We see a fall in risk-free interest rates, and this is bullish for stocks. It creates an incentive to put money back to work in risky assets.
UST 10-year yield: 3.395%
UST 1-year yield: 4.332%
UST 3-month yield: 4.293%
UST 1-month yield: 4.150%
Our Chicago Quantum Net Score risk-free rate of return is: 4.30%.
This has the effect of increasing the expected return to risk assets (the return over risk-free) to 4.27% from under 4% earlier this week. This means the model 'CQNS Power' or the relative strength of expected return over historical risk is 3.35, which is slightly elevated over early this week. This isn't enough of a change in the risk free rate to make a big difference, but it is on the way.
The expected return of 3,407 / 3,419 stocks (and ETFs) that pass data validation today is 9.29%, which is also elevated from recent weeks. Why is that? The BETA of the stocks are increasing as the risk or volatility of all individual stocks rise. Why would the risk of all stocks rise? Could be reduced liquidity, increased speculation, bets on ODTE options, bets on normal monthly options, or something else completely. It also could be a reduction in the historical risk in the S&P 500 Equity Index, which we have seen, coupled with a slight increase in individual stock volatility.
Regardless of the causality, the expected return of a large basket of stocks is above inflation, or 9.29%, and the expected return to risk (the portion above risk-free rate) is now 4.27%. If this trend continues (lower interest rates and higher market returns expected), then we will see a return to risk-on behavior. Only time will tell.
Today's stock run (valid for Monday morning, March 20, 2023, has 26 stocks held evenly, and the edge over the runs earlier this week is up about 20%. So, fewer stocks and a higher edge. Part of that could have been due to the inclusion of ETFs into the CQNS UP run universe of stocks, but none of those ETFs are in the optimized portfolio.
Net-Net: The reduction in risk-free interest rates, and the slight reduction in volatility for the S&P 500 is bullish for the US stock market, and our model has shifted to Risk-On for Monday morning.
Here is the rest of our BLOG post for the markets. We included this in today's video on Youtube.
We discuss the results of our Chicago Quantum Net Score quantitative analysis, which suggests to take a little more risk in stocks. The market appears to be turning slightly risk on, and we sense that Monday should be an interesting and good day to trade. Here are some overall points we made during the recording, and in the live chat. 1. Interest rates are falling aggressively. Large moves to make bonds more valuable, and interest rates to fall. 2. The VIX or implied volatility against a fall in US stocks, is significantly higher now. It has been screaming higher this week, showing that the cost of insurance against a stock market fall is significantly higher than a few weeks ago. It is above the trend. 3. Energy prices (both oil and gas) have fallen through the floor. Prices are down for Oil about 18% in just a short time. That is ua dramatic fall. We give a prediction on why this is. It's in the video, and a bold and shocking ideal We also discuss the $UBS and $CS corporate action, where UBS buys CS for about two billion dollars, along with Swiss Government Guarantees. This is when you get your shopping list dusted off.
Good luck to all.
Good evening. Markets closed on an up note, and interest rates are like bumper cars. Commodities, currencies, stocks, bonds...everything is in motion. Truth is, our model called today as a risk-on day, and the best portfolio had only 35 stocks, whereas the day before it was 65 stocks.
Today, we are going to try something different. Wish us luck, and we will report on our results:
1. We added many ETFs to our run in the areas of the US Dollar (long and short), commodities including a bitcoin fund, passive US stock indices, a short stock index, and some VIX related ETFs. We tried to ensure they were all large, liquid and heavily traded.
2. We raised the risk-free rate again back to 4.7%. Why? The 13-week UST bill went up a bit today. Also, there are now bank accounts, FDIC insured, that are paying 5.0%. So, your risk-free rate, at least up to $250k FDIC insured, is 5.0%. We split the difference and hold it at 4.70%, which is roughly what you make, bond equivalent yield, if you go to treasurydirect.gov and bought the last 13-week issue on March 13, 2023.
Finally, on a technical note we removed our matrix-based solvers (again) to speed up the run. Each one of them takes too long, and is not giving a very good answer when compared to our custom heuristic solvers. We have ideas on how to accelerate those, and improve our D-Wave Systems results, but that will take time we did not have today. Coding time.
Finally, want to say thank you to the market today. Our portfolio went up a little, and that makes us happy.
President and Investment Advisor Representative
US Advanced Computing Infrastructure, Inc.
