How Many Drinks Have You Had Tonight?

Estimated read time: 3 minutes 25 seconds

In this week’s market recap email

1. Market recap

2. Skills/methods I used this week

3. What's in and what's out of my portfolio

What Happened This Week

And now for this week's edition of "Holy hell, they can't be that stupid...again!"

Behold, the trusty Put/Call Ratio:

Ok let's break down what's going on here - for starters, the Put/Call Ratio is a great metric to gauge investor sentiment. Put simply, it's the number of traded Put options to Call options.

Put options = contracts to sell an underlying security = bearish outlook

Call options = contracts to buy an underlying security = bullish outlook

If a put call ratio is below 1.0 the overall sentiment leans "bullish". The further it goes towards zero, the more bullish.

If a put call ratio is above 1.0 the overall sentiment leans "bearish". The further it goes above 1.0, the more bearish.

Take a look at the large spike back in March 2020 - I don't need to explain what happened then.

Sitting at a 0.55, the P/C Ratio is telling us that investor sentiment is...bullish? As we continue to expect economic slowdown?

The low P/C Ratio of the year came on March 29th at 0.41. The S&P 500 was -8.8% in April while the Nasdaq was -13.56%. 

Nothing to see here....

Teaching Moment

Just as a bouncer decides who gets to come in & out of a bar, I get to dictate what enters & exits my portfolio.

I can spot that sexy ETF begging to be let in just as much as I can notice the s*** small cap puking in the corner. As the honorary bouncer of my portfolio they are my rules to live by.

So what are my fundamental rules for choosing who gets a spot? 

TREND

• Stocks that are 'signaling' bullish formation tend to perform the best over the immediate term (3 months). I use a public indicator on Trading View called "Bridge Bands" to show me which securities are currently bullish.

• Ex from TV: $BJ (BJ's Wholesale) - "trend line" is the thicker green, horizontal line. When the stock price is above that it's bullish; once it breaks (and more importantly holds for 2-3 days), it flips to bearish - that's the signal to GTFO

SECTOR / STYLE FACTOR

• A securities sector (tech, health care, etc.) and style factor (low beta, high beta, growth, value, etc.) will act differently depending on the macro factors that our economy is current in AND trending towards

• I could write a novel on this bullet so instead I'll summarize it briefly:

  • Economy growing: buy tech, financials, small cap, high beta

  • Economy slowing: buy bonds, gold, dollar

• ONLY IF THE TREND AGREES!! SINGAL ALWAYS WINS!!

In The Account | my top holdings 

1. $UUP - Dollar

   1. This past week has been a great spot to convert "physical" cash to buy more $UUP as the dollar comes off its high of mid-July. The dollar remains a core position with the bleak economic outlook ahead - I'm towards my max for a currency here (12%)

2. BONDS

   1. On the radar last week - in the starting lineup this week. I'm currently not beefing one specific security, instead I'm spreading them out across a few different types that I am looking to work in tandem as the 10yr slices downward like a hot knife through butter

   2. In my PA: $BAB, $LQD, $IEI, $BNDD - total 15% of my portfolio

On The Radar | positions I want to build / sizing up

1. UTES & STAPLES

   1. I currently do own a few small positions across these two sectors. I am looking to balance my portfolio with long ideas that will work if economic data comes in poor (assuming VIX is still trending in the 20s). Utilities, Staples, low beta, high dividend is where I want to pick my battles

   2. Long: $GIS, $BJ, $STKL, $XLU

2. GOLD

   1. Currently I do not have a position in Gold as I took it off when the signal broke bad to bearish trend - now with yields starting to drop (bullish for Gold) I'm waiting for the next ramp in yields to get back into this core position during economic uncertainty

Off The Grid | removed positions / short selling opportunities

1. ANYTHING EUROPE

   1. Europe is typically a few steps behind the Fed in decision making, but behold they started to raise rates into a...wait for it...economic slow down! Short the **** out of Europe.

   2. $EPOL, $EUFN, $EWG, $EWQ, $EWP

2. RUSSELL 2000

   1. The Russell 2000 is the stock index that tracks "small cap" companies. When the economy slows these companies are some of the first to jump ship as their balance sheets can't support a slowdown. $IWM is your ticker here, short the **** out of the Russell.

Until next week....

-BW

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.