing Infrastructure, Inc
Chicago Quantum (SM) What happened today? We made a video to discuss the core economic data we see today. It is all negative and recessionary for the US Consumer and US Manufacturer. Lots of bad news, and a little good news. Tiny good news. So, stocks are pretty strong today...flat...but US Treasury Bond Yields have crashed this afternoon. Good news: GDP grew in Q3/2022 by 2.9% (real) as a revision up from 2.6% (real). Forecasts call for a positive growth rate in Q4/2022. Chicago Business Barometer (TM) from ISM 37.2 (down significantly for 3 months in a row). Lots of bad news in the data for the Midwestern US. Inventory up, orders down, etc. Supplier deliveries down, new orders down, but prices paid are higher (not a joke). ADP Job Increase in November 127k jobs, except that the jobs were in the lowest rungs of the economy and job losses in manufacturing and professional / white collar jobs. Credit Suisse stock hitting an all time low (at least according to Yahoo Finance) and is down 95% from $60 to $3.00. We discuss some potential reasons why. We tweeted on this. Potential BK risk. Saudis and Qataris step in to help rescue the bank.
US Treasury General Account down about $500B this year. This completely offsets quantitative easing by the Federal Reserve Bank. Ouch! The US government collects taxes and this means they likely had to spend it. So, those taxes were not disinflationary after all!
BEA: Personal Income and Outlays, October 2022 showed that the US consumer fell behind. It also shows that price inflation slowed slightly. Good news on prices, but bad news on the US consumer. Also, the US savings rate fell to 2.3%, which we believe is very, very low. This couples with retail feedback from companies that are reporting earnings and forward guidance. Costco, Dollar General, Dollar Tree and weeks ago Target are all saying the same thing. More shopping value priced goods. Consumers shopping to their budget, and focusing on core essentials. Also, profits from retail are falling as costs rise. So, it costs more to sell cheaper stuff to consumers who are borrowing money to buy it. Ugh, this is bad news. $COST $DG $DLTR $TGT looks at the news for the details (all from today except TGT). Dollar Tree mentioned they might need to lower prices (what, to back to $1.00?). We slowed down our shopping at Dollar Tree since they raised prices 25% earlier this year. Anecdotally, they tried to sell $3, $4 and $5 frozen food and that seems to have failed at least in our local store (freezers are now empty in those sections). Yesterday, Chair Powell of the Federal Reserve Bank gave a speech. Here is the transcript. We leave it to the actual words spoken, because we struggle to understand the intent behind the talk. It provides transparency, but may have been meant to guide the market and rates. Forward Guidance. Does not seem right that a speech should move markets. Maybe they should stop speaking to the press and public except during FOMC press releases? So much news... Earlier in November the Federal Reserve FOMC released its meeting minutes. We have been reading them and the data on the economy seems to show slowing and weakness. We found it to be very down and negative on economic growth in the USA, and led us to think a recession might be in store for us. This is the data the Fed FOMC had when they raised rates 0.75% last month.
So, what are we doing?
We have our managed accounts model portfolio in 100% cash right now as the market looks for direction. We are looking into Credit Suisse $CS to see if this could be a bargain purchase (or a short to zero and BK). This could be a waste of time on due diligence, but probably good learning either way. 
What about interest rates? We see significant interest rate / yield drops today across the yield curve. 10-year UST down 16.2 basis points. This is a significant move lower.
It appears we had another good day with our CQNS model. Last night when it ran, the aggressive RISK-OFF stance of the weekend moderated. Number of stocks dropped to 20, and the stocks were more back to normal with some technology and higher BETA names. The market did trade a bit erratic today, but it ended flat. The model picks were slightly red, but so was the S&P 500, so the hedge would have paid for some of the CQNS long declines. Net-net, the model suggested a less aggressive stance, and the market was pretty subdued. Makes us feel good about the predictive power. And tomorrow...We are starting off 'on the wrong foot' tomorrow.
1. The 13-week US Treasury yield is up to 4.25%. This requires us to adjust a key parameter in our model, the risk-free rate. It is only 5 basis points, but we like to stay a little ahead so may raise it 10 basis points. This will reduce the edge of stocks, and create a new RISK-OFF cycle. The question will be whether other rates rise in the short term, and whether risk-free hits 4.5% (which will be material for our model). 2. Stocks we follow have lower volumes being traded. This can reinforce trends and allow for over-sized movements in stocks which do have volume. The lack of volume can also be a good thing, and dampen down volatility, if the market is not also seeing low liquidity. A lack of both liquidity and volume could mean trouble, like a small helicopter flying too high and running out of oxygen (which causes a lack of lift and power). 3. There is a speech by Chairman Powell on Wednesday. Those can be material to risk if he has a message to send. 4. We started to read the FED FOMC memo from early November. We read portions and they were dire. Lower market liquidity. Higher market volatility. Tightening Main Street Conditions. 5. Headline readings on US Real Estate were poor. On the other hand, Santa may be coming to town. You know that old chestnut, the Santa Clause rally that lifts stocks in December as loss harvesting is completed and people reload positions. By: Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. November 27, 2022 We ran our model last week, but kept a low profile on investments. We focused on family and did not make a single trade (our personal portfolio remains intact and our hedged managed accounts are 100% cash).
