Tortoise Formation

Current Market Posture: Tortoise Formation

In ancient warfare, when hoplites faced an onslaught of arrows, they sometimes sought shelter under each other’s shields in the tortoise formation. You can see a live action enactment of this in the scene from the 2004 film Troy below.

Tortoise formation is a good description of how Portfolio Armor‘s security selection algorithm reacted to Thursday’s market action. Each trading day, our system uses its analysis of past returns as well as forward-looking options market sentiment to pick the names it estimates have the best return potential over the next six months, net of hedging cost (we suggest investors who hold our top names hedge them – think of the hedges as shields).

An Unusual Amount Of Turnover

Usually, there’s not a lot of turnover in our top names on a daily, or even weekly basis. Yesterday was unusual. To see why, compare our top names from Thursday, August 27th,

To our top names from Thursday, September 3rd,

The only name in common from last week to this week was First Majestic Silver (AG). Out were Apple (AAPL), Nvidia (NVDA), AMD (AMD), Shopify (SHOP), Square (SQ), and Tesla (TSLA); in were inflation-protected Treasury ETFs TIP and SCHP, the muni bond ETF MUB, the intermediate-term corporate bond ETFs VCIT and IGIB, and bearish US Dollar Index Fund UDN.

What This Suggests

Remember, our system is gauging options market sentiment when selecting its top names. What are options market participants saying here? The prediction I’ve mentioned before (The Silver Lining In The Destruction Of America’s Cities) is relevant here:

The bottom line is the blue states are going to be deep in the red, and reliant on a multi-trillion dollar bailout from the federal government. If President Trump wins reelection, that bailout might be in the $2 trillion range. If Biden wins, it will be even higher. A President Biden and a Democratic Congress will test out modern monetary theory like I imagine David Crosby tested out his second liver.

Expectation of a massive bailout is the only explanation I can think of for MUB being a top name here. Expectations that that bailout will weaken the dollar and risk inflation explain the inclusion of the silver stock, the inflation-protected Treasury ETFs, and the bearish dollar index fund ETF.

What If You Own Last Week’s Top Names?

That’s where hedging (your shield) comes in. Recall we wrote about hedging Telsa last week. We even included the handy video demo below.

After The Tortoise Formation

If you watched the scene from Troy we linked to above, you know Achilles (Brad Pitt) and his myrmidons didn’t stay in the tortoise formation long. They saw an opportunity and went back on offense. I expect Portfolio Armor will do the same soon. With what, we’ll see. Every security with options traded on it in the U.S. – stocks, ETFs, inverse ETFs, ETNs – is a potential spear. We can strike in any direction.

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