We Have a Ripper

I have been allocating all day, tactically on the long side, leveraged long at 121% equity. It is a rare occasion when I step into the arena with the confidence of a lion amidst the zebra; but that is exactly what I am doing today.

I do not need to justify myself, only to tell you that is what I am doing. I am long a pastiche of names, mostly in tech, but in other areas too. I have a large $TQQQ position in order to capture the NASDAQ and have a long bias predicated on recent mean reversion signals inside Stocklabs and also my own intuition.

Some of you at the gymnasium now believe you to be better than me, because you are +2.38% to my paltry +0.54%; but you’d be wrong. One thousand years could elapse and of those 1,000 you might best me in a handful of months, likely due to me being bored or distracted with idle nuisances. You should feel solace in the fact you have access to me, an extraordinary mind in the market place of ideas, a person multi faceted, multi talented, polymath to the maximum degrees.

Whilst it’s true, my annual gains are pedestrian at just 11% and being pedestrian isn’t something noble or in fact “extraordinary.” But I entreat you to keep watching and pay attention to the rhythm of my cadence, as I eventually and ultimately crush markets with the fervor of a hippopatamus inside a china shoppe.

Quick thoughts on rates and their relationship with stocks:

We found a way to circumvent economic cycles, apparently, and went through a massive hiking cycle without seeing it affect markets or the general economy to any large degree. Now with rates heading lower, Wall Street is already hopping on asset classes that traditionally benefit: namely REITs.

$IYR

REITs are heavily indebted entities who pay out 90% of profits in the form of dividends. Other areas that benefit from lower rates include, but not limited to, industrials, homebuilders, utilities and any company reliant on debt issuance. With rates coming down, those stocks might undergo “multiple expansion” to account for the increased profitability they’re going to enjoy with lower cost to borrow and service their debt.

The only downside to cheaper credit is the potential said credit might one day lead to another bubble. We’ll cross that road once there.

It was supposed to be all bad and then it ended up all good, leaving me with a sentimental feeling of success and fervor, something akin to how I felt every single day during the 2020 to 2021 markets. I closed +153bps, with some pretty extraordinary day trades, which I still have on.

My intent is to perhaps liquidate them at the open and keep a core group of stocks in the kitty. While markets did close great today and the Stocklabs oversold signal did bank once again, I’d be lying to you if I said “the coast is clear.”

Here are the open positions I took this morning.

Had I not done anything and just sat there like a fucking moron, like most of your advisors, I’d barely be up today, or perhaps down.

How predictable is this tape? Quite. It tanks every fucking morning at the open and then jimmies higher for the duration. I track the actual stats.

That’s 1 up 6 down in $QQQ from the 10am to 11am hour, for the net loss of 0.58%

People figured out it was all bullshit and have now lit up markets with buy orders. I have positioned myself for such an occasion and turned my frown upside down, now +15bps up more than 1% from my lows.

During periods like this it’s important to remember that Le Fly will reign supreme and figure it out. Just when you think Fly is finished and lots in the amber of his own machination, BAM! he comes back with a 10 trade winning streak.

Are we bullish? Yes. We are also hesitant about small caps, since the smalls suck. Think of the small caps like you would the poors and understand they have very little to offer, aside form idle entertainment.

Into the close, I am confident in the rally maintaining or even adding to the tone and tenor, reducing the bears to caricatures of their own monstrosities.

This could be the worst tape of them all, with absolutely no place to hide. The Dow is being taken to the woodshed, off by nearly 700. All of the defensive areas are down 1 to 1.5% and the sole outperformers are in solar, since both Trump and Harris like it.

The huge standout is the banks. After the $JPM plunge yesterday you’d think we’d get a bounce, but not even close. The $XLF is hammered for 2.3% and the $KRE is off by 3.4%. The Russell is lower by 1.85% and breadth is an abysmal 28%. We have gone straight to hell from the open, all red candles, nothing but pain.

The reason, apparently, is Trump lost the debate. To me, that makes no sense, even if it were true. No one really gives a fuck about the debate and minds were not changed. But that’s the way it was perceived and that’s why Trump sensitive sectors are getting railed.

Unfortunately, I have a portfolio filled with defensive stocks and those aren’t being defensive today, in spite of rates dropping again. I will hold these for another day to see if we turn up tomorrow and maintain an 11.5% hedge in $TZA, but still down 94bps for the session.

This is my worst month since August 2023 and typifies the type of year I am having, middling. I am +8.5% for 2024, way off previous years and frankly struggling to find my fat pitch or any semblance of rhythm. The good news for all of you, or at least the one’s emailing me to potentially manage your money, is that I am streaky and by the time I am ready to go, I will most likely be due for a streak to the upside.

No matter how poorly I trade and for how long, I always manage to bust loose to new highs. I find the key during periods of duress is not try to “make up” for losses in a day via wild eyed gambits. Often times people overcompensate for losses with insane bets in the hopes of turning it around and that’s exactly what they are: hopes.