What we found today: The expected return from 'risk' of the US Equity market is 4.8% over the next 12 months, including dividends. This compares to a risk-free rate of return of 4.2%. This is not a very large return as compared to the returns of 2021. These conditions require larger portfolios (at least 20 to 35 stocks held equally) to provide significant alpha over buying the SPY, QQQ or IWM and holding. It may not provide a significant advantage over a simple portfolio of SPY and SHY, and maybe 1 or 2 more stocks, which we are finding to be simple to manage and reasonably good results from our model. We have those portfolios identified. In short, this is why we are suggesting the market is RISK-OFF this week. A savvy investor looking to balance risk and return to find an edge has to work much harder, hold significantly more stocks, and take less risk. CQNS Down Run: The 809 stocks that passed data validation for our CQNS Down run (stocks to potentially avoid) have an all stock variance of 8.0 x 10-4, and this compares unfavorably to the S&P 500 Index ETF (SPY) variance of 2.3 x 10-4. Liquid stocks of unprofitable, US-listed companies (this group) have 3.5x the variance of the S&P 500 index ETF. There are many biotechnology firms at the 'top' of our CQNS Down stock list, at least half of the top 50. The others are downtrodden names, MEME stocks, and a few fresh new faces that we have not seen in the list, and are potentials for shorting, or at least avoiding. They have variance that outweighs their market-following direction, or BETA. The #1 stock to avoid is ALLK, and that stock can be put together with many other individual CQNS down stocks to provide a terrible risk-return trade-off portfolio of two stocks. These would be heavily biotech, but we see a few non-biotech MEME-like names to match up with ALLK. This run is interesting for having 30 stocks with a BETA of 2.50 or higher, and the highest BETA found is AFRM. These stocks will move with the markets, and are unprofitable, so likely 3.5x more risky than the market. Fasten your seat belts. There are three negative BETA stocks. These stock are moving in the opposite direction as the SPY. BRK.B Berkshire Hathaway Inc. -0.12 SPRY ARS Pharmaceuticals Inc -0.04 VERU Veru Inc -0.86 CQNS Up Run: The risk of this portfolio of 1,710 profitable stocks is 2.6 x 10-4, which compares favorably to the SPY with a variance of 2.3 x 10-4. The risk of holding a large, diversified portfolio is 1.13x the SPY, which is insignificant. We see a few anecdotal things in the data, as follows: 1. The 50 stocks with the smallest volume on Friday compared to last year have very small volumes, all at or below 14.1% of last year's volume. However, the 50 stocks with the largest volume traded at or above 81.7% of last year's volume. Four stocks traded above 205% of last year's average volume. 2. There are stocks that have gone up in price, and stocks that have gone down, also at relatively extremely level (down 3/4 or up 2x as compared to the average over the past year). So, there is movement in prices. 3. There are high and low BETA stocks, at the extreme ends of the spectrum (0.1 or below, and 2.5 and above). So, there are stocks that are moving at extreme levels of correlation (or even leverage) to the market, while others are largely independent of market moves. 4. The best 15 CQNS UP portfolios found are all within one tick of each other, and vary from 18 to 23 stocks. To retain 37% of the edge, you can hold a 7 stock portfolio that includes QQQ, SPY, SHY, and four individual common stocks. There are negative BETA stocks that were identified. These are not included in our run, and we present them to you for informational purposes. CPK Chesapeake Utilities Corp -0.646 SQQQ ProShares UltraPro Short QQQ -3x Shares -3.800 TZA Direxion Daily Small Cap Bear 3X Shares -3.259 UUP Invesco DB US Dollar Index Bullish Fund -0.185 UVXY ProShares Ultra VIX Short-Term Futures ETF 2x Shares -3.604 VIXY ProShares VIX Short-Term Futures ETF -2.443 Our previous managed accounts had around 12 stocks, so these are larger portfolios. Again, we call this a risk-off portfolio as we are further spreading out investments to gain the best edge we can, and that edge tends to be smaller along with the return from market risk. There is one more thing... We run our model now against two baselines. One is the SPY and the alternative is the QQQ. We do this to get a 2nd look or alternative view of the best portfolios. The answers are always different, and we do learn a great deal. What we learned today is that you can hold three stocks (ETFs actually) evenly, and hold 82% of the benefit of a fully-sized 34 stock portfolio. There are a few additional portfolios of four stocks that close to 80% of the alpha, and are surrounded by portfolios of ~100 stocks. This is important information if you want to beat the performance of the QQQ. The same results are not available to beat the SPY (our base case run is harder to beat this easily). Good luck to all. Jeff By Jeffrey Cohen US Advanced Computing Infrastructure, Inc. The consumer price index data came in this morning. It was lower by a tick, nothing more. All of a sudden, bond yields are crashing (10-year UST yield down 21.3bps). Stock index futures are up ~2%.  There is a lesson to be learned here, but we are not sure what it is.