Good afternoon, it's Jeffrey Cohen
The markets are on fire so it is harder to focus on math, matrices, and tuning algorithms. However, we have a theoretical breakthrough last night, and will work to test it over the next days/weeks. Promising idea. We are encouraged.
The biggest issue for us is that we run our algorithm on the D-Wave system and it has to be placed carefully on the almost 6,000 quantum bits available to us. Each placement is a stock, and the stocks need to be connected to each other. However, since there are only 6,000 positions, we can only connect 118 stocks. In reality, the system handles 64 or 80 stocks better as the placement or loading of the stocks on to the quantum bits can me more resilient.
So, we have to get our best 'bang for the buck' with 64 or 80 stocks, and up to 118 stocks. We can run our algorithm 100 or more times (think of this as generations in a genetic algorithm).
We also reviewed the D-Wave Systems 10-Q from November 2022 today (again). The financial situation of the company is not encouraging. There is not enough revenue to support the significant investments in research and development, and to cover the growing costs of General and Administrative expenses. Many of those expenses may be tied to being a public company listed in the US. The liabilities seem to be slightly larger than the assets...so the company needs to either raise more money or transform their early-stage startup in to a 'mean and lean' technology firm.
We have always appreciated their technical support and assistance, and their politeness and supportiveness of our new quantum computing startup. We think the team at D-Wave is the best and we hold a small position of common stock warrants as a show of support that we believe in the future of this company.
We will be trying to work a new approach on how we load our QUBO (V*M*V^T) onto our matrix, and the lift and shift required to get the best answers. This will take some time and effort, and the 'a-ha' moment for a new approach came last night.
For more information, contact Jeffrey Cohen at firstname.lastname@example.org.
We are accepting new clients.
This is getting out of hand
The one-month US Treasury yield is 3.67%, down 0.617%. In bond speak, that is a decline of '62 basis points.' That is a monumentally large move lower in interest rates. This is significantly below the US Federal Reserve Bank Fed Funds Rate, or Policy Rate.
The one-year US Treasury yield is down 0.442% to 4.079%, or down 44 basis points. This is another significant move lower in interest rates.
The ten-year US Treasury note is yielding 3.407%, down 0.283% in yield, or down 28 basis points on the day. This is another significant move for an important, benchmark interest rate. This rate is used to set US residential mortgage rates.
There is a big meeting at the Federal Reserve Bank where they set interest rates and determine the size of the asset register at the Fed. These market moves take interest rates back down to below the Fed policy rate, and in a way undo the work of the last year.
We have seen high inflation in the US, with the CPI-U up 6% over the past year and a strong rise in January and February. On the other hand, the Producer Price Index was down slightly in February after a rough rise in January.
And the anomaly in the system is that while interest rates are declining, which is bullish for stocks, the stock market is declining. Bonds and stocks declining together is like cats and dogs living together. It rarely happens, and normally indicates something is wrong.
We made a detailed video today about the markets, and here were our take-aways. This should provide more context to you.
1. Interest rates are falling aggressively. Large moves to make bonds more valuable, and interest rates to fall.
2. Energy and industrials / hard side of the economy are down.
3. Financials are still falling, almost down 3%
4. The US Dollar is stronger, despite falling UST interest yields.
The world is doing worse?
The US is a safe haven?
5. The Chicago Quantum Net Score would be (most likely, and on an ad-hoc basis) outperforming the S&P 500 today, on this risk-off day.
6. Bitcoin is up to $24,700, and it was recently at $20k, so it is up 25%.
7. European weakness in their banking sector weakens the Euro / USD exchange rate.
Mixed overall stock results, with significant weakness in large, industrial, energy, financial and to a lesser extent, technology stocks. This is when you get your shopping list dusted off.
CQNS best answer is 65 stocks to have a better risk-return tradeoff than the S&P 500 Equity Index ETF. This is a very large answer, and reflects a need to diversify holdings. The individual stock picking approach is not in alignment with our Chicago Quantum Net Score model.
For tomorrow...if interest rates stay low tonight, we will run or model with a lower risk free rate, which increases the relative benefit of equities. Let's see what happens.
Good luck to all! GLTA!
Good morning readers,
Our Chicago Quantum Net Score model found the best solution last night with 62 US-listed common stocks, giving an edge of 7 x 10-5, which is a meaningful, but smaller than usual edge over investing in the $SPY, or the S&P 500 Index ETF. This is based on our proprietary platform and algorithm to find portfolios with the biggest difference between the portfolio's historical risk and expected returns.
A portfolio that requires 62 stocks to gain an edge on the market is calling for significant diversification, with a holding pattern similar to the S&P 500. The top 25 portfolios have between 59 and 63 stocks.
