ITPM Flash is a video series from the Institute of Trading and Portfolio Management (ITPM), founded by Anton Kreil, that provides market insights from the Institute’s senior trading mentors.

Disclaimer

This blog post is for informational purpose only and no investment advice. Always do your own research! Read the disclaimer here >>>

ITPM Flash Ep46 – Summary

In this episode senior trading mentor Ed Shek talks about his current view on the market and why he thinks about adding a rotation trade to his portfolio. Rotation trade means rotating out of one of the high performing stocks into ones that haven’t perfomed that well recently.

Has it happend yet? No. Hyperscalers the AI winners are doing great and the rest of the market isn’t, although we’ve been told “that Q1 earnings have been great”. When we take a look at the NASDAQ vs. NASDAQ equal weighted index we see NASDAQ being up +19% and equal weighted index up only +5.50%.

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FROM ITPM’s Flash Video on Youtube

The same pictured shows when looking at the S&P 500 vs. S&P500 equal weighted. S&P is up +15.5% and equal weighted index only +3.7%.

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FROM ITPM’s Flash Video on Youtube

The Russel 2000 index still lags the big indices. It tried to rally numbers times but couldn’t break out yet.

Ed Shek talks about why he thinks now is a good time for adding a rotation trade to his portfolio. When we are looking under the hood of Q1 2024 earnings we see, that without Mag7 EPS growth was actually negative. Ed says that valuation of Mag7 represents this already hence why market is rotating out of these big names. The numbers are turning.

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FROM ITPM’s Flash Video on Youtube

Of course, people won’t sell all their positions but there are hundred of billions of dollars in unrealized gains. People and fund managers will sell some of their positions for account management. If you have 500% in unrealized profits, why not sell 1/3 positions and keep the rest?

Another anecdotal evidence is recent FED earnings. They were in line and management talked about cost savings, stock price rallied 15% on earnings. Why would it rally that much on mediocre results? Because market rewards companies that show the slightes sign of better than expected earnings or outlooks.

ITPM Flash Ep45 – Conclusion – Rotation Trade Idea

Ed Shek identified a pair trade. He wants to go Long TGT and Short ANET. ANET is not a typical ITPM trade idea, because a lot of factors are not met (e.g. ITPM taught us to rather not short companies with rich valuations).

Long Target (TGT)

Target performes in a really good sector but just had 1 1/2 years of badly managing their operations. Costco is doing great, Walmart is doing great. Ed thinks they might turn it around. They are doing deals with Shopify and recently told the market that AI will boost their operations. A small sign of release might bring the stock to a rally.

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FROM ITPM’s Flash Video on Youtube

Short Arista Network (ANET)

Arista Network recently got buy recommendations, price target $400 and it has a high valuation – not the typical ITPM short! So why is Ed shorting it? There might be a moat issue when NVDA or others goes into networking. Earnings growth and revenue growth is at around 15% – which is okay but price-to-sales ratio is at 15 – which is a lot! Market clearly liked the stock hence the high stock price. But what if there is a rotation happening?

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FROM ITPM’s Flash Video on Youtube

The Rotation Trade Structuring

Both are out of the money verticals. Because these are out of the money Ed decided to go “longer out” until September. For ANET he is looking for a 30% move and for TGT a 20% move. His upside in both trades is around a 4:1. The risks? If market crashes, he will lose his TGT positions but will / or could make around 4:1 with ANET. If it goes up, the same happens vice-versa. The real risk? Market stays at it is now – ANET is going up and TGT is going down and no rotation trade is happening.

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FROM ITPM’s Flash Video on Youtub

As stated in the beginning, always do your own research! This is for educational purpose only and no investment advice!

About me

The Institute of Trading and Portfolio Management (ITPM), founded by ex-Goldman Sachs trader Anton Kreil, helped me on my journey to become a profitable retail trader

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Review of ITPM Courses

The courses of the Institute of Trading and Portfolio Management helped me massively to become a profitable retail trader. I genuinely believe that ITPM provides the best trading education on the market – but not everything is perfect. Find out more in my reviews

Results of my Mentoring with Anton Kreil

In September 2022 Anton Kreil asked me and another one of his former mentees, if we want to do a webinar with him. After the Thailand class in April 2022 and the following mentoring with Anton from Mai to July 2022 I thought it was great opportunity to show what I have learned and how I have progressed

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ITPM Thailand Mentoring

After completing my first ITPM Course, the PTM 1.0 (the predecessor of the PTM 2.0), I knew I want to do a mentoring. After a thorough analysis I decided to attended the April 2022 Thailand mentoring class

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