Why lower highs are bad news | January 21st, 2023 Newsletter

$QQQ $RTX $CPR.MI $SAND.ST $AMZN WSM $CALM $NVDA $KBE $CSCO $DEN $LIT $QCOM $BRK.B $NUE $DIS $THO $MP $KSS $GL $WMT $TGT $GILD $ORI $CNC $SH $GLD $SLV $SON $NEM $HLT $NXPI $DEN $GPS $JPM $CMG $MSFT $META $BWA $LEA $PSQ $SRTY $SQQQ

Weekly summary in a paragraph

The US stock market was a mixed bag, as the Nasdaq rise for the third week in a row was offset by a weaker S&P500 and a tanking Dow Jones. Europe still looks strong, despite this week’s mild decline. The Bank of Japan continues to be unwilling to change its monetary expansion policy. The second week of Q4 earnings only saw a relatively small number of reports, including the surprise beat by $NFLX: next week will be more telling as the large tech stocks report. In other corporate news, $GOOG joined its predecessor tech giants in cutting a significant amount of its workforce. While investors focus on the savings that such companies may benefit from, they often ignore that unemployment leads to less spending, hence revenue contraction.

Asset classes weekly performance

This week the Dow tanked -2.4% (+0.4% YTD) while the S&P500 did better with only a -0.7% retracement (+2.6% YTD, we are 1x short), the Nasdaq finished +0.7% higher (+5.5% YTD, we have a 3x inverse position) and the Russell 2000 lost -0.8% (+4.6% YTD). $Gold finished higher +0.7% (4.5% YTD, we are long) while silver was -0.6% weaker (-2.2% YTD, we are long). $Oil was mildly higher +0.7% (+3.5% YTD). The 20-y advanced +0.3% this week (+4.1% YTD). The European stock market lost -0.5% (+9.0% YTD). The Euro gave up -0.1% against the USD (1.4% YTD).

Weekly pitch

Investors are better equipped when they rely on both valuation and momentum – that’s to say whether a stock is supported by fundamentals and is liked by the market such that it has more buyers than sellers. Many believe that the Nasdaq has bottomed for this cycle: this argument is sustained by the 3-week upside which started at the turn of the year. However, from a technical analysis standpoint, both the S&P500 and the Nasdaq have continued to make lower highs since their respective all time highs in late 2021. Both these indices are yet to see a golden cross form (ie the 50-day moving average cross above the 200-day moving average). Conversely, the Dow and the Stoxx index have experienced both higher highs and a golden cross: in the short term there may be more justification for these indices to move higher thanks to their underlying stocks belonging to the real economy as opposed to the long-duration, tech firms which represent the lion share of the S&P500 and even more so of the Nasdaq.

Weekly Portfolio Update

Here are this week’s movements: we started a long position in $RTX and $CPR.MI; accumulated on $EL.PA and $SAND.ST (which reported a Q4 earnings beat); took profits on $AIG (+19.66%), $USB (+10.96%), $VWS.CO (+5.31), and $GIS (+6.8%); and initiated a sell position on $M, $QQQ and $DFS; while a SL was triggered on our $SI and $LEN short position. Cash, precious metals and hedges amount to 37% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

$GOOG +6.98% (Technology-Internet)

$CPE +6.23% (Oil)

$CSCO +4.30% (Technology, short position)

$DIS +4.10% (Media-Diversified)

$SRTY +3.20% (3x inverse Russell 2000)

Portfolio Asset Allocation

Long stock positions 57% (increased)

Short stock position 6% (reduced)

Hedges 8% (unchanged)

Silver & Gold 4% (unchanged)

Cash 25% (reduced)

YTD Portfolio Performance

Our currency-adjusted YTD portfolio performance in Euro is +2.0% (excl. dividends) vs the European market gain of +6.4% and +3.40% in USD vs the S&P500 gain of 2.9% (a +0.5% market beat).

…in case you missed it

Check out last week’s newsletter to read the 5 things I got right in 2022…and the 5 I got wrong.

Invest responsibly!!!

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