Risk On Day Today

By Jeffrey Cohen

We have a two and three-stock long portfolio selected by the Chicago Quantum Net Score today that scores better than the top stock in our model individually. The edge is significant over the SPY. These stocks have been on a tear higher lately.

They were up yesterday, and they are up pre-market today.

What do we know about them?

The first company offers buy now, pay later and personal consumer loans at point of purchase.

The second company is an emerging biotech stock that looks alot like Corbus Pharmaceuticals, and is working oncology cures for solid tumors.

The third company offers an eCommerce platform for residential real estate transactions.

The fourth stock that did not quite make the list is a bank to consumer digital advertising platform.

The fifth stock that did not quite make the list is a seller of used cars that also holds loans made to consumers on the cars they purchase.

This overall portfolio is highly exposed to credit delinquency and interest rates, and relies on consumers to keep spending and borrowing, while staying current on their loans.

It also has a micro-cap biotech company that likely has been 'tape painted' or laddered lately to keep the risk-reward balance optimal. We saw this in the past with AeroCentury (ACY), which was a closely held company out of China which showed a good technical rating even into bankruptcy.

Buying all five stocks instead of just two removes about 10% of the edge of the portfolio.

Technical Notes:
We observe a few key characteristics.

The top stocks to short (or sell, or avoid) are almost entirely below $250mm in market capitalization, and a majority of them have declined 50% or more over the past year vs. their average closing price. These have already fallen significantly. These are falling knives.

A full third of the stocks to buy and hold individually have also fallen 50% or more in the past year. Good bargains or stocks going to zero? Not sure, this is where due diligence comes in.

Volume in the 3001 stocks that made it past data validation today is 101.8% of the average volume for these stocks over the past year (we did an average). It is tricky that on a day when the market rose, the volume was not higher.

The average dividend yield for the 3,001 stocks was 1.73%.

The average BETA of all 3,001 stocks was 1.175, or 17.5% higher than the S&P 500. This is likely indicative of the benefit of holding a synthetic, passive index that is market capitalization weighted. It reduces risk, as it is harder to move the price of large stocks.

If the 'best' stocks in our model are the most risky, and reflect a bet on the health of the lower-end consumer (buyer of used cars, direct selling homes, and borrowing to buy on eBay or Amazon), then this market is pushing risk to the extreme. There is profit opportunity in the short term, but it is super-sensitive to macroeconomic performance. The Chicago Quantum Net Score picks for September 29, 2023 are a bet on the success of the US economy.

Good luck to everyone. Good luck to all.

​Catch our video this morning on Youtube, here.