Here are some thoughts: 1. Don't trade in a market like this, where liquidity is down and moves are aggressive. You will lose your 'alpha' or edge in transaction costs. The pre-market spread for two stocks we own is 7% and 30%. There are significant bets being made (likely by multiple trading desks and portfolio managers) in the same direction. Huge bets in pre-market on UST-10 year (long) and US equity indices (long). As a retail investor, you will likely pay more in transaction fees, and the moves are so great you may lose more than your money...but also your nerve. This is like riding a tsunami on a surfboard. 2.We are 'stuck' with our stock portfolio as-is, until markets settle down. We have 19 longs, 3 shorts, and have a short SPY position. One long and two hedges (to track performance). Our CQNS Long portfolio wanted us to go 'Risk On' this morning, but we are too late due to the pre-market moves already made. There are significant sells of low-beta stocks and significant buys of high-beta stocks. The ideal portfolio for the SPY-based run is 11 stocks, and the QQQ-based run is 14 stocks as compared to our current 19-stock portfolio. We will ride out the storm until liquidity returns. 3. We will try to make a few position changes this morning to take advantage of the rising stock prices. However, if we only sell and don't buy, we will be in a > 1.0 hedged position. We will report back our progress. Ok, markets open 90 minutes. We sold > 50% of our CQNS long positions, the ones that were not in our CQNS Long portfolios as they read today. Those tended to be some of the in/out tech stocks, and the main street low BETA stocks. Those are now liquidated. We also reduced our hedges by around 20%. This means we are over-hedged for a few days while we wait for a chance to buy into our new longs (maybe Monday). This is a risk, but seemed a shame to miss a chance to sell into strength. The markets are acting strange today. US Treasury bonds yields are down 20 to 33 basis points, depending on the duration. Stocks are up 3% to 6% depending on the index. Crypto has made a recovery today Copper is up significantly, and carrying forward a recovery rally (up to $3.77/oz). Silver is up to almost $22, and even crude oil now is green. The US Dollar is weaker. It was like everyone saw a ghost. Everyone turning bullish, globally. Belief in a FED FOMC pivot. Crazy, actually...and we don't buy into the narrative. So, our CQNS Smart Volatility model portfolio is under-invested this morning after taking gains, and over-hedged by stonks and the SPY. By Jeffrey Cohen
US Advanced Computing Infrastructure, Inc. Good morning! Today went from red to green in the US equity futures. The US Equity Futures are drifting back to a flat (to up) open. There is movement in our CQNS Long (or up) model portfolio this morning, as stocks prices (but not volume) look like they have done a day's trading...and all by 7:34am CT (or about an hour before market open). Pre-market for a few select industry groups:
The Vix is red (which means lower cost of protection), and bonds are trading this morning mixed and higher. Energy is down, and the US Dollar is weaker. Seems like a great setup for US equities to rise. However, while we were watching the Level 2 order book in Nasdaq (all exchanges) for $SPY, we saw a big trade go through. Nothing dramatic, but about 29,000 shares were sold in one order. This reminded me that there are forces moving the equity markets up, and there are opposite (but not quite equal) forces moving them down. Crypto, especially Bitcoin, has been range bound for months. BTC/USD is trading now at $20.8, which is around the $20k mark. Currencies are setting into a trading range as well, with the Euro at $0.9993, GBP at $1.1472. It takes 146.19 Japanese Yen to buy a US Dollar, and it takes 1.3468 Canadian Dollars to buy a US Dollar as well. In terms of overall market breadth, on Friday there were 67% advancers and 28% decliners, and ~ 3:1 new low to new high ratio (437 lows to 155 highs). For US Corporate Bonds, the the A/D ratio was similar, but there were many more new lows than highs. There were 5,024 advancers to 3,584 decliners, and there were 631 new lows and 38 new highs, for a ratio of (17:1). Good luck today. We are watching the markets whipsaw today. Interest rates are rising across part of the yield curve. Stocks are up, down, up, down all day. Made a video sharing transparency: https://youtu.be/FCFuD25wQZk Good morning. 11:06am ET. Markets are open. Not sure what I am witnessing. Interest rates are up, including mortgage rates.  Will go through the list of industries we track (equities):
US Banks are decidedly mixed, with an almost equal number up as down. Quantum companies are mixed to lower Enterprise IT is a little lower, and most companies are lower. Logistics and Transport is higher Chips and Semiconductors are lower Cannabis and Tobacco are higher (the small caps) and the large caps which pay high dividends are lower. Dividends are 'out of fashion' today in tobacco companies. Crypto and miners. A few commodity miners and assorted stocks are up slightly, but the rest are down significantly. Dogecoin is up almost 5%. Coal is mixed. Retail is mixed. The largest, discount retailers are down. Money managers are down, except for a few investment banks and money managers. Robinhood is up today $hood. Oil, Gas and Pipelines are up today (mostly). Overall, the market is mixed and no single industry or narrative is holding. The FOMC meets on Tuesday and Wednesday, with a press release on day 2 indicating the new policy stance. Most banks are expecting a 75bps rise in the policy (or overnight and prime lending rates) this week. Good morning and happy Halloween.