Our portfolio model selects a group of stocks that are held evenly, so 62 stocks means 1/62 of your portfolio is invested in each one.
Our portfolio model excludes ETFs, so you will not end up holding multiple 'copies' of a popular stock. We are considering to add back the commodity ETFs as that can give an investor an additional edge. We are thinking of ETFs like SLV (silver), AAAU (gold), USO (oil), and CPER (copper).
Why is the model risk off? We see three potential reasons:
1. The expected return and the risk-free rate of return over the next 12 months are converging, and the expected benefit of holding risk is 4% or less today. That means our model is mathematically looking at reducing risk more than it is looking at increasing returns. Lower risk means greater numbers of stocks.
2. A rising tide lifts all boats in this market. It is possible that there are fewer situations where stocks counter-act each other, and have negative (stock - stock) correlations.
3. The large-cap stocks are starting to see a 'flight to safety' and are less volatile in this liquidity constrained market, so they are relatively more attractive than small cap stocks. This last one is a stretch.
We do see negative BETA stocks in today's run, so there are still anomalies out there. These move opposite to the SPY and have done so for the past year.
Here are the stocks with BETA values outside the data validation range.
CDTX -0.370 Cidara Therapeutics Inc
CPK -0.611 Chesapeake Utilities Corp
CYN -0.532 Cyngn Inc
FWBI -0.369 First Wave BioPharma Inc
GWAV -0.468 Greenwave Technology Solutions Inc
MFH -0.185 Mercurity Fintech Holding Inc
MKUL -0.593 Molekule Group Inc
SMMT -0.135 Summit Therapeutics Inc
UHAL -1.361 U-Haul Holding Company
VERU -0.885 Veru Inc
Good luck to all.
Jeffrey Cohen, President, US Advanced Computing Infrastructure, Inc.
I often wonder why my youtube video channel is stuck in the 300s of subscribers, my twitter account is under 3,000 followers, and my medium articles get maybe 100 reads per month.
There is an art form to social media and I obviously don't get it. However, I am learning...
Check out the following tweet and two replies. This is art.
We like to track stock variance. This is how much stock prices move each day, without concern about direction. We have seen stock price variance increase since at least May 2022 when we started measuring this.
On February 27, 2023, the stock price variance of the S&P 500 Equity Index ETF, or $SPY, had its variance peak about a week ago, and now is down one tick. It isn't much, but it might be signaling a peak in variance.
Once variance in stock prices fall, it will reflect a lessening of speculative interest and activity. This will be good for some stocks (those that are being shorted aggressively), and bad for others (stocks that will fall until they reach a natural support level).
What is the level?
For a year ending 3/27/2023 (inclusively):
For 1,640 stocks with a market capitalization of $2B or more, the variance is:
All Stock Variance = 0.0002843
You still 'save on variance' if you buy and hold a market-capitalization weighted index or basket of stocks.
One of our leptokurtic and low variance stocks fell dramatically today, down 21%
We report kurtosis in our Chicago Quantum Net Score analysis for clients on a daily basis. We analyze the daily stock price changes and we compare then to various normal distribution. We look at kurtosis, or the fourth movement of stock prices, and skewness, which is the third movement.
You can think of those statistics as derivatives of stock price changes:
Today, a stock that we reported to be very highly leptokurtic fell around one quarter in value, or around 25%. Over the day, it was still down 21% when we checked. Here is the quote below (source: Yahoo Finance).
We consider the list of high kurtosis and low variance stock an 'early warning' list, and that early warning came true today for $TGNA Tegna Inc.
This was so interesting that we made a video: Leptokurtic Stocks, Early Warning that came true for one the stock $TGNA of one company Tegna Inc.
Here is the video below.
What is a leptokurtic stock? A stock with a leptokurtic stock distribution is one where the probability of the next random sampling (e.g., tomorrow’s price change) being a high standard deviation move or outlier is greater than for a stock with a normal distribution. It is like a bell shape curve that is raised off the x-axis, or has more ‘room in the tails.’
For us, we use this as a means to invest in either stock options or to look at stocks to hold in an optimized long portfolio. To that end, we couple our analysis of kurtosis with low variance stocks. These stocks really stand out as seeming low risk, but with a chance to leap. They are unique and fairly rare.
