TradeSmith Snippets for February 20

Feb 20, 2023 Educational

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Happy Monday — the markets are closed today in observance of Presidents Day, but there is still plenty to cover to get you ready for the week ahead. We’re glad you’re here to start the week with us in a new issue of TradeSmith Snippets.

With the constant bombardment of news, many investors are facing decision fatigue, not knowing how to act on what they are hearing.

In TradeSmith Snippets, we’re here to tell you what really matters and help you overcome that analysis paralysis. We run these ideas through our proprietary trading tools as well as our experts’ proprietary tools to give you actionable information, spotlighting places to make money and the potholes that can wipe out that money.

All while doing it in a format that maximizes your time.

There’s a lot to go over, so let’s jump right in.


Snippet No. 1: Big Short Bets on China

Overview

Michael Burry of “The Big Short” movie fame took two new positions in Chinese companies.

The Breakdown

Burry’s Scion Asset Management added 50,000 shares of Alibaba Group Holding Ltd. (BABA) and 75,000 shares of JD.com Inc. (JD) to its portfolio in the last three months of 2022. With the slowdown in China’s economy, each stock has been beaten down over the past two years.

As of last Tuesday, the Alibaba position was worth $5.2 million and the JD.com stake was worth $3.9 million.

The TradeSmith Takeaway

By shorting the 2007 mortgage bond market, Burry made $100 million for himself and $700 million for his investors.

Piggybacking off what successful investors are doing can be extremely profitable — as we will show you in just a minute — but you also need to understand what you’re investing in and the risks attached to it.

Running BABA and JD through our Health Indicator and Volatility Quotient (VQ) shows that now is not the time to piggyback off Burry’s latest moves.

BABA is in our Red Zone, making it a stock to stay away from. It is also considered a high-risk investment with a VQ of 41.86%. (The higher the VQ, the higher the associated investment risk.)

JD.com is also in the Red Zone, and it’s considered even riskier with a VQ of 44.20%.

But as promised, we’ll show you where piggybacking off successful investors can pay off…

Snippet No. 2: Avoid the Trash-Stock Rally and Focus on This Stock

Overview

Carvana Co. (CVNA), Peloton Interactive Inc. (PTON), and Wayfair Inc. (W) are off to massive rallies in 2023.

The Breakdown

As of this writing, CVNA, PTON, and W are all up 50% or more so far in 2023:

⬆️ CVNA: 135.85%
⬆️ PTON: 69.33%
⬆️ W: 55.83%


But if you zoom out and look at the stock prices over the past year, it’s not as pretty of a picture:

⬇️ CVNA: -91.92%
⬇️ PTON: -55.05%
⬇️ W: -60.97%


The TradeSmith Takeaway

Quantum Edge Pro Editor Jason Bodner says that a lot of this year’s winners (like the stocks above) are flawed, lacking fundamental underpinning — like strong finances.

He says, “You’re better served buying the soundest companies (strongest fundamentals) whose shares are also moving higher (strongest technicals) and getting scarfed up in unusually high quantities (Big Money).”

Like Allegro MicroSystems Inc. (ALGM), a fabless chipmaker.

Jason puts his own computers to work every day at 2 a.m., retrieving the latest data so that his algorithms can start their number-crunching — and generate his proprietary Quantum Scores for more than 6,000 stocks.

The Quantum Score “sweet spot” is typically in the 80s.

Allegro had a sky-high Quantum Score of 89.7 as of last week.

Jason says that this company is in one of the hottest sectors and that Big Money has been scooping up shares these last three months, as indicated by the green bars on the chart below.


Instead of following Burry into BABA or JD, Jason is showing us how to piggyback off a potentially more lucrative opportunity.

ALGM is classified as a high-risk investment according to our VQ, but it’s also in the Green Zone and the stock price is in an uptrend.


Snippet No. 3: Don’t Trust ‘Supercore’ Inflation

Overview

The new buzzword for 2023 — supercore inflation — is being touted as a “less volatile” metric in gauging inflation.

The Breakdown

One of the traditional metrics for judging inflation has been core inflation, which tracks the rise or fall in the prices of goods and services, excluding the energy and food sectors.

But supercore inflation is being touted as a “better” indicator of what’s really going on; it excludes not only prices in the energy and food sectors but also commodity prices, non-service prices, and housing prices.

The TradeSmith Takeaway

Supercore sounds like a Pilates class, and Senior Analyst Mike Burnick has never trusted the Federal Reserve with his or his clients’ financial well-being.

Mike says it’s important to focus on service cost inflation and wage growth because they are not coming down and can weigh on many things, from consumer spending to businesses’ bottom lines as they have to pay more to attract and keep top-tier talent.

Being a 35-year investing veteran, Mike has weathered plenty of turbulent times in the markets. And he’s still here to tell the tale because of his strategies — one of which involves having companies pay you for being a loyal shareholder.

In one of his latest TradeSmith Daily issues, he shared three “Money Never Sleeps” stocks that earn money 24/7 and pass it on to you as income in the form of dividend payouts.

You can access it here.

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