It looks like a different market today than Friday. 1. Interest rates are higher (13 weeks through 30 years: US Treasuries) 2. Russia ended the Grain Deal, and wheat prices (which means food prices) are up. In fact, food (grains) futures are up significantly, including oats, soybean, corn, rice, canola and especially wheat (up 5.5%). 3. The US Dollar is up slightly this morning, by about 0.5%. 4. Crude oil, precious and industrial metals, and US gasoline (wholesale) are lower today. 5. US equity futures are down into the open, suggesting a ~0.5% lower open today. This would claw back a little of the gains from last week, but not much. 6. The news globally is generally local. There were deadly accidents in South Korea and India. Russia is escalating their 'war on infrastructure' in Ukraine. Brazil had a successful, peaceful election of their Left party candidate Lula da Silva as President of Brazil. As a reminder, da Silva was arrested and imprisoned on allegations of corruption and served 580 days in jail. He is now back in power for a third term, and suggests that Brazil's 215 million people come together, unify, and move forward. At the open, our CQNS Short picks are either flat or down slightly. Our UP long picks are down (12 of 14 are down). After two minutes, all three of our CQNS short picks are up, suggesting a continuation of the push into 'stonks' we saw on Friday. The CQNS longs are still decidedly RED or down three minutes into the trading day. By Jeffrey Cohen, President & Investment Advisor Representative US Advanced Computing Infrastructure, Inc. Good morning. Notice a few things in the market this morning (pre-market at 8am ET): 1. The US Dollar has fallen significantly over the past week, and the EUR/USD went back over parity (currently 1.0081). However, this morning the US Dollar is stronger. Up by 0.35% 2. Copper is back to $3.50 / oz and other industrially sensitive commodities are also higher. Crude oil WTI at $88.12 / bbl is up there, along with silver at 19.35 / oz. This is not the sign of a global economy in trouble now. This demonstrates either market 'restraint' or 'strength' as companies acquire future supplies (which is possible pre-war with Russia), or that companies may be cutting costs, but not production in Q4 and into Q1 2023. 3. US Riskfree interest rates have risen, and bonds have fallen. Bonds are down this morning, and are generally very weak compared to where they were even just a few months ago. Interest rates across the yield curve are at or above 4%. This is great for savers, who can earn 4% interest with just a little effort. However, this is not great for companies or organizations (like regional banks) that hold bonds to boost current income through bond interest payments. They are holding bonds that have been weakening for the past few months. There was even a crisis in the United Kingdom about this when pension funds used borrowings, or leverage, to hold more bonds than they could afford as they fell in value.  So, what does that mean for equities this morning? Europe is down a full percentage point, and Asia was down. The exception in Asia is the Hang Seng, which ended up almost 1%. The Hang Seng fell dramatically earlier this week, so a technical reversal or 'bounce' can be expected. It was up almost 4% at one point last night. US Equity futures are mixed. The Nasdaq Composite 100 ^IXIC is set to open lower by 0.6%. This is NOT surprising as tech stocks reported earnings yesterday and after hours and had issues. The Metaverse company $META, formerly known as Facebook $FB, traded significantly lower last night after hours (down 20% at one point as we watched) on top of a 6% drop during the trading day. Other stocks may be falling in sympathy, but it is hard to tell. The moves are too slight this morning. What are we watching today?
We have two personal holdings that hopefully will be profitable positions. There isn't much to do on those but to watch and either buy or sell. No need to discuss them. We ran our model last night, and will save that update for another BLOG post. Good luck to all. By: Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. Chicago Quantum (SM) Maybe it does not matter that the markets look to head lower today. Our personal investments are well hedged (~75%), and our new Chicago Quantum Net Score / Smart Volatility 'hedged' fund is 100% hedged against downside risks. However, we keep seeing warning signs in the data. Here are a few that indicate that we are in a bear market and it is likely that equities will keep falling. Top 10 List: 10. Energy prices are up. WTI Oil is over $90 / barrel 9. Interest rates are up, and look to continue rising (long and short term rates) 8. Earnings season is coming and we see headwinds to profits, including the strong USD, rising inflation on inputs, rising interest rates on borrowings, and potentially slower consumer and B2B demand. 7. Variance of stock prices is elevated and continues to increase. Stocks are more risky by the week. 6. Stock prices keep falling 5. Market breadth is weak (many stocks falling and many new lows vs. stocks rising). 4. Corporate bonds are weaker (absolute prices are down and in many cases, yield spreads are increasing). 3. US Bank equity 'cushions' are declining for banks that hold long-duration bond investments 2. The Federal Reserve is likely to continue raising interest rates & tightening the US money supply 1. Potential for war in Europe between NATO and Russia over Ukraine. We learned a valuable lesson in August, September and October in this market. It is similar to a lesson learned in January, February and March of this year.