There are currently seven of these stocks:
Ticker, Kurtosis Score (standard), variance (normalized)
ATVI, 5.91, 0.0001110
GIS, 5.21, 0.0002181
HRL, 10.91, 0.0001821
HSY, 5.30, 0.0001910
K, 6.93, 0.0001952
PINC, 6.49, 0.0002068
SJM, 13.32, 0.0002199
We suggest to our clients that they should keep track of stocks with a high kurtosis score for a sense of the safety of the stock. A leptokurtic stock with a low variance normally should not move much, but on occasion it will move much more than its standard deviation suggests in a normal distribution.
Today, $TGNA or Tegna, Inc. moved down 21%. This is a huge move when the other leptokurtic and platykurtic stocks with a low variance moved 2% or less, with most moving around 0.5%. In this case, a stock that was called out as being leptokurtic within the past month had its early warning come true.
What does this mean for stock market investors? It means that you should know which of your stock positions are highly kurtotic, and consider ways to adjust your portfolio. If you are worried about your stock falling, and it is low variance and leptokurtic, maybe buy a cheap put option?
For more information, and for our periodically updated list of leptokurtic stocks, please visit our webpage here.
President, US Advanced Computing Infrastructure, Inc.
Illinois Registered Investment Advisor
Weekend run is still risk off
Quick post on a Sunday
1. The expected annual return to risk-off assets is 3.77%. That is not very much for risking your capital. This is based on a 4.80% riskfree rate of return and 8.57% return to US stocks (highly diversified holdings), or other risk assets with return parity.
There are 1,632 US listed stocks with market equity capitalization above $2 billion. The expected return of holding all of those stocks is 8.87%.
2. The best individual stocks picked by our model are lower risk, and the worst are the higher risk "MEME" or speculative stocks.
3. The best portfolio available has 32 stocks, followed by a 33 stock and a 41 stock portfolio.
There are stocks that are household names and others that are a little more edgy, with high dividends paid last year, or some risk behind their names. We have been seeing significant rotation in this list over the past 2 weeks.
-0.000053 ['AAWW', 'ACI', 'AFG', 'ALRM', 'ATVI', 'BMY', 'BSM', 'CLBK', 'CLX', 'EQC', 'FROG', 'GEN', 'GOOGL', 'ICL', 'IEP', 'JNJ', 'K', 'MCD', 'MRK', 'MSFT', 'PCAR', 'PEAK', 'PNM', 'QGEN', 'RBA', 'TGNA', 'TJX', 'TRI', 'TSEM', 'TXN', 'YUM', 'ZIM'] 32
There is only one negative BETA stock left in the run. It seems that all the fish are now swimming with the school. UHAL -1.270 U-Haul Holding Company . The negative beta of 1.27 means that U-Haul moved 127% of the movement of the S&P 500 Equity Index over the past year, but in the opposite direction.
The overall volatility of the market (variance of price changes) has not changed. It is elevated and flat, in a relative plateau for the past months. What will happen when the market settles down?
Good luck in the markets today.
Please subscribe to our youtube channel for up to date analysis. That is free.
Here is our twitter channel, where we post varied and diverse content.
By Jeffrey Cohen, President, US Advanced Computing Infrastructure, Inc.
I am working on make the run go faster without giving up value.
We already cut the solver run time by ~70% and get the same CQNS answer. That is a good start. In fact, today we added back 10% of our horsepower in our solvers (so maybe it will be 63% faster, just to be sure we don't miss any good solutions).
Now, the hard part. We need to speed up the data collection process. This has always been the sloppy part of our code. Lots of if, then, else statements. Lots of calls. Lots of data (and memory) to be able to write out a huge spreadsheet that we only use occasionally. This spreadsheet is great when we are doing fundamental analysis, but not when we are in a hurry to 'see the picks.'
So, our current step is to see what data and output is superfluous.
We love our BETA, market cap, dividends. We use them in our math. Also, Chicago Quantum is the home of the Negative BETA stock list :-).
However, there were a few hypotheses we tested a few years ago. Things like price and volume spikes. Stock splits. Do we really need them? Maybe not in the run_really_fast parameter setting.
We created a detailed spreadsheet that we use for fundamental analysis. It has valuation info. Likely most of that can go.
So, here is the initial list of variables and outputs that can go. This will simplify the run_really_fast parameter setting run.
Data to cut from inputs and outputs:
1. Cash Flow From Operations
2. Long Term Debt
Last day volume as a % of average
There will be more...this is the first part of the list.
Your feedback is welcome! Please comment below or directly contact me at +1.312.515.7333 (cell) or email@example.com (email).
Full-time investment advisor and student of the financial markets.