U.S. Stocks Rally on Strong Start to Earnings Season

TL;DR

Warren Pies and Tom Thornton discuss the current market conditions, including the possibility of a new bull market, the sentiment in the market, and potential investment opportunities in sectors such as banks and energy.

Transcript

April 19 2022 I'm Warren pies founder and strategist at 314 research today I am joined by Tom Thornton founder of hedge fund Telemetry Tom first time talking with you how are you doing today I'm doing great I'm doing great finally we get to uh chat I've been a big fan of your work uh for many years yeah same to you um it's great opportunity uh I th... Read More

Key Insights

• 🧔 The market is experiencing bear market rallies that can be exploited for trading opportunities.
• 🚄 Sentiment indicators, such as the number of bulls in surveys and hypothetical portfolio positioning, can provide insights into market sentiment.
• 🧘 Steel Manning opposing positions and considering the bull case can help understand potential market scenarios.
• ☠️ The yen's drop and correlation with rates and commodity prices can be an important factor to watch.
• 💄 Energy stocks have a negative correlation with other sectors, making them attractive as a portfolio diversifier.
• 🫢 European countries, such as Germany, are increasing military spending and reducing dependence on Russian oil and gas.
• 🛀 The bond market is showing stretched sentiment, with potential for a short-term bounce.

Questions & Answers

Q: Is the current market rally the beginning of a new bull market or a bear market rally?

Warren believes that the market will see tactical opportunities for trading and that bear market rallies are opportunities to exploit. However, he acknowledges that there is still a possibility of a new bull market beginning.

Q: How do sentiment indicators, such as the AAII survey and hypothetical portfolio positioning, contribute to constructing a bull case for the market?

Warren and Tom analyze sentiment indicators to gauge the overall sentiment in the market. They discuss the low number of bulls in the AAII survey as a potential bullish indicator and the hypothetical portfolio positioning as a sign of a short-term bottom.

Q: How do you measure sentiment in the market and what are the key components of sentiment analysis?

Tom learned about sentiment analysis from Ned Davis and uses tools such as the Daily Sentiment Index to measure sentiment in stocks, bonds, currencies, and commodities. He believes sentiment polls are most useful at extremes and that sentiment can stay overbought or oversold for extended periods of time.

Q: Which sectors are you looking at for potential investment opportunities?

Tom mentions that he is cautious on commodities, particularly energy, in the short term and has taken short positions. However, he sees potential opportunities in bank stocks, which he believes have been washed out and show signs of a short squeeze.

Summary & Key Takeaways

• Warren and Tom discuss the possibility of a new bull market and bear market rallies, with Warren believing that the market will continue to see tactical opportunities for trading. He also emphasizes the importance of considering opposing viewpoints to better understand the market.

• They analyze sentiment indicators, such as the number of bulls in the AAII survey and hypothetical portfolio positioning, as starting points for constructing a bull case for the market.

• Tom shares his insights on sentiment indicators, particularly the daily sentiment index, and how sentiment can stay overbought or oversold for extended periods of time. He also discusses his cautious stance on energy and his positioning in bank stocks.