An AI's take on "Q2 earnings are worse than they look".

Beware of Deceptive Stats

Sometimes, you've got to look beyond the rosy headline stats to get a clearer picture of what's happening pseudonymous macro account "MrBlonde" did just that in this Twitter thread on Sunday, showing that corporate earnings in the 2nd Quarter are actually worse than they look. 

Let's take a look at how our system is positioned in light of this. 

How Our System Is Positioned Now

As regular readers know, our system doesn't consider the macro picture when selecting its top names. Instead, it gauges stock and options market sentiment to estimate which securities are likely to perform the best over the next six months. Nevertheless, some themes were apparent from our top ten names at the end of July:

• Long Energy: ProShares Ultra Bloomberg Natural Gas (BOIL), Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2x (GUSH), Enphase Energy, Inc. (ENPH), Daqo New Energy Corp (DQ), Occidental Petroleum Co. (OXY). 
• Short Technology: Direxion Shares ETF Trust (WEBS)
• Short Treasuries: ProShares UltraPro Short 20+ Year Treasury (TTT)

Screen capture via Portfolio Armor as on 7/29/2022.

Each of our top ten names above can be cost-effectively hedged with optimal collars or optimal puts. Consider doing so if you're going to buy any of them, in the event we're wrong. 

How That Compares To June

At the end of last month, our top ten names were 100% in energy, as you can see below. 

That cohort is 20.9% so far, versus 9.21% for SPY since June 30th. So far, it looks like the new factor we added to our security selection process in late June is aiding performance. 

So we've gone from 10 out of 10 top names being energy names at the end of June, to 6 out of 10 at the end of July. 

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