The 3s Report
From timely to timeless, the 3 most important points we can make about stocks, bonds, ETFs, markets and investing...updated weekly
ROAR Score weekly update
Our "Reward Opportunity and Risk" (ROAR) score INCREASED from 35 to 40. This means a 2-ETF portfolio that can only be allocated to SPY and BIL would be 40% SPY and 60% BIL.
As I noted last week this is more about a melt up scenario in progress than anything like an "all-clear" signal for the stock market. However, I learned the hard way over the decades about "fighting the tape." And with the election and earnings out of the way, it would likely take an exogenous shock to cause a major pullback between now and late January, when the new U.S. administration is officially on duty.
That makes this a rare moment of optimism that comes without imminent threats that would create "big loss." The 40 level reflects still-competitive T-bill rates and an extended stock market in most places. That can get more extended, and I'll present some historical parallels below and in my upcoming Seeking Alpha articles.
3 Quick Thoughts on markets
This week, we are debuting a new feature to the service, and I'm glad to say it is "by popular demand." We are taking the ROAR (Reward Opportunity And Risk) Score, that simple question of how I would tactically allocate $100 among 2 different types of investments, and expanding the ways we use it. We are nearing the 3-year mark with the main ROAR Score, and it has outperformed a wide range of stock/bond allocations with far less risk, and with a lot less complexity. It is proving to be what I thought it could be.
Specifically: an alternative method for investors (starting with me) to approach what Wall Street calls "asset allocation." The approaches that firms tend to take are outdated, not responsive to modern markets, and put "smoke and mirrors" marketing and fee-generation over bottom-line results. "60/40 portfolio allocation" is a topic I have railed against for years. So at the start of 2022, I did something about it. 3 years later, it is time to expand the "project."
In addition to the SPY-BIL (S&P 500 vs. T-bills) ROAR portfolio, I just invested some of my own money into 3 other ROAR-style tactical portfolios today. Each one is a separate allocation, and some have more than 2 choices. 2 of them are 100% in equities, and the other 2 (including the original one) have a T-bill ETF defensive option. All are designed to express my "bottom-line" views on tactical investing at any point in time. Simple! As with all we do here, these are research indicators, but in an investable format, so subscribers can determine for themselves how to use the information.
Each week, I'll update the current allocation of each, as I've done with the main ROAR Score. However each of the portfolios will have a separate "score" since the dynamics of each are unique to that type of investing. The 3 new ROAR portfolios are:
Nasdaq vs. Dow (allocates between DIA and QQQ)
Bonds: long-term vs. short-term (TLT or TBF and SHV)
Sectors: 4 most attractive out of 11 S&P 500 sectors (25% in each)
3 ETF (or index) charts I’m watching
Europe: double bottom?
Looks possible. This ETF has underperformed SPY by such a wide margin, you'd think it didn't invest in stocks. Since June 5th it is down 7% to SPY's +13%.
Bigger's been better
This is an ETF that tracks the 50 largest stocks in the S&P 500. Straight as an arrow for 2 years now. Good news: this is one rocking stock market for the biggest stocks. Bad news: are we well on the way to just 50 stocks being all that matter? These 50 stocks now make up more than 60% of the 500 stock index.
Country music to the bulls' ears
Name a country ETF that has outperformed 6 of the Magnificent 7 stocks this year? Argentina. Really. And the way that country's new reformist leader helped this happen, it will be very intriguing to see if the U.S.'s new bosses can replicate that. Or, if that's the move we are seeing right now.
3 stock charts I’m watching
Running out of energy
Too many stocks look like this for me to conclude it is a fully diversified bull market for stocks. EOG is probably the most volatile energy stock I follow. Nice dividend, but it again looks to be backing off the high of a 2+ year trading range.
Generally bullish
This is what a stock chart often looks like when I add it to the Sungarden YARP Portfolio, as I did last week. I prefer to identify stocks with more upside and stronger trends, but beggars can't be choosy. So a trading range, quality name with a high yield like this one makes the grade. For now.
Don't bank on it
Oh, I'm happy my recent foray into bank stocks is paying off well so far. But this weekly chart of one of those holdings shows that there is intermediate term upside, to a point. Like so much of the current stock market, a lot of what we've seen in 2023 and 2024 is getting back to even from what happened in 2022.
Final thoughts for now
Post-Thanksgiving, pre-Christmas, pre-inauguration. That's where we find ourselves. This is a great environment for tactical investing. Not only because it helps to focus us on where the lower-risk gains may be. More importantly, because my overriding view is that this is a time to get gains while we can, and not assume that the good times will last for years. Months would be great. But weeks is also possible.