Today—Monday, May 16, 2022—the Flip system triggered a BUY as a result of an infrequent but largely successful oversold signal. This is the same signal that generated a Buy command on the SPY near the 2018 Christmas lows, and on the March 2020 Covid lows. This is only the third time this signal has been triggered in real-time since Flip’s inception. I call this the “HARD TRADE”, because only a computer would buy the market given most people, myself included, wouldn’t have the courage to BUY it myself!
So far this year, we’ve done well by sidestepping a large part of the market’s decline which touched 20% down last Thursday. A fundamental reason most of you have signed up for the Flip platform is for this exact reason: to avoid the downside and NOT to be forced to watch the market closely; to have “math” and “science” make the tough decision for you; to avoid mumbling to yourself “I don’t want to think about it” or “should I wait ?” or “if I do this now I will have to pay taxes on the capital gains” or “if I sell now and the market goes back up, I’ve locked in the loss” or many, many other aphorisms we have all thought of at some point or another.
It’s why the market is so difficult to navigate. They go up most of the time, but when they go down it’s fast and scary … and it is when we are likely to make mistakes that cost us money. I hope and deeply trust that at least one of the thoughts expressed above has crossed your minds before … They have mine. There are many, many more.
More about this recent trade: This particular signal was NOT generated by the AI. This BUY signal was algorithmic in nature. In particular, because the markets have come down so much so quickly, this trade was signaled mathematically as price in the benchmark S&P500 hit a statistical “large sigma” event.
Now a little math talk : Sigma is just an expression of standard deviation that occurs very infrequently. We participate in large sigma events because in the short term a “reversion to the mean” is likely near. Markets are “normally” distributed but with “fat tails” .. but even these distributions have a mean and as long as there is some “kurtosis” the event will generally normalize, i.e. go the other way. This of it as a contrarian trade … I’m done with the math talk ! Suffice it to say, the system thinks the market will bounce. That means likely your stocks will bounce because most are part of the S&P500 index and these issues represent the index itself.
So what to expect? The previous two trades mentioned above were highly successful. Both went on to revert or “bounce” almost immediately. Much of our performance comes at times like this where we attempt to step aside from large down-moves and then attempt again to participate at lower prices. This trade however comes at a with a different backdrop however. This trade comes at a time with high inflation as a backdrop. That wasn’t the case before. The Fed has made only a small ½ percentage increase in the fed Funds rate (rate at which banks can borrow at) and the AI may not have incorporated this yet.
Recession may be a real possibility given these new realities. Again, this was not like the previously mentioned two signals where these issues were absent. The market is in selling mode. My mind is this particular trade may not work out as well but nonetheless the system must be followed, despite the fear. We MUST bet that our homework is more thorough than our mindset. If this trade turns out to be a loser, it must be accepted as the price to “play” .. the ante if you will. It’s a bet by a computer. The computer, I feel at least, is better than the asset manager that tells you “it’s the market, we have no control, it will come back, have patience ….” nonsense.
I will reach out on the next AI circle on the 25th. Please show up to that as I can keep people posted in these crazy market times.
All the best …