Always hedge a new long position. GLTA By Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. Pre-market:
Dow, S&P 500 and NASDAQ futures all lower. Source: CNN Business. Bonds are looking weaker, down between 0.1% and 0.9% pre-market. MBS Trading lower this morning. Bitcoin down slightly, trading at its support level of $20k. Energy stocks are lower UST Interest Rates are higher, so US Treasury bond prices are lower. US Banks are set to open lower Money Managers lower Retail (wide portfolio range) lower Coal, Mining, Steel, & Crypto (all lower) Cannabis and Tobacco (lower, but mixed - some higher) Chips and Semiconductors (all lower or unchanged) Trucking and Transport / Logistics (all lower or unchanged) Computers, Phones, IT Services, Software & Hardware (lower) As we look at yesterday, we see that stocks and corporate/agency bonds rose. European equities are trading lower, along with Mainland China. Japan, Hong Kong and many smaller markets traded higher yesterday / last night. Energy trading higher. Overall commodities (excluding energy) are down slightly. We do have news about mortgage rates rising, and strong job growth in September 2022. Today is a day when we test our hedging strategy. Our longs are down...can we profit by our shorts being down more? Let's find out. Good luck to everyone in the markets today. Be safe out there. Finally, keep your eyes on the US Treasury Bonds. We believe these are key today. By Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. So Jeffrey, I hear, what is the bottom line in the markets today? Bottom line is the stock market and overall financial markets are moving a little more than normal. That movement can accentuate trends. Highs go higher. Lows go lower. Things move more quickly and more deeply than before. Also, prices trending towards weakness, with lower stock prices, lower bond prices, and even lower housing prices. We see commodities weaker (except for oil, which is staying strong in the $80s). So, what should we do? We are debating that same question, and today, Monday, requires some deep analysis. When financial assets fall, expected returns rise, especially for companies that make an economic profit. An economic profit is when a company earns enough money to supply sufficient capital to grow, and to pay dividends (or pay down debt, or buy back shares). As those stock prices and bond prices fall, the expected return of those financial assets rise. The question is whether expected returns are rising as asset prices fall, right now, today, and for the next 253 trading days (1 year). Our models assume an 8.5% return on new money in risk assets (including dividends). It also assumes a 3.5% return to risk-free assets (e.g., 3-month US Treasuries, short-term CDs, Money Markets, US Savings Bonds, etc. Should we go up to 10% expected returns as the market falls further? When do we make that shift? When do most people become optimistic? Is it when stocks are falling the fastest, when stocks bottom, or when they begin a recovery? Do you buy the recovery or buy on the way down? When does the mindset change for the market in regards to expected returns? What our new Chicago Quantum Net Score / Smart Volatility fund is doing is to keep a relatively small number of stocks (currently ~12 longs) and three shorts. The model sees opportunity in risk today, and is RISK ON. If we increase our expected returns then the model will pick fewer longs, and will choose different stocks to hedge with. BTW, we are paper trading our model while we work through the investment processes, outsource our custodial services to Charles Schwab, and look at different hedging strategies. We will be our own first customer once the processes are complete and plan to open the fund to investors. What we notice in the markets is a falling knife. US Equities are down and trending lower. We are in a bear market. (TY Finviz) 32 new highs vs. 1,282 new lows (40:1) US Corporate Fixed Income is down too. We are in a bear market for bonds. (TY Finra Morningstar) 22 new highs vs. 1,633 new lows (74:1) Strategy #1: Do not catch a falling knife. Fear of missing out is a cost effective strategy. Wait for your favorite stocks that is reaching new lows to bottom before buying. Do not buy just because a stock is falling. Strategy #2: Fundamental valuations are more important than ever. As companies face higher interest expenses, and more difficulty in raising money (tougher terms & conditions), companies that are generating cash flow and paying down debt at a discount are building wealth. Look at stocks that are down that are worth more than their stock price and hold those dearly. As an example, we hold two stocks that we value more highly than their stock price, and will keep adding to those positions over time. We may be early, and we may be wrong, but we will feel ok holding those stocks for a long time while the market valuation catches up to fundamental valuation. Strategy #3: Stay hedged. Have a mix of investments that move up and down. We made the mistake in January 2022 of only holding bullish bets and it cost us dearly. Now, we are about 65% bullish, 35% bearish, and we are thankful for the gains of our hedges. We can always sell off our profitable hedges and replace them with new hedges at lower prices. See evidence below of the performance of the S&P 500 (TY Finviz) over 1 week, 1 quarter and 1 year.    By Jeffrey Cohen, Investment Advisor Representative
US Advanced Computing Infrastructure, Inc. We have been managing our new Chicago Quantum Net Score / Smart Volatility fund through this bear market. It has been successful, and generally speaking our hedges are 'carrying the day' and providing earnings to cover losses on our long stock portfolio. However, today is a green day and two of our three hedges are up pre-market, and a new CQNS Down run stock is to replace one of our hedges. That stock is also up. This is when our fund will 'earn it's paycheck' and the longs should increase faster than the hedges decrease. Time will tell, and we will report back mid-day on progress. Our model suggested a smaller and more risky portfolio for today. This is a very similar portfolio to the one chosen yesterday, and reflects a 'risk-on' attitude with high-beta stocks. What is interesting is that we are net sellers in our long positions by about 2:1. We are buying one new full position, selling two full positions, and doing small DCA on three positions. We are buying back shorts on our $SPY hedges, and we are swapping one of our short CQNS DOWN Run stocks with another. Overall, we are reducing our hedge on CQNS short stocks by buying them back and taking smaller short positions. So, the market is showing strength pre-market, and we end up supporting that position with our trades by buying more than we sell, and buying in the riskiest positions.
