Market On Open, Friday 17 October
DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Read our full disclaimer, here.
The End Of The World Is Nigh. Again.
by Alex King, CEO, Cestrian Capital Research, Inc
Last week’s narrative: demand for AI services is limitless ergo OpenAI’s stock price will go up forever ergo it can raise money at high prices forever ergo it has money to fund its capital commitments forever ergo STONKS GONNA MOON.
This week’s narrative: there is a credit crisis brewing under the surface and the evidence is Tricolor and Jefferies ($JEF) and regional banks and WE NEED A BAILOUT FROM THE FED OR STONKS GONNA DUMP.
Neither of these narratives are true. Narratives are never true. The bull narrative is designed to have unsuspecting rubes buy into stocks all the way up to the top. The bear narrative is designed to have unsuspecting rubes sell stocks all the way to the bottom. Unfortunately narratives can drive stock prices so you can’t just declare Opposite Day and fade the narrative, as intellectually satisfying as that may seem to some. Because that is just a way to (i) stay poor by never being long or (ii) swap rich for poor by being mainly short.
The way to deal with narrative is to ignore it and focus on price and volume. Narrative is opinion, an input; price and volume are facts, outputs.
Every day in this Market On Open note for our Inner Circle subscribers we lay out setups in the S&P500, Nasdaq-100, Dow Jones-30, US Government Bonds, the Vix, oil, tech, crypto and semiconductors. Every day. Then every week we run our live webinars to walk through how we see the key sectors and stocks and indices, talk live in real time with our members on topics they request and more. And not-quite-but-almost 24x7 we chat live in our Slack community about all the above and more besides. If you manage money, be it your own, your family’s, your clients’ or your limited partners - do you really not want to join us?
Alex King
Let The Machine Take The Strain
An update on how our simple long-only S&P500 algorithmic signal service is doing. As a reminder, this is about the easiest algorithmic service anyone could imagine. SignalFlow AI For $SPY prints a one or a zero right after the close each day. A one means the model thinks the market is likely flat or up the next day; a zero means the model thinks the market is likely down the next day. The model is designed to help investors avoid big drawdowns; in other words the intent is that the model flips to 0, risk off, before any big selloff in the S&P. And that if you traded according to model outputs, the idea is that you can step aside whilst the pain torments others, then get back in with your account relatively unharmed - thus preserving (1) capital and (2) emotional balance.
Here’s the cumulative performance of the algorithm vs. simply holding SPY over the same period. The service went live mid-2024; the data prior to that is backtested, the data after that is live trading ie. out in the wild, for real. You can see from a simple visual inspection the benefit of avoiding those material selloffs.
I myself run a pool of capital by following this algo. When it flips risk off, I take this pool of capital out of its S&P exposure. When it flips risk on, I put the capital back into the S&P. I like this a lot. It keeps my capital safe from material drawdowns and it takes the angst away from the decision to go to cash periodically.
You can learn more about this service here (if you’re an independent investor) and here (if you’re an investment professional). If you don’t know if you’re an investment professional or not, you can check our Ts & Cs here (look for section 1.5).
You can also read about the whole family of SignalFlow AI algorithm services here:
Alex King
OK, let’s do it. Here’s our daily market note, covering yields, bonds, equities, volatility, oil, crypto, and key sectors. Join our Inner Circle service if you’d like this note in your inbox every trading day.