Hello everyone,
I will do a brief portfolio review before doing my weekly market analysis today.
Portfolio review
My trading approach is to identify relative strength and follow breakouts. Here's what current market leadership looks like:
For many quarters now, we’ve seen consistent leadership in:
Semis & computer hardware
Infrastructure
Financials
Japan
Bitcoin
The first four on the list are areas I have been in for a while now, with half of my portfolio. I’ve also maintained full long exposure to stocks since early November.
That part has been good, but there have been many mistakes I made that I want to discuss:
Regarding Japan, I should’ve been allocated to the currency-hedged DXJ rather than EWJ. Leadership boards have indicated this for over a year, and I failed to listen.
I recently entered a new 5% position in Bitcoin when it made a 3-year breakout to new highs. However, Bitcoin leadership has been apparent for about a year now, and there were many breakout opportunities for me to get in at lower prices.
In recent months, many smaller trades I placed in high-beta areas (eg. uranium, fintech, biotech, and weed) have failed. While this is not a trading mistake (failed trades are part of the process), it could be telling something about the market or my approach.
With the current leadership in mind, let’s dive into a market review.
Broad Market
Each week, we’ve been looking at how this market remains risk-on. A summary of bullish developments include:
Major multi-year breakouts in a growing number of sectors and global regions.
Bullish indicators: Two rare breadth thrusts last year, defensive sectors continue to lag, and the Coppock Curve signals a long-term uptrend.
Bullish positioning: Hedgers became record-long stocks last May and remain long.
Now that the S&P 500 is up 25% in the past five months, could we see a healthy pullback? It’s possible. On my public Twitter account, I posted a couple of threads showing some warning signs for stocks, such as insider selling in select tech stocks and a few bearish divergences.
Does this mean I get bearish? No. I measure myself against a benchmark and try to stay objective. Several members are Financial Advisors who will relate to this.
Prices remain above recent breakouts in broad indices and several sectors. Any potential pullback should be relatively shallow. Recall the breakout in VT (Total World Stock ETF) from two months ago:
A retest of this breakout level would imply a 6% pullback for VT.
Roughly 60% of VT is in US stocks, which have led the rest of the world. Relative to the MSCI World ex-USA index, the S&P 500 bounced this week after retesting a 1-year breakout within a multi-decade uptrend (link). Thus, if VT sees a 6% pullback, perhaps SPY falls even less.