February 2, 2021

Ground Hog Day is Rigged!

 I’ve been following the narratives made by politicians and the media regarding the attention brought to the investing community by last week’s events. In reading a series of tweets between two successful entrepreneurs whom I occasionally search on Twitter I was struck by two statements. One suggesting that the countries problems aren’t left and right, but about insider’s vs outsiders. The other suggested that insiders care less about conspiracies of the end of democracy and care more about losing their control over it. Much has been spun regarding last weeks, and continuing this week, army of Pindudes assault on the magnanimous Hedge funds or Hedgefiends as I’ve sometimes referred to them. And while debate has been vigorous, what stands out to me has been the bipartisan agreement in Washington, and those who disagreed. insiders and outsiders, we’ll see?

I mention this because the influence of the rush to trade the companies that generally don’t’ show up in my research has, for me, had less to do with its correlation to the current cultural narrative, and more to its influence on market volatility. I’ve often written about my patience with volatility because it often brings light to opportunities that I otherwise move aside for being overbought. Volatility also keeps people on edge, and from a market sentiment perspective, that can be a positive sign. Volatility can also be tracked in relation to a handful of momentum indicators. I watch a useful measure of volatility, the Chicago Board Options Exchange's CBOE Volatility Index (VIX), based on the S&P 500 Index. When used along with transaction data tracking indicators it’s been a useful tool for adding clarification to the stock markets accumulation and distribution phases. This week the VIX is falling and there are clear signs of stock accumulation taking place.

So how has this adapted to the current environment of investing. Renewable Energy has been a topic of change for a long time, until Tesla (TSLA) showed everyone that it not only can be monetized, but it can be fun to invest in as well. Flash forward to the pandemic and this wider, and more passionate move into renewables, and renewable migration, such as General Motors (GM), has further opened the eyes of the deniers. Not the climate deniers, but the skeptic investing deniers. And without entrepreneurs presenting a genuine solution to an inevitable disruption, Industries such as Renewable Energy, including First Solar (FSLR) and infrastructure focused Industrials, including Jacobs Engineering (J), are what will help the world realize their first sustainable objectives. Not enough for a screaming activist, but maybe they should check out what the Pindudes are up to. 

After the negative response to last week’s events, the broad indexes were able to work off some of their overbought condition, hence this week’s rise is unsurprising. With the larger stimulus package nearly inevitable, and this week’s first US decline in Covid fatalities below 1%, good news from two events that influence the economy, I’m still waiting to see if recently moderating economic indicators such as ISM Manufacturing and Consumer Spending start moving higher again as the warmer weather and more plentiful access to vaccines become real tailwinds. I’m optimistic.

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