Has the rally legs?
Still Stagflation!
I was thinking hard about getting longer before the FED Meeting, I did not make a call this time, I have not seen a setup, so I did not change anything in my port.
Absolutely no relative strength from high beta stuff, so I did not make the call:
ETF Model doing fine:
All longs are bullish trend, with XLE close to ATH (Chart uses exclusive indicators from www.carusoinsights.com, blue background: relative strength adjusted for beta):
My hedged illiquid small cap value momentum o.k. too:
There is once again a great article from MSCI:
https://www.msci.com/www/blog-posts/factors-in-focus-disentangling/03100660256
No sell signals (that would be lower highs, lower lows) from illiquid small cap value momentum at all:
So basically, we are good to go from here: small size, value and momentum are the places to be long and the short protects from volatility.
In my book we are still in stagflation:
Also, the crowding “fits” to stagflation with high beta still overcrowded:
I had some discussions with people working with institutional clients.
There is a big fight between growth believers and value believers.
Growth bugs want to buy the dip in growth.
Value bugs say that is wrong.
So, let’s say we have no edge in calling a decade of value and higher inflation, even we see underinvestment in commodities (10 Years), slowing shale oil production from the US, deglobalization, an inflationary war, stimmy checks based on rising populism, Buffett buying big oil, a fairly aggressive Fed etc.
Still, why would we buy something that is bearish trend instead of buying something that has a bullish trend?
Yes, I am biased, because an inflationary regime would be perfect for my illiquid small cap value momentum models.
But would I buy high into high beta systems or cryptos if they would have relative strength, being not overcrowded, China ARDs bullish confirming, Goldilocks or Reflation economic regime?
You bet!
But they are not showing all of the above, they show the opposite!
So that discussion between growth and value is futile.
Every bug gets crushed in the market when the market changes.
Be a gold bug, be a value bug, be a growth bug, be a crypto bug and one day the market changes and you might look for years and years of underperformance.
And if you are a high beta bug and the market changes, you will be hurt the hardest (like me from 2000-2003!).
I get it, we all want to belong to a group, we all want to believe (and me beeing guilty in believing in a decade long value outperformance and trying hard that this is not clowding my trading). But we are here to make money. So it is better to believe in a process that embraces change than believing in a bug idea that will (someday) underperform or even kill.
You decide ;-)
Have a great week!!!
Disclaimer: For educational purpose only. Not investment advice. Seek professional advice from a financial advisor before making any investing decisions.