This is how a bull market feels. Embrace it. Quad 1-2!
And: far from frothy...
O.k.: Quad 1-2, bullish is the call for next week.
This was the call last week for this week:
This is the call this week for next week:
For new subscribers: The bullish Quad 1-2 call from 11/3/2023 is still playing out.
Here is the why:
What I am seeing a lot on X:
From mid-December on people tried to short this market and calling for a top
“This is like 1999”
“I am still 90% in cash; I do not trust this market.”
BTFD is a non-subject on X right now.
Bitcoin rallies and it is nowhere in the media, I see no laser eyes on X.
Now let’s get some perspective:
The Nasdaq 100 is 7.2% above the high of 2021:
Everything can happen, we can get a Quad 3 or 4 next week.
But it is unlikely. And if, I expect it to be brief.
Here is why:
Liquidity is up —> Reference to Crossborder Capital. There is not a more important factor that drives the stock market.
Inflation is down (watch truflation.com, they have been right this whole cycle), which lifts price earnings ratios (80% of the price / earnings ratios of growth stocks are driven by inflation, if it gets lower from above 2% into the direction of 2% it is bullish for long duration stocks, e.g. growth stocks). Will inflation be back? I have no idea, but the market is pricing in growth now, not inflation, so we can worry later.
Factor Momentum of strong trending Factors (Higher Beta, Relative Strength of Higher Beta Stocks, and Long-Term Reversals) is strong (show momentum with relative strength), e.g. we are in a Quad 1-2 which is bullish.
Example for a long-term reversal (patterns like this are all over the place):
The goats do exactly this:
Read carefully, what Druck (for me the best trader in the world, remember he prints > 30% a year with billions!) has to say:
· “Focus on the central banks” (plural!) [for this I am subscribing to Crossborder Capital, and binge watch all their Videos]
· “It’s liquidity that moves markets.”
· “I use liquidity considerations and technical analysis for timing.”
Now the question is, is it frothy?
I do not think so at all. NOT AT ALL!
This is the start of a normal bull market.
Yes, breakout and CANSLIM traders print money right now (a friend of me is up 140% YTD, episodic pivots on earnings working like clockwork right now), but they had a difficult market from March 2021 - May 2023, just to get difficult again from August to October 2023.
Easy markets follow difficult markets.
Let’s go back to the 90s: Basically from 90 to 97 (until LTCM) we had super, super easy markets.
This can happen again, be open to that possibility.
Just because we are up 7.2% (maybe a bit higher now, I measured on Thursday I think) from the high of 2021 (this is 26 months ago!) does not mean we are in bubble.
Now if we add all together:
#secularbullmarketUSA —> structurally the US is very, very well positioned, everybody who says the US has a demographic issue, should go back to 8th grade math, and calculate the numbers again. Gen Y and Gen Z are both (!) bigger than the boomers, basically two generations bigger than the boomers in a row. For a free, secure (!), capitalistic country with abundant resources and the best innovation risk takers and the best shareholder orientation in the world: that prints a secular bull market. It will be bigger and longer than the 90s, because around 2000 Xers (much smaller than the Boomers) put out schools and businesses: less people translated to less demand and less innovation creation. Count people!
Liquidity is up (very probably all the way until the end of 2025)
Inflation is down.
We have Quad 1 - 2, the market prices in growth (not inflation!).
Yes, breadth is not super hot, trashy small caps are not participating:
Now look at PSCI (industrial small caps with good fundamentals): All time high!
So, it depends. Stocks with good fundamentals (especially quality with growth now) get a bid, no matter the size.
But also: a bull market needs no small caps or micro caps. And fundamentally stellar small caps do not need necessarily (!) a bull market.
The statement a bull market cannot survive with weaker breadth is plain wrong: breadth was thin 1998-2000 and Buffett was called out that he lost his hand (just to outperform from 2000 on, when the market was “thin” on tech stocks and “thicker” on quality).
As written in “How to make money in stocks”: the behavior of leading stocks is much more important. And they show up in the Quads.
Jason:
Crossborder Capital via Peter Atwater (the Economist is bearish). The less people believe in a new bull market the better for the trend:
From Growth To Value via Ray Dalio:
Seth Golden:
Stockbee:
Yep!
Will this end badly? Well, every bull market ends badly, that is just the name of the game. The bigger the bubble the worse the following bear market. And the worse the bear market the bigger the following bull market (at least for the US).
Be long in bull markets (with alpha adding strategies via Portfolio123.com) and be hedged or in cash in bear markets. We catch both via Liquidity, Inflation, and the Network Momentum (aka the Quads).
Sure, we might be off for a couple of weeks and if the Quads change to 3-4, we will have a 10% drawdown (probably, not necessarily, especially not on the small cap strategies, they can hold up very long, 50/50 chance that they do).
But do we want to miss a bull market because we fear a 10% drawdown that could print > 500% for small cap value momentum strategies, > 100% for big cap earnings / momentum strategies and > 1000% for skilled CANSLIM / breakout traders in this bull?
I am 110% long.
All the best and best regards.
Andreas
P.S.:
Housekeeping —>
P123 Strategies:
Here is a test drive for P123: https://www.portfolio123.com/index.jsp?apc=judgetrade
Rentable P123 strategies: https://www.portfolio123.com/app/r2g —> filter for judgetrade —> Most of my strategies rentable on P123 are fully booked now.
New stuff coming soon (P123 wants 90 days out of sample, right way to go), here is one example:
Only 4 buy rules and sell rules altogether (Earnings baby, earnings!), Core combination ranking system (which is out of sample for years). Strategy combines Quality and good Earnings, stocks out of the SPY universe. 10 Stocks (concentration, otherwise such performance is not possible), weekly rebalance.
Pure Quad 1-2 strategy (get the hell protected in Quad 3-4, high beta is not so hot then, the strategy will go down in a Quad 3-4!) can be hedged in Quad 3-4 (though I do not recommend it, I would raise cash or buy the BIL ETF instead, since one can be in and out of those names extremely fast).
Here the hedged version (20% TWM on it).
Looking forward seeing this out of sample!
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