By: Jeffrey Cohen, Investment Advisor Representative
US Advanced Computing Infrastructure, Inc. Updated to add commentary on US Treasury Bonds.
Sitting here on a Saturday morning trying to make sense of the S&P 500 Index performance from a technical analysis perspective. I have my Harry Potter wand nearby (from last year's Halloween Trick - or - Treating in Highland Park). We need to go back to that house. It was hosted by what looked like a real witch and a huge wicker display of mystical things. Very friendly too. She shared a wand with me although that was not something I was supposed to ask for.
So, what do I see when I look at ^GSPC (the index), $SPY (the ETF) and $TNA (the 3x long ETF derivative). The TNA has been higher, and is now lower. It is below its moving averages (20, 50, 200) using closing prices, exponential smoothing.If you look at the MACD lines below, it has been in distribution mode since about August 20 when the purple line crossed under the yellow line (momentum indicator turned negative). I call this the "riding the bicycle down the hill" pattern. It slows down and speeds up, but it keeps going as long as momentum is on it's side, which it is. Notice the purple line separating from the yellow line this week. More negative momentum. That is likely due to the FED FRB raising interest rates and giving a 'I am a flaming, angry, fighting Jackson Hole' speech with Q&A that reinforced the message that interest rates are going up to 5% if necessary. Some realized that could break some things (us too, we have shorts on one of those things), so the market turned lower. The TNA has three days in a row of selling with higher volume. True movement of 'stock' inventory out of investor's hands and into other investor's hands. Makes you wonder who is buying? The chart below shows ~ 6 months, and concentrated bouts of increasing selling last up to 5 days, then the market exhausts. Sometimes the selling only takes 2 or 3 days. This week, we had 4 days of increasingly heavy selling. Four days of downward pressure. If we sell into next week, it means we have tapped into a new source of pessimism, a new data point, a new paradigm. The TNA has an RSI (or relative strength indicator) of 29. This is a good way to look at longer-term momentum over the past 14 periods. We see that indicator is approaching its lowest point in 6 months, and in previous periods led a modest, intra-bear market rally. It is hard for markets to sustain either buying or selling for too long before they have to pause. We are reaching the commonly accepted limit of 20 (or 80) which probably correlates to standard deviations. Not sure.This indicator shows price movement and momentum. One last thing on the TNA. Notice the Volume Rate of Change indicator (Vol ROC (14)) over the past 14 days that shows the relative volume. This indicator shows volume trends. The last big spike in volume was in early September and showed the sell-off 'blew out' and exhausted itself. Previously in early May, we see buying volume pick up after ~2 weeks of selling, and that persisted for three days, with another spile later in early May which happened just before the May/June bear market rally. In summary, the TNA is going up and down, and the momentum indicators show (in hindsight) the changes. As we look at current indicators, two of the three point to continued declines (volume neutral, accumulation / distribution is negative, and RSI is approaching a reversal signal). The length of time of the decline, like RSI, is approaching a reversal limit. 
Let's look at the next chart which is the exchange traded fund (ETF) that tracks the S&P 500 Index. This trades like a stock, and although not a perfect correlation does not require the ability to trade futures to invest with. This chart goes back ~10 months and shows 5 separate declines. Those are marked by up/down lines. The horizontal line at ~430 is a general support/resistance line.
The first thing I notice is that the slope of the lines is increasing during this bear market. Makes me think traders and markets are growing impatient, or their bearish bets are growing bolder relative to liquidity, and this moves things along faster. The RSI (or price momentum) is reaching the limit / reversal level of 20. The volume in mid-September spiked at the end of the 'false flag' pattern of 4-days of rising, and began this recent bout of selling (volume spike before 9 days of selling). Accumulation / distribution indicator is showing continued and increasing distribution in this market. This cross-over occurred in mid-August and we have seen a month of downward movement. The question for us remains whether the market wants to continue the downward movement. There is no reason for the market to change direction. No change in fundamentals. Nothing political that we can see. Just a weekend for traders, investors, corporations, pension funds, and money managers to look at these same charts and ask themselves a question: " Do we aim for 350, or an S&P 500 level of 3500?" Are we sufficiently positioned for bearish movements, or did we blow out our shorts and puts? The rising volume on Friday (we can dig deeper into the Friday chart) could indicate traders bought back their positions on Friday. 
The next chart is the 5-minute chart for the $SPY ETF. The indicators are all showing performance relative to 5-minute periods.
We can see that 'all' the price movement of the day happened in the first 10 minutes of trading. The rest of the days was calm, and the last hour was very bullish. The market bought back their short positions at an even higher volume than they sold them at the beginning of the day. This is a familiar pattern for us in other market sell-offs years ago, and worth a quick mention.
