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A broad-based rally on Wall Street overnight which looks like it will carry over into early local trading. However, might be worth noting the slight decline in volume in the move higher.

Might be traders waiting for the FOMC Minutes before making bigger bets, or maybe just less activity ahead of Thanksgiving.
 
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Is a "Short Squeeze" Coming December 2nd?

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Stocks traded flat today as the market remained quiet during its shortened holiday session. The Dow, S&P, and Nasdaq Composite were mostly unchanged through noon. China lockdown concerns lingered, limiting the market's upside in response to a well-received Fed minutes release on Wednesday.

“A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes said.
There were some hawkish remarks, too, but the general tone of the minutes leaned dovish. Stocks rallied modestly in response.

Today, however, trading volume has been low, and equities refuse to budge. China's central bank confirmed this morning that it would cut rates by 25 basis points in an attempt to stimulate the Chinese economy.

That would normally be received as bullish. The central bank also cut the reserve requirements for lenders, hoping to increase loans.

But with restrictions being reactivated by Beijing, investors have had a hard time getting excited about China's rate cut.

“How effective [easing] will prove to be when cities are seeing restrictions and effective lockdowns reimposed is hard to say,” said Oanda analyst Craig Erlam.

“But combined with other measures to boost the property market and ease Covid curbs, the cut could be supportive over the medium term when growth remains highly uncertain.”

Meanwhile, in the US, investors anticipate a softer Fed even though its target rate has not changed.

“The Fed needs to continue to hike rates reasonably to the 5% to 5.25% levels, so there are still some rate hikes to come, so markets are a little bit optimistic right now," said Stephane Monier, chief investment officer at Banque Lombard Odier & Cie SA.

So long as nothing drastic happens in China in relation to lockdowns, though, most investors expect the market's seasonal tendency to take over in December.

Historically speaking, the period spanning Thanksgiving to the new year has been a great period in which to be a bull. The S&P has gained roughly 2.65% on average over this time frame going back to 1950. The index only fell during this period about 20% of the time, giving it an 80% win rate for bulls.

Conditions are obviously not normal this year in terms of rates, but the same could be said for the market's current valuation. Stocks haven't typically been so far below their all-time highs around Thanksgiving.

That could result in a major move higher, especially in a market that's grown less liquid, lending itself to increasingly explosive rallies.

We've said this many times before, but it bears repeating:

The November jobs report on December 2nd could see stocks absolutely erupt if the unemployment rate increases substantially.

A string of enormous corporate firings in November suggests this will be the case.

Until that report comes out, expect stocks to continue chopping sideways. But when the jobs report does hit, be ready for what might be the biggest short squeeze of the year, as a number of other key reports and meetings occur in the weeks that follow that are expected to look equally bullish as well.

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My Top Watch and Trading List for December

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Dear Reader,

I like to have a good set of rules when it comes to trading stocks.

I start with the most conservative trading strategy I have...

At the beginning of each month, I examine three unique metrics to help build a list of low-risk, high-upside stocks with rock-solid balance sheets.

It can be a good strategy for first-time investors and options traders. That said, I know plenty of advanced traders who also love to employ this strategy in positive momentum markets.

This is free — I know people who charge thousands of dollars for some of this analysis! Which is silly because it’s quick and simple... You just need to know how the data works.

And by sharing my research with you, it helps me master it. So let’s take a look at our metrics.

We have:

  • The Piotroski F-score.
  • The Altman Z-score.
  • A valuation rank.
It also helps if there’s an options chain for these stocks.

Our first metric — the Piotroski F-score — gives us a clue into positive financial growth and low debt exposure.

The F-score is a nine-point system that rewards each company for meeting a certain criterion on its balance sheet. It was created by a Stanford University and University of Chicago professor named Joseph Piotroski.

If the company meets all nine criteria, it has an F-score of 9. That means its balance sheet has greatly improved year over year.

Then we have the Altman Z-score...

This measurement is a weighted average of five different metrics to determine whether a company might go out of business.

If a company falls below 2.6, it has a risky balance sheet. That risk is tied to lots of debt or weak cash flow.

I like to look for stocks with a Z-score of 3 or higher. That severely reduces any credit concerns I have.

Finally, there’s a valuation metric. Different industries require different valuation methods. So, I’m not going to share this because it’s my secret sauce.

These stocks are cheap compared to their own historical valuation and/or to their sector rivals.

Here Is My Lovely 11​

Below is a list of 11 names, and their metrics at the start of the month.

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How I Trade These Stocks​

If I want to start trading these great names, I don’t have to buy the stock or call options. I could go deep out of the money on puts and trade credit spreads.

I’ve discussed various approaches to these stocks that offer unique upside and reduced risk. Again, with these trades, I can improve my probability of profit, generate large income payments from a small position, and pick my preferred entry buying price.

And what happens with these trades?

If the stocks go higher, I’ll make money.

I’ll also make money if the stocks don’t reach the strike price.

And if the stock falls to the strike price, I’ll get a great stock at a much cheaper valuation than today.

