BUZZ vs SPY may confirm change direction

Look at the previous post on the ETF: BUZZ

 

Update on XLY, XLP vs SPY

 

What a difference a few days make.

Prices as of the close on Thursday, January 12, 2023.

 

Another Stock Market Indicator

In the past, I have illustrated a few ratios that have measured investor sentiment on future stock market direction.

In this post, I will add another, the relative strength between the consumer discretionary sector (XLY ) and consumer staples(XLP).

Historically when the consumer discretionary sector (XLY) outperforms the discretionary sector(XLP), the overall market (SPY) has been bullish.

The relative strength swap doe not always indicates a change, but the trade-off is always worth noticing.

The following is the relative strength of XLY vs XLP with the SPY as of the close of Monday, January 9, 2023.

As illustrated, XLP is still doing better than XLY.

TACK ETF looks like a winner.

In the current issue (December 2022) of Technical Analysis of Stocks and Commodities, there is an interview with Katie Stockton,  a founder,

and managing partner of Fairlead Strategies LLC.

Fairchild, which uses technical analysis as its main focus, has developed a sector-focused actively managed ETF; Fairchild Tactactical Sector (TACK) which started trading at $25.00 on March 22, 2022.

The universe of ETFs for TACK includes the 11 Select Sector SPDRs as well as SPDR Gold (GLD) and SPTL and SPTS, the long and short-term SPDR ETFs.

The fund, according to the article, holds from five to eight positions in the portfolio at any one time.

The fund rebalances, that is, adjusts on a monthly basis. It uses monthly data only.

I assume it uses some sort of relative strength algorithm.

 

The relative performance to the overall market ETF SPY has been very nice.

The following chart shows that from the funds’ inception to the close yesterday, December 21, 2022.

TACK, from its inception of $25.00 to the close of December 21, 2022, of $23.70 has lost approximately 5.48%, while the SPY on that date was at 446.53 and at the close of December 21, 2022, was at 363.23,  a loss of approximately 18.65% Excellent relative performance of plus 13.17%  over the approximately eight-month period.

There are numerous ways to trade this rising star ETF. A pair’s trade or outright long when it has high relative strength with positive momentum.

ASML may have been a better investment for Berkshire?

ASML manufactures equipment to make semiconductors. Taiwan Semiconductors is a customer.

The following shows the relative strength of TSM versus ASML.

TSM is stronger when the vertical line is GREEN. ASML is stronger when the vertical line is RED.

It may make an excellent pairs trade. The correlation is very high.

Prices are pre-opening on November 17, 2022.

Berkshire Hathaway and Taiwan Semiconductor Manufacturing

Yesterday WSJ (Nov 16, 2022) noted in its latest filings that Berkshire Hathaway, which in the past had avoided technology, had purchased 60 million shares of TSMC valued at roughly $4.1 billion which is one of Berkshire’s top 10 holdings.

The following graph shows TSM’s price history over the past few months.

Volume is at the bottom.

 

Prices are as of 8:30 on November 17, 2022

 

Hedge against bond market decline

During the 1998 stock market decline of 21%, I was a managing partner of two convertible arbitrage hedge funds. It should have been a home run for the convertible arbitrage community, but there was also a decline in the fixed income market that happened at the same time.

The long side in the convertible arbitrage position is supposed to decline at a much slower rate than the short side equity decline.  That is where the profit comes from. In 1998, as in today’s market, that is not happening. I was not alone. There was a flight from quality, as that was the most liquid part of the market.

This problem led most of the convertible arbitrage community to try and figure out a way to hedge the long side against fixed income decline at the same time as equity declines.

The futures market offered a partial solution, but many of us did not use it because of various reasons. The main reason was that outside counsel advised us that if we were to use futures we had to register as a commodity pool operator with the CFTC, and we were unwilling to put ourselves in another regulatory situation.

TODAY THERE IS A BETTER WAY:

“The Simplify Interest Rate Hedge ETF (PFIX) seeks to hedge interest rate movements arising from rising long-term interest rates and to benefit from market stress when fixed income volatility increases.

T­he fund holds a large position in over-the-counter (OTC) interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility.Using OTC derivatives, usually only available to institutional investors, PFIX is designed to be functionally similar to owning a position in long-dated put options on 20-year US Treasury bonds. Since the option position is held for an extended period, the ETF provides a simple and transparent interest rate hedge.”

For more information, go to the Simplify website.

The following graph portrays PFIX in relation to SPY, the ETF of the S&P 500. Close as of the close of Tuesday, September 27, 2022.

The swap from SPY to PFIX is at the Green vertical lines.

The trade would make an interesting momemtum-based pairs trade.

 

 

 

PayPal versus Visa

I am a subscriber to Seeking Alpha which during the day updates its readers with many blurbs about what the Wall Street research is telling their readers.

This morning, September 21, 2022, I received the following:

  • Bank of America has added PayPal Holdings (NASDAQ:PYPL) and removed Visa (NYSE:V) to its US 1 list, which represents the firms best investment ideas from its Buy-rated, U.S.-listed stocks. BofA keeps its buy rating on Visa.

  • In Wednesday premarket trading, PayPal (PYPL) has gained 0.6%, and Visa (V) was up 0.2%.

  • By contrast, SA’s Quant system, which historically outperforms the market, has a Hold rating on PayPal (PYPL) as well as on Visa (V).

I have charted the relative performance of PYPL vs V over the last few monthe with the results below.

The swap between PYPL and V should have happened on July 22, 2022

 

SNAP dissapoints everyone.

SNAP, the provider of Snapchat over the past year has reported negative news after negative news. Now there is some news about its compensation practices which put into question more questions about the future viability of the company.

The attached charts illustrate the stock journey. Prices are as of the close of Monday, August 1, 2022

 

Early Warning Indicator