Anecdote time. We are building our managed account / hedged fund to offer to investors. We are paper-trading it now, but very realistically, entering trades with a brokerage and tracking things to the penny the way we would do it if live. We are a front-loaded fund that trades at the open based on pre-market values. We noticed that the market was down considerably in pre-market. The bets were in, the stocks had fallen, and we ended up dollar cost averaging (DCA) up more than a few positions and adding a few new longs from our model. When we calculated our NAV / cash balances at the end of the day, little had changed. Less than any day this week. That is when we noticed that the huge decline all happened in the first 10 minutes of the day. We noticed that $CS, or Credit Suisse First Boston was down significantly today. What if this was a 'big hairy risk bet' by a trading house (not $CS) that has to make up for a poor Q3? There are few days left, and liquidity is awfully tight. News is bearish, interest rates have been hiked, and financial twitter #Fintwit is filled with market mavens or fake gurus, #FURUs, willing to repeat and retweet a story. So, they spend the premium to buy up puts, they short mostly liquid stocks, likely make some bets in the futures, and see if their pessimism can be amplified throughout the day. They buy back during the last hour, and count up the profits. If they sell first and buy back first, they do the best by capturing the change during the day. For other 'fast followers' that copy the trade, their shorts after 09:45 and their covers after 15:15 did not do as well, and the later the bets were made the worse they did. This tells me that Friday may have been an isolated event by a few big desks to force a sell-off on a Friday. It didn't work, and now Monday comes and more traders lost money and likely hope in their magical, Harry Potter gambling powers, which would limit liquidity further into Monday. In closing, markets go up and down. Watch for big desks making big bets as you will see them in pre-market. A pre-market or market open sell-off is not always bearish, especially if there is no fundamental catalyst for the trade. Look for the cover by the end of the day (last hour?) and maybe beat them to the punch by a few minutes. Good luck to all. If you want to buy a run (a market analysis) so you can emulate our managed accounts / hedged fund, you can go to our Quant Analysis tab and purchase there. We run the models, write reports, provide data, and we think this would make you a smarter trader / investor for the next 20 trading days after accessing the data. Visit https://www.chicagoquantum.com for our brochure.
UPDATE: One last thought about an hour later...
What happened in the 'real economy' to support this recent decline in stock prices? Interest rates rose for long-duration debt (think 10-year and 30-year US Treasuries). Those are not caused by the Federal Reserve. Prices for long bonds are driven by the market. They bring together a few ideas to set a price. 1. Supply and demand of bonds liquidity: There are plenty of bonds to go around and fewer people want to buy them (at least since August 2022). In a situation of high inflation and positive expected future economic growth, this money will be needed (our SWAG). 2. Inflation really is here to stay. 3. The economy isn't that bad. 4. The Federal Reserve Bank NY Branch and FOMC refuse to begin quantitative tightening with anything like urgency. Last I looked, on ~8.9T of debt, we removed ~0.15T from the FRB balance sheet. 5. US is raising short-term and policy interest rates. This tightens capital for stock speculation. 6. The US Dollar continues to strengthen, and the world's economy keeps going (at the expense of standards of living outside the US). This hurts US corporate earnings (as they are earned overseas and repatriated / revalued into US Dollars). I would watch the long bonds for a clue on future stock prices. The higher long bond rates go, the lower stock prices tend to go (all things being equal, and not an R = 100%). I follow many stocks, and two of them are worth mentioning. 1. Big company with lots of debt. Buying back debt at a 20%+ discount. People bidding down the stock price just in case they stop generating cash, stop earning healthy revenues, stop making a profit, and that debt load crushes them. 2. Small company with lots of debt. Sold off two parts of their business to pay down revolver (low interest rate, but most senior and restrictive debt). Being crushed under senior unsecured debt yields, as interest expense now exceeds earnings. Their debt yields 15%, which will likely be the cost of new debt if they need it (which they likely will). Crushed under existing debt costs and unable to borrow new capital at less than PE or Pawn Shop rates. Stock just crashed. We are optimistic on the first stock as we feel / believe the economy will keep them afloat and ahead of their heavy ($150B) debt load. They can always raise a few prices, cut a few costs, and maybe advertise a little less. They have market power. We are less optimistic on the second stock. We are not sure they will make it through the next debt cycle in 2026 without massive dilution, being acquired, or a little Harry Potter magic. 
Had a thought and chased it down. There was a morning bet against the US Treasury 10-year bond. It is not an out of the ordinary bet, and the same bet did NOT happen in the 10-year UST. It just pushed yields up to almost 3.75%, or about 2.5 basis points (bps). It took 5 minutes, and in the next five minutes the bet was reacted to, and rates were pushed down almost 3 bps. The move of 5.5bps is very large, especially in 10 minutes on a Friday when there is less market liquidity, and nervousness about.