It’s win, win, win.

Friday, I’ll find a trade for one or two of these stocks. I prefer to focus on the Energy sector, although I’m expecting a bit of a pullback — a buying opportunity — due to recent overbought conditions in the sector.

Enjoy your day,
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Garrett Baldwin
 
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Not sure where to put this but something happened last night.
The US market rebounded a bit +1%..that happens even in bear market.
Usually in such cases, USD goes down,the euro, pound and yen up.and AUD follows up.
NOT last night
As expected gold down but Euro unchanged and both AUD and Yen down sharply????
That is highly unusual and must have burn many.
 
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Not sure where to put this but something happened last night.
The US market rebounded a bit +1%..that happens even in bear market.
Usually in such cases, USD goes down,the euro, pound and yen up.and AUD follows up.
NOT last night
As expected gold down but Euro unchanged and both AUD and Yen down sharply????
That is highly unusual and must have burn many.
I thought I'd throw up a big picture chart of the $SPX. I think that markets may more sideways waiting to see what happens with the interest rates next week.
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I get emails from various sources and this one seemed like some good information to share but I wasn't sure where to post it to so I'm just putting it here. I hope it will add some useful information to this forum;



I probably went over the line this time…
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Dear Reader,

The best long-term, value investment strategy.

The stuff so boring that people stop reading. The stuff that makes their eyes glaze over.

Energy, food, housing, airlines? Defense?

Well, if it’s boring, don’t read what I’m about to tell you – because this is also the best investment strategy in the market. And that’s not me saying this. It’s been confirmed by academics. You know… the people who look at data all day and can tell us that one number is higher than the other (great work, guys).

How do we do it?

Mister Piotroski Meets Mister Graham​

Joseph Piotroski is an accounting professor at Stanford University. Before that, he taught at the University of Chicago.

He created something called the F score. This is a nine-point score that analyzes the health and strength of a company’s balance sheet. If the company meets the following criteria, it receives a point for each. A “9” is a perfect score.

Positive Net Income

Positive return on assets in the current year

Positive operating cash flow in the current year

Cash flow from operations being greater than net Income

Lower ratio of long-term debt in the current period, compared to the previous year

Higher current ratio this year compared to the previous year

No new shares were issued in the last year

A higher gross margin compared to the previous year

A higher asset turnover ratio compared to the previous year

A company with a 9 out of 9 has an executive board that is extremely shareholder friendly and interested in boosting shareholder value.

Meanwhile, Ben Graham is the godfather of value investing. He’s the man who influenced some of the world’s best long-term investors: Warren Buffett, Charlie Munger… and David Dodd (who worked with Graham at Columbia Business School).

Graham and Dodd identified one anomaly that can’t be arbitraged away - regardless of how many machines trade in this market…

“Value.”

Value investing is about deriving the “intrinsic value” of a company’s stock independent of the actual company’s price.

Buffett has said that “price is what you pay… and value is what you get.” To know the real value, one must analyze a company’s assets, earnings, and dividend payouts independent of whatever the stock trades for today.

Graham developed something called the Graham number. This figure calculates a stock’s underlying value by analyzing a company’s earnings per share (EPS) and book value per share (BVPS).

By default, it creates an upside number that a shareholder should be willing to pay as a defensive investment. Stocks trading at deep discounts to this number can be a unique value. But it’s not enough by itself.

In 1987, Warren Buffett wrote something that altered my thinking about the markets. In a letter to shareholders, he said, “We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.”

Here we find the importance of Piotroski whose accounting analysis shows us the importance of competent management and an improving return on equity capital.

And we see the importance of Graham and Dodd’s analysis to help us recognize if the market is over or under-valuing a stock.

Mister Graham, Do Your Dance​

Back in 2016, two academics released a study that said, “fundamental signals derived from financial statements allow for future abnormal stock returns.”

The article was called “Separating winners from losers: Composite indicators based on fundamentals in the European context.” The authors are Borja Amor-Tapia and Maria T. Tascón from the Universidad de León.

What did it uncover? I’ll cut to the chase…

You want to buy stocks with strong F scores, cheap Price-to-Graham numbers, and it can’t hurt if there is a low price-to-tangible book value.

What this offers are stocks with a very nice floor, and have immense upside.

You’d likely be surprised that the stocks on this list include housing, energy, mining, and shipping. But then you’d know that everyone is hyper-worried around a recession.

These companies are incentivizing their shareholders to stick around – F scores are strong. Balance sheets are strong. Debt is low. If we look at the Altman Z Scores of these stocks, they are commonly healthy.

And these stocks are at the core of our Tactical Wealth Investor letter.

To your wealth,

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Garrett Baldwin
 
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Interest rate will go up .5% and the market will jump as it could be worse, then hard results of falling real term results will damp the mood again

I'm surprised not more commentary is happening in relation to bonds and interest rates actually @qldfrog, especially now that we could be seeing some major shifts in bond prices, both in the US (represented well by TLT) and here in Australia (represented well by VGB).

