Where have I been?
192: The Weekly Selection
Introduction
Hey all, it has been a while. Before we jump in, I would like to say that while I want to bring content that is of value each and every week, sometimes even I need a break.
I spent the last couple weeks traveling to Spain and resetting after a tremendous first half of the year, and abstained from posting as to not clog the channels with information that I did not believe to be impactful for any of my readers. This is obviously a tough choice to make with thousands of you waiting on my next piece, but I believe in the quality and timing of my work, and did what I thought was best. For those who have reached out lately, I will get back to you all this week.
Now that that is over with, lets get into the work!
Overview
The question isn’t when a good environment will come, it is whether or not you have the ability to capitalize on it when it does. April of this year offered an exceptional opportunity to buy high quality stocks that were already leaders before, and are still holding up better than most.
The knowledge to seize an opportunity like this allows you to get premium buys on stocks that wont stop out even through a turbulent stretch like we are seeing now. This is the essence of my portfolio strategy. Catching high quality stocks when general sentiment is uneasy, and then holding through the trouble and monitoring strength as it comes. Does this mean my capital is tied up for longer in fewer positions? Yes. However, it also means that I generally do not have to do nearly as much active management to deliver exceptional returns. This has worked for a few years now, and until that changes, I will continue to deploy this strategy.
Speaking of turbulence, peep SPY below to see why so many of the leadership names are getting “shot down”.
The way I view this chart is pretty simple. A break to new highs should create new leadership themes to trade that have been sideways for a while, at which point I will deploy more capital into the market. A breakdown initiates a more defensive attitude in my portfolio, and I will begin to assess if my stocks are no longer showing the RS they have in similar historical scenarios.
But what do I mean by that?
If we look at earlier this year, the range SPY traded in before late February was pretty much dead volume, meaning relative strength and weakness was easy to see. At the time, almost all of my stocks were trading up or flat during that time. At the present, most of my stuff is just bouncing around, but if say, SPY trades below the range and my stocks begin to accelerate downwards, I will know that they are no longer showcasing the strength and defensive nature I bought them for. At that time I will begin to offload them.
Looking Forward
Lets not beat around the bush. The charts are not looking good. I ran my scan and instead of showing me price action the screen just flashed a photo of a Mcdonald’s application instead. However, I have found that the infrastructure trade is still holding up, and that gives me the same feeling I had earlier this year before Trump changed tune on Iran. IMO, as long as the companies that are laying the foundation and actually generating growth are continuing to act decent, it means there will be speculation in their ancillary and downstream trades.
Now the question is, how do we enter these ideas if the environment sucks and the charts are just as bad? The approach is forked:
Option A: Gradual Improvement
Breakouts begin to work
Deal news sticks and pivots explode
New themes emerge and lead
Option B: Shock
Trump pulls a new stunt that shocks the market higher
Creates new value through capital injection
Fed playbook revealed softer than anticipated
In both scenarios, the market shows improvement, just taking different routes to get there. Being ready for these opportunities is critical in spotting buys like early April offered. As for what names to buy, focus on what already worked and has shown general leadership over the last couple years. That does not mean what has gone vertical for the last month, it means what stocks have been consistent grinders and outperformers in market upswings. After establishing a base basket of good stocks that you have wanted to own before and act well in an uptrend, then go to the new merchandise that has extreme momo and recency biased leadership qualities that everyone touts on X and other forums.
Expect a new piece later this week breaking down my current portfolio and holdings, as well as some of the charts that I think are beginning to showcase the qualities I have discussed here today.
It is good to be back and writing again, see you all soon!