By mid-day, the yield on the 10-year was up the 2.5bps and more, for an intra-day move of about 6bps. What's more, the yield on the 30-year US Treasury bond also rose into mid-day, although it did not meaningfully participate in the morning market open action. So, one possible thread on Friday's action: - Morning game of racquetball or breakfast at that fancy hotel in Midtown Manhattan to discuss how trading profits are down. Bonus checks will be flat. We could even get, gasp, fired. What to do? Let's bet other people's money and have a really, really big day today. Let's make it all back in one screaming jubilee today. - One partner, Luke (or was it Obi Wan), says that we should bet the markets will go up, and tell all our friends and clients to buy some stocks and bonds. This way, everyone in America gets richer, and flowers bloom. - One partner, Darth (or was it Senator Palpatine) says that stocks take the stairs up and the elevator down. No time for stairs, let's do a Die Hard and force a big escalator move lower. You know, Black Monday only took one day! So, it was decided that the equity desk would sell everything it could get its hands on pre-market (never mind the larger spreads) and put in place the pre-market down equity bets. Once that was done, it started at the open by selling everything it could that was not nailed down. It was a storm of fury for 10 minutes. By then, the ammunition was spent, there was nothing else to sell, and the markets did not actually fall further. I even read a 'well placed' tweet by a #fintwit account that maybe the selling was due to an investment banking failure, and $CS stock was down hard. It didn't work. The next partner entered the fray 15 minutes into the market (5 minutes after the first partner was done), and they used a laser beam and toasted the 10-year US Treasury Bond. They sold it hard, for 5 minutes. They probably borrowed a bunch of bonds, sold their own inventory, and maybe even did something with futures or options (but we don't know that). They drove up yields by 2.5bps. This is a big market, and after 5 minutes they were done firing their cannons. However, the rest of the market woke up and bet against the crazy bond desk, probably thinking it was a fat-fingers mistake and easy money. The yields on 10-year US Treasuries actually fell by more than it went up (not just unwinding the 2.5bps, but taking yields down another 3bps). So, that didn't work. Actually, later on in the day the yields on 10-year and 30-year US Treasuries did rise, then fall. It seems maybe that trading desk shook things up just enough, but by the end of the day the action was flat. Ok, the bets were made and nothing worked. Stocks and Bonds did not follow. Nothing happened! Now, it is approaching market close. It is an hour before the close, and the markets have had a meh day, with ups and downs, but no trajectory. The equity desk starts closing out and covering its negative equity bets. Since they knew it was their bets that drove the market down, they wanted to cover first after eliminating any doubt that their 'trick' would not work. They waited until 1500 ET and started to buy back negative bets. It was done by market close. On fixed income, my guess is that they closed out their negative bets for a loss either before lunch, or by around 1400 ET. It is too hard and too embarrassing to lose that much money on US Treasuries. Also, that could actually cause the head of the desk to get fired. They likely missed the tiny recovery into market close (which likely was tiny because they already covered). If you like this scenario, you are likely to see it more and more between now and next Friday, Sept 30, 2022 when Q3 closes. If the market stays in a bear market pattern, you may also see this in Q4. 
Markets look to open lower today. Market breadth is significantly negative as of Friday. Interest rates continue to move higher, with the Federal Reserve Bank, Federal Open Market Committee (FRB FOMC) press release and new policy statement will come out Thursday afternoon. The market will be tentative and hesitant until that interest rate announcement is completed. We see the US equity market continue to fall, and significant negative market breadth on Friday. New lows in fixed income (corporate) were about 90:1 vs. new highs for bonds. Stocks were closer to 9:1 new lows to new highs. We walk through Mortgage Backed Securities this morning (they are down), and how they work. We also walk through Verizon's schedule of debt and that we think we see Verizon buying back their own debt at a discount. This will increase their equity and earnings, and reduce future interest payments. A few hours into the trading day and the market is negative today. Sleep well traders in North America. It looks like good news in Ukraine and the strong potential for a very small CPI reading on Tuesday (due to energy price weakness) will influence valuations into this week. The equity market rally (bear-market rally) looks to continue for another day.
We have our model set to a ever-so-slightly more optimistic position of 7.25% expected return and 3% riskfree rate. It caused us to cover some of our shorts (our hedge of the $SPY) on Friday morning and buy higher-BETA stocks. We stand by our slightly more optimistic settings for today's market. The Futures and Asian Markets look to validate this decision. Let's see where the week goes. Good luck to all. Well, the US equity markets are up slightly and stronger today. This is welcome news for us personally, as our personal holdings are down > 50%. The supporting financial assets are as follows:
Some of these movements could be due to the global energy shock as the world realizes that clean energy may not be plentiful enough, and that Coal, Oil and Sweat may be required for the foreseeable future. Sacrifices in demand must be made if we are to live with less energy, or we need innovation to leverage higher energy alternatives (like nuclear fusion, fission, and space-based. In fact, I am getting up now and turning off our AC (true). We are reflecting today on the sector rotation underway in the US equities market for the past year. Energy stocks have risen while consumer / communication stocks have fallen. It may be time for that rotation to reverse itself. Take a look at relative performance at Finviz here. Our model suggested a move into more commonly held stocks, and more of them. It takes 25 stocks, evenly held, and hedged against the SPY, to create an edge (or alpha) that can be captured regardless of market movements higher or lower. This is because variances are up, risk-free rates of return are up, and market expectations of new risk capital returns are lower.   In terms of sectors, retail looks strong. Coal is weak. Retail Banks are doing ok (mixed but higher), and the rest of the industry sectors are mixed. Not to say 50%/50% up and down, but almost every sector is mixed.
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AuthorJeffrey Cohen, President and Investment Advisor Representative Archives
January 2023
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