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For further discussion, check out the weekly chart review at



where you'll find details at the timestamp located within the description under the video. Enjoy!
 
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Hot German Inflation Is Scorching Bulls

Stocks opened lower today on a hot inflation reading out of Germany before rallying through the morning session. Shortly before noon, however, the market pared back its gains significantly, sinking back into the red. The Dow gained slightly while the S&P and Nasdaq Composite held on to minor losses.

Pre-market trading pointed to a higher open this morning before Germany's most recent Harmonised Index of Consumer Prices (HICP) reading - the European Central Bank's preferred inflation gauge - spoiled the party. German HICP clocked in at +9.3% year-over-year (YoY) vs. +9.0% expected, up from +9.2% YoY last month.

It marked the first increase in German headline inflation in five months and could be indicative of a coming resurgence in consumer prices. France and Spain both reported hotter-than-expected inflation prints yesterday, too.

Goldman Sachs raised its Eurozone inflation forecast from +8.36% YoY to +8.46% YoY as a result of today's report. Nearly every price category beat estimates.

“For the [European Central Bank], a sequence of upside surprises to readings for the euro area’s biggest economies is awkward. That the bulk of the misses are accounted for by food and energy is cold comfort,” said Bloomberg economist Martin Ademmer.

German central bank President Joachim Nagel pointed to stubbornly hot core consumer prices as an area of concern.

“One thing is clear: the interest-rate step announced for March will not be the last,” Nagel said in prepared remarks.

“Further significant interest-rate steps might even be necessary afterwards, too.”

That jolted US Treasury yields higher this morning. The 10-year rate jumped from 3.91% yesterday to 4.00% for the first time since November 10th, 2022. Sentiment over short-term rates from central banks (like the fed funds rate in the US) has shifted sharply hawkish in recent weeks.

“We are currently in the chop period between central banks winding down interest rate increase cycles and seeing what impact those increases will have on the real economy,” said US Bank Wealth Management investment director William Northey.

“Performance for the first two months of the year was primarily influenced by marginal changes in expectations for the appropriate path of monetary policy in 2023.”

He continued, adding:

“We anticipate a better environment for bonds but expect ongoing, two-sided volatility for global equities and US equities as market gauges consumer health and corporate activity."

Greenlight Capital's David Einhorn offered a more blunt appraisal of the current investing climate.

“I think we should be bearish on stocks and bullish on inflation,” Einhorn said in a midday CNBC interview.

“I think we’re in a policy now, which is probably pretty good for Main Street, but it’s going to be difficult and increasingly difficult for financial assets.”

Einhorn was among the market's biggest bears last year and remains bearish for the year ahead. Rate-sensitive tech stocks, especially those included in Cathie Wood's ARK Innovation ETF (NYSE: ARKK), were among Einhorn's favorite names that he targeted with bearish positions.

And, after today's hot inflation reading out of Germany, those types of stocks should continue to deliver outsized returns for bears. That will be especially true if additional stronger-than-expected economic data rolls in, like the next US jobs report, due out March 10th.

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Terrific video, thank you for sharing @DaveTrade - aligns well with my own summary released earlier in the week for the end of the first quarter for the Aussie sectors as well as the US indices, bonds and crypto utilising 30 week moving averages (the US markets section commences at the 10:35 mark as per the timestamp in the description box below the video). Fully agreed with his comments about the Nasdaq and Russell potentially changing the narrative, as you'll see from my own discussion.

His sector breakdown discussion is quite fascinating, particularly the financials sector discussion and the comparison between consumer staples and consumer discretionary sectors, the latter of both which are both fairly strong here in Australia compared to other sectors (it appears as though staples are strengthening once again over in the U.S. on a comparative scale).

 
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We read about what is going to happen in the markets from people that should know what they are talking about but they don't all share the same opinion. Wouldn't it give us clarity if we could see for ourselves if what they say is going to happen is starting to happen or not, well we can;

 
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FYI
The NYSE is closed on Monday, June 19, 2023, in recognition of Juneteenth National Independence Day.

Skate.
 
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The S&P 500 has been screaming higher recently so I thought it might be helpful to show which sectors are behind the move. The weekly chart below shows that the SPY made a low on 14/10/22 but I'm going to focus on the recent strong move up from the 17/03/23 low, this is what is happening now.
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The three sectors pulling the market higher are Communication Services (XLC), Technology (XLK) and Financial (XLF).
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The S&P 500 has been screaming higher recently so I thought it might be helpful to show which sectors are behind the move. The weekly chart below shows that the SPY made a low on 14/10/22 but I'm going to focus on the recent strong move up from the 17/03/23 low, this is what is happening now.
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The three sectors pulling the market higher are Communication Services (XLC), Technology (XLK) and Financial (XLF).
View attachment 160218

Great seeing these sector breakdowns @DaveTrade - thanks for sharing! Some similarities to what's happening here in Australia as well, but we're definitely seeing things to a lesser extent, that's for sure...

Here's the Australian version in a video I released a couple of weeks ago:

 
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