Quad 4 with a * Bearish, but not a crash!
But avoid very high beta stuff and former highflyers that are breaking down!
So, the bearish pivot from this Monday 3/14/2024 was the right move so far.
I call a Quad 4 with a * for the next week.
[The “3cm” on the chart means Quad2 call of last Friday was corrected to a bearish Quad 3 call on Monday 3/15/2024].
The Quad 4* means that I do not expect a crash. Another 5-7% (maybe 10%, but not 50%!) drawdown on the SPY yes (much more on the QQQs though, 15-20 % DD altogether is very possible). Gun to my head: we will wiggle around in the second quarter (comparable to August - end of October last year).
Yes, the QQQs and some former highflyers can lose a ton here, do not invest in the leaders of yesterday (NVDA, SMCI etc.), especially if they have a high beta. Those stocks will get killed in a Quad 4 (also in a Quad 4 with a *).
But liquidity (yes, we have a little dip here and the dream of the FED mega pivot will not come, but the picture is not too bleak) is up and that means the market will still give opportunities.
Compare the performance of AXP +6% and NVDA -10% of today and it is clearer what I mean.
For example, I am not too worried at all for my small cap value momentum book with an earnings tilt (this is Thursdays close, it was flat today, while the market was down).
It hold up very well in 2022 and I expect a better market than 2022!
(From 24 stocks there only 2 Tech stocks in the book right now).
The situation is more like in 2021, yes, the big gains are behind us (on the index level), but again, I think there are still ample opportunities.
A shallow Quad 3 or 4 (while liquidity is up in 2024) is not too bad for small cap value momentum. Combine it with a short on the QQQs (20-25%) and I think we will do fine.
I think pair trades should do also well (long XLU 15% XLP 25% GLD 30% and a short on the QQQs 30%) could be implemented (until the Quads change!). Again, I would not long energy here, Quad 4 is dominating. I am not sure on the dollar, it had a good run.
Do not sub to my big cap systems, it makes no sense longing this stuff now!
One more thing on higher beta stocks: AI will disappoint! It will disappoint big time; I would avoid everything that is even close to AI on the long side. ChatGPT is a great tool, I use it very often for my consultant work. But that is the problem: it is an expert tool, not comparable for example to Google. The AI market is tiny compared to search.
I have a strong IT background (been in IT Consulting for over 20 Years) and I tell you AI implementations for example for CRM-Applications are big, big implementation projects and very often simple statistical (“which lead is the best to follow up”) stuff costs 20% of the work and brings 80% of the profit. Very often it is labeled as AI, and it is simple statistic under the hood (which we use since the beginning of programming since the 40s!).
The sun will shine for AI, but it will disappoint first (same happened from 2000 - 2003 for internet stocks).
AI Stocks are there where ARKK was in March / April 2021, a lot of pain to come. A big call I know, but I think the AI market broke today.
All the best and best regards.
Andreas
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