The 3s Report: QQQ Melt Up Edition
From timely to timeless, the 3 most important points we can make about stocks, bonds, ETFs, markets and investing...updated weekly
Our "Reward Opportunity and Risk" (ROAR) score remains at 40 for the third consecutive week.
This means a 2-ETF portfolio that can only be allocated to SPY and BIL would be 40% SPY and 60% BIL.
The ROAR Score reflects a "basic" S&P 500 vs. cash portfolio, but this market is producing some dramatic shifts. They favor the Magnificent 7 stocks, for now. And, at the expense of stocks with higher dividend yields.
3 Quick Thoughts on markets
It is truly a wacky environment we are moving through. Monday's live session with existing subscribers and curious potential subscribers was an opportunity for me to provide an up to the minute assessment of the current market.
The S&P 500 index is up 28% in 2024. Yet 30% of those 500 stocks are DOWN for the year. And more than 70% of those stocks have a year-to-date return of less than that 28% index return. The median S&P 500 stock is up 13% this year, less than half that of the index. Interesting times.
There's a difference between "trusting" this market and profiting from it, or dare I say exploiting it. I don't trust it, and have not all year. But I sure have been looking in a lot of unique places to exploit it. And that is what our tagline, "doing dividends differently" is all about.
3 ETF (or index) charts I’m watching
Since the day before Thanksgiving, about 3 weeks ago, QQQ is up 8%. How is SPYD, which tracks the 80 highest-yielding stocks in the S&P 500, doing? How about DOWN 6%. A 14% gap in about 12 trading days? That's close to a modern record. I don't know what it means, only that I'm glad I've been communicating to subscribers how poorly dividend stocks have looked for a couple of months now. The charts don't lie.
QQQ's short-term chart looks very strong. As I noted on the Monday live call, this looks like a move that only a piece of bad news out of "left field" can stop. Yet that could occur any day. But my bottom line in portfolio positioning is as it has been: shrink the size of the main dividend stock portfolio, rely more on yield-ETFs including single-stock, option-driven ones. And continue to use call options on the broad market to wring out as much "hedged return" from this market melt-up as possible.
As I see it, if this is going to go down in history as something akin to a dot-com bubble redux, the next and final stage of the process is this: not only do the larger S&P 500 stock keep vaulting higher, but even the S&P 500 starts to lag badly. Why? Because even though it is Nasdaq-heavy at this point, roughly 2/3 of the S&P 500 is not in "Magnificent 7" and similar-style stocks. Here's what that final phase looked like back in late 1999 and early 2000. That's 12/1/99-3/31/00. In 12 weeks, QQQ rose by 57% from an already elevated level. SPY rose nearly 10%, and DIA actually fell. Very 1-sided. And, as the tail end of the chart shows (right side), when it was over, it was over fast. QQQ dropped about 10% in just that first week post-peak.
3 stock charts I’m watching
Hey, we all know that the investment "help" business is full of a lot of fanfare. The Sungarden way is different in that we firmly believe that the limit on what we can do is to be as prepared and consistent as possible. That doesn't eliminate loss, nor does it make us the best performer (except maybe in vicious bear markets, since ABL (Avoid Big Loss) is our number one investing rule.
The stock market has recently shifted in terms of what it rewards and what it punishes. The rewarded stocks are a much smaller group, and getting smaller each week. For dividend investors, the vast majority of "traditional" yield stocks look simply awful to me right now.
Does that mean they can't rally like crazy? No. It simply means that the risk taken to get the reward (income plus at least some price appreciation) is vanishing quickly. To put it another way, the odds are moving up (a bad thing).
To show some recent examples, here are 3 stocks I recently sold in the Sungarden YARP Portfolio, and where they have travelled since I sold them. The investing business is so focused on what to buy, there is way too little discussion of what to sell. This has always been the case. And it is reinforced by investors by and large, since promoters know that communicating to the masses about what to buy is much more popular than what to sell.
We like to take the road less-travelled, and stand by a technical analysis approach that has been developed and refined over more than 3 decades. Here are a few examples of what is happening to an uncomfortable number of U.S. stocks as the year-end approaches. Orange lines and circles mark where I sold.
CVS: sold at $52.30 before falling to $45.23, 6 days later.
XOM: sold at $113.61 before falling to $107.33, 7 days later
DUK: sold at $114.67 before falling to $107.82, 17 days later
Final thoughts for now
Those 3 stock charts are not about timing or very short-term trading. And they are not me "patting myself on the back," simply because in hindsight, and for now, the sales have worked out well.
No, this is about HAVING AN INVESTMENT PROCESS YOU CAN LIVE WITH. This entire service is about teaching investors how to think differently, from someone (that's me) who has put in more than 130,000 trying to figure all of this out. And I still learn every single day (including weekends).
As the old expression goes, of course we'll give you some fish (my trades are all communicated in real time to subscribers). But more importantly, we'll teach you HOW to fish. Because we don't all like the same types of fish.
OK, back to the pond now. We welcome your questions and comments!
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