Into tomorrow I am 33% cash, 11.5% $SQQQ, the rest long. I had some hedges very green earlier but didn’t close them out before the 1,000 green candles into the close. I can either sulk about it or forget it, since it already happened. I will choose to undoubtedly fucking sulk on it.

Enough is enough. I tried to be like you, normal. I wanted to buy and hold and not feel anxious after every red candle, thinking to myself “this too shall pass.” But the I got to thinking “what if it doesn’t? What if this is THE ONE and I am here holding a bag of dicks?”

In all of my years experiencing the market I an certain about only 1 thing: I am better than almost everyone I come across when trading stocks. Now if that’s true and I think I’ve proven my bonafides on here over the years, why the fuck am I dicking around with 38 positions?

While it’s true, it’s hard to manage a fluid portfolio. My advisors buddies lament over the idea of doing any trades at all. They prefer to sleep in and have the management outsourced. But if I ever did that, I’d rather blow out my brains.

I am here for the fires and the tumult, the jovial laughter and the tears. I am not a fucking victim and won’t be treated as such by the God forsaken market. Sure, there are lots of great companies out there and over the long term, I am sure many of them will do great. I will most certainly be paying attention to the details. But this market we have right now sucks and it isn’t getting any better. So until things start to turn up and volatility eases up a bit, I am switching to a tactical portfolio, if only for my own peace of mind.

The rationale for this change was to “trade around” a cadre of well meaning stocks, which is something I still intend to do; but not right now.

It’s a nice bounce day, albeit a volatile one with lots of fucking bumps along the road. If markets splashed into the close and ravaged longs, would you be surprised? I didn’t think so.

Look at this technical patterns the past 5 days, not exactly one that instills a modicum of confidence.

I am gong with a bullish bounce, not because I am super bullish per se but out of reflex. The market has been oversold and usually those conditions warrant some mean reversion. Now if I continue on a cautious or bearish scheme and markets rip higher, I will quite literally want to toss myself into a vat of acid and call it a day. But if markets trade lower and I lose some money, I could at least say to myself “Fly, you’re an idiot, but at least you followed a plan.”

I entered today beta neutral via $SQQQ, so I have very few gains to boast about. In an ideal world, I’d be up 5% today and making fun of all of you for being up less than 0.2%; but alas, this is the journey I’ve chosen and I’ll just have to dream about those sort of sordid returns, for the time being.

Here is what we do know about today’s tape:

Most stocks are up, especially high growth oversold sectors
$NVDA is up, the all important oracle of today’s market
Yields are flat and the dollar is up marginally against the Yen

The Yen Carry trade continues to unravel and has been a source of concern for plebeians trading to and fro. Due to the tenuous condition of the market, I am 33% cash with several short term positions in place that can be sold to get me over 40%. The reason why I am so cash heavy is due to the technical breakdown in the Nasdaq and the $SPY.

Even still, high beta stocks are up and SAAS stocks are up and we should enjoy a respite from the selling soon. Although I just closed out an $SQQQ trade and still feel there is a chance this entire rally unravels to plunges into the abyss, I am willing to give it a shot on the upside, only because recent history says that’s the most likely course of action.

During down periods in the market it’s normal to feel a sense of helplessness, as former winners turn to losers and the world view you thought made sense no longer applies. From a psychological level, this is extremely disjointing and if you’re an anxious person, it could lead to either over trading or missing out on the eventual turn.

It’s also important during these periods to understand how rotations work and the sort of stocks considered to be “secular”, better typified as “low beta”, tend to do very well whilst all of the high grow stuff gets taken to the woodshed.

Here are some outperformers that were up both over the past week and two weeks in the market, while the broader indices suffered.

Broader metrics

Total stocks +2% over 1 week and +2% over two weeks: 117
Average beta: 0.65
Median rev growth: +3.89%
Gross margins: +56%
Median market cap: $6.9b

By sector:

BM: BAK, MP
CG: PG, PM, MDLZ, BTI, MNST, GIS, CHD, TSN, MKC, CLX, CAG, CPB
FIN: CME, WELL, TRV, SUI, WPC, MKTX, NNN, BMA, SKT
HEATH: SNY, ZTS, KVUE, ARGX, BAX, PODD
INDUST: SRCL, AGX
SERVICE: LUV, UAL, GME, LBTYA, ALK, JWN, DNUT
TECH: T, AMT, CCI, BCE, ORAN, VOD, TEF, SBAC,TU
UTES: SO, DUK, PCG, XEL

That’s narrow. Consider that amongst thousands of publicly traded stocks, only 117 were up in both the last week and two. Also consider that the stocks that traded up were either consumer staples or REITs, telecom or airlines. And what do they all have in common: heavily indebted, likely to see an improvement in their balance sheets because of lower borrowing costs. This is a play off lower rates.

When markets turn, these stocks will not participate on the upside, so be careful about entering the defensive trade too late.