11/2 Daily Market Note: God Candle has Appeared.
11/2 Premium Strategy Note: Time to protect profits and enjoy the weekend.
Note: Thank you to all friends who joined my flash sale yesterday. I will do my best to help you. Today’s note will be investor psychology. This note is made public.
Friends-
To put it lightly, the S&P 500 put in a Green God Weekly Candle this week. A God Candle is price movement that essentially every long investor/trader has been waiting for – a massive surge across the board. Now although this type of price action is of course extremely favorable for me and others, the truth is behind this move, emotions are most likely running very high:
Those who missed out feel compelled to chase
Those who were short-selling feel compelled to cover
And those who are already in may want to buy more.
During peak bearishness late last week, I did in fact try my best to help the Public position appropriately. See my tweet here (make sure to follow me on Twitter).
The higher the intensity of emotions at a particular time in market cycles, the larger and the more pronounced the swings will be. My rules-based methodology essentially helped me to capture a lot of this week’s advance, but was I up 5% like the S&P 500 or Nasdaq.
It was a very good week but I perhaps caught half the percentage size move.
Do I feel FOMO? Yes, as any person would, a bit. But methodology is methodology, and I must take profits level to level. What we saw this week, while extremely exciting, is not necessarily sustainable in a durable repeatable manner. Near-term momentum continues to be positive, but lifting Stops well above entries to ensure profitable exits continues to be the guidance shared with members.
Let’s talk about the earnings landscape and the opportunity set that I’ve been focusing on.
In Mid-October, one of my core ideas was that Starbucks was modestly mis-priced when it traded 93/share.
Reasoning for this was that Wall Street same store sales growth expectations for the U.S. and China were subdued. But based on what I saw in Mainland China while I was there in September for 2 weeks, I saw store traffic being very strong across nearly every city I was in. The narrative that China sales slowed down for Starbucks just did not match what I saw on the ground. Upon returning and some further DCF modeling and technical analysis, I viewed SBUX as a good company at a good price.
Finding these ideas sometimes requires me to be out of the office. How else was I supposed to know that China Starbucks sales being “slow” was absolutely false? Members who patiently waited for my research observations upon returning in early October got a souvenir (if you know what I mean).
This morning SBUX reported earnings, and they now validated my observations – now trading at 100/share.
What about November FOMC?
After yesterday’s FOMC meeting and the collapse in yields, I reviewed my journal and noted that interest-rate sensitive sectors like small cap ETF IWM would stage perhaps a modest recovery at its technical triple bottom at 166. I sent a note out to members that a light entry may serve positive diversification effects. IWM sees a nice 2% bump today to already near my conservative target, in the context of a long-term bear market for small caps. Same story with RSP.
My methodology seeks to find slight mis-pricing, wait for a high probability entry, and then look for a 2-4% profit target. Doing this over, and over, and over again.
I’ll have more ideas on Monday. But until then, don’t FOMO. I like Q4 seasonality and the broad setup, but this week has forced me to increase my cash positioning again as many targets have been met and put me back into waiting mode.
I’ll continue to share ideas when I see them, but for me personally, I’m taking it easy for the next few sessions.
Thanks again for a wonderful Community. Good luck with Apple earnings tonight.
-Larry
Forward-looking Conclusions of this note:
Macro: I heard hawkishness from the Fed and this will re-appear as a longer-term problem. In the meantime, short-covering is driving a significant rally that is causing positive price loop effects like momentum and FOMO.
Stock-Specific: Names provided on Monday have essentially reached targets. Protecting profits is equally as important as finding good entries.
Bonds: Earlier this week, we talked about Nov FOMC marking an intermediate-term top in yields. TLT is now advancing towards 88. At 88 or above, I don’t have an edge. I did at 85 and beneath. But not at 88.
China: I believe China ADRs and Hang Seng will play catch up to the market rally. Once again, this will simply take time.
I will do my best to keep you as updated on my research, ideas, and setups.
I cannot take any 1:1 questions related to individual positioning or guide on individual transactions.
My work here is solely an expression of my personal journaling, but must not be treated as formal financial advice.
Thank you again for a wonderful Community, and please encourage friends & family to join our group here.
Disclaimer: My investment community is not investment, financial, or trading advice, but for educational informational purposes only. I am happy to share my personal opinions which I provide as my personal journal. Trading of any kind of securities involves a lot of risk. No guarantee of any profit whatsoever is made. Investors may lose everything they have. Practice extreme caution. No profit is guaranteed whatsoever, You assume the entire cost and risk of any trading or investing activities you choose to undertake. You are solely responsible for making your own investment decisions. Owners/authors of this publication are NOT registered as securities broker-dealers or investment advisors either with the U.S. SEC, CFTC or with any other securities/regulatory authority. Make sure to consult with a registered investment advisor, broker-dealer, and/or financial advisor.
