Republic Risk: Show Time

Yeah, this isn't going well.

Equity Index Strength Is RED on the S&P 500 and the Russell 2000.

Each morning, we assess the full flows of the market by measuring statistical and technical metrics to determine broader market sentiment and the Equity Strength trend. When these readings turn red, we focus on cash, build trades around positive sectors, or take inverse positions against indices. When it is positive, we focus on short-squeeze stocks, companies with improving fundamentals, and trading/investing around the actions of corporate insiders.

And here we are.

We’re negative for the first time since October, and I don’t know yet what’s gone wrong. But something has gone wrong in this market. It’s most likely a reaction to fiscal policy and concerns about the debt issuance planned over the next month by the Treasury Department.

The selloff we predicted a little over three weeks ago seems to be here now. Algos might start selling quickly.

Beware of lower highs and lower lows, and watch for where these indices are on their RSI and MFI in the week ahead. We’d have a way to go but watch the technical levels. That’s where this is likely heading into Options Expiry on Friday.

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Morning Notes

• Talos Energy (TALO) will acquire privately held QuarterNorth Energy for $1.29 billion in a cash-and-stock deal, strengthening its Gulf of Mexico presence.

• U.S. Judge blocks JetBlue's (JBLU) $3.8 billion acquisition of Spirit Airlines (SAVE), citing antitrust concerns; Spirit's stock falls nearly 50%. That said, JBLU is currently trading for 57 cents of tangible book value, which makes it an intriguing takeover target. I’m unsure why this was turned down, but it makes sense for JBLU to merge with Southwest Airlines (LUV). 

• Politico reports that the Biden administration is considering curbs on the U.S. natural gas export industry. I’d appreciate it if anyone would like to come to Florida and knock me out with a sharp, right-handed jab. Because I can’t understand why we’d kill jobs, hurt industry, and raise the deficit all in the name of an invisible enemy. We are not a serious nation.

• Hong Kong's Hang Seng Index drops over 3%, with real estate and energy sectors leading the decline amid a high-interest environment and strong US dollar.

• Occidental Petroleum (OXY) CEO Vicki Hollub predicts a global oil shortage from 2025 due to lagging exploration and rising demand, potentially pushing WTI crude prices to $80-$85 a barrel. Keep using the Warren Buffett trade to your advantage. 

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Dear Fellow Expat:

Good morning. 

The Republic Risk Letter exists…. because of the last two weeks. 

I’m glad you’re here.