The H.E.A.T. Formula
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The H.E.A.T. Formula is a radically different way to look at investing your portfolio.
H- Hedges, you should always have hedges and be agnostic as to being long or short. Bonds are not a hedge
E-Edges, you should always look for edges. Preferably these are edges with some sort of psychological underpinning, structural edges, or some sort of barrier to entry.
A-Asymmetric. Everything you do, be it trades or your overall portfolio, should be designed so that heads you win a lot, tails you lose a little.
T-Themes. You should always be invested in the top themes. Most everything else is just noise.
We will continue to build out our resources here to help. In the meantime we have a model Hedges and Edges ETF portfolio.
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Have been expecting some sort of sell off, which happened yesterday. Time will tell if that was it, or we get more. Remember, CPI is tomorrow. Interesting note from Jonathan Krinsky last night about momentum stocks.....
In our Sunday note we discussed how the momentum factor was historically stretched, by some metrics the most in 16 years. While we didn't expect it to unwind immediately, that's essentially what happened with the GS High Beta Momentum Long/Short index (GSPRHIMO) suffering its worst daily decline (-6.05%)since Feb. '23. The MS Momentum Long Index (MSQQUMOL) lost -4.37%, one of its worst daily declines in the last few years. What was so unusual about the fall in momentum was that it occurred immediately following a 52-week high. This combined with an unusual breadth anomaly is flashing a yellow light for risk.
And Mike O'Rourke.....
Despite the numerous macro developments over the weekend, from our vantage point the most dominant factor in today's trading was a momentum unwind tied to the Morgan Stanley US Momentum Index. The Long/Short index had a return of 65% year to date coming into today's session. The index cratered 6.7% in the first 90 minutes of trading today before settling in for a5.5% decline on the session. It was the largest single day decline for the index since early February of 2023. It appears the beneficiary of the MS momentum unwind was the Morgan Stanley US Value index, which is also a Long/Short basket (chart below). The Morgan Stanley US Value index was down 20%year to date coming into today, and most of that damage was incurred since September and primarily due to the short basket.
These types of rotations aren't usually one day wonders so I would continue to be cautious. A lot of the stocks I have been watching and waiting for entry points got crushed yesterday. Not looking to pull the trigger on anything just yet.
Keep an eye on this today....
Oracle’s roaring stock rally cools as latest results fail to live up to the hype-MarketWatch
My sense is you want to find a spot to buy the dip. An undercut and rally at the 50 day could be interesting, as could the October low of $167.40, or looking to the $170 level for support.
I totally missed this one waiting for a pullback to get in, maybe something around this meeting...
GE Vernova Will Talk Growth Tuesday. Could a Dividend Be Next?-Barron's
In other areas I am watching, we did get a pop in the gold miners yesterday. Still really like these as they are one area that isn't overbought....
VIX spiked yesterday. I think I will give my calls a bit more room before I flip back to puts on the VIX ETPs....
UNG is another "broken" ETF that I usually have puts on. Watching it around the 50 day, if it rejects I may add....
Closely watching BTU for a possible entry. A move back above the 200 day would do it....
On the short side LLY could be interesting. Huge rally since November and it failed at the 200 day. RFK Jr. hates the GLP-1s....
