Portfolio Update:

It was another very good session for the GorillaTrades portfolio today. Of the GorillaPicks that fell, only two lost more than a fraction of 1%, and just one (Humana- HUM, which fell 4.1%) dropped more than 1%-2%. O’Reilly Automotive Inc. (ORLY) and AstraZeneca PLC (AZN) rose 3.3% and 3.7%, respectively, while Ulta Beauty Inc. (ULTA) leaped nearly 5%! ORLY also achieved its first target today, but it did so without confirming first; a very rare occurrence! Thus, 31 of the 32 confirmed GorillaPicks in the GorillaTrades portfolio now hold unrealized gains, including 16 with double-digit gains! Public Service Enterprise Group Inc. (PEG), which is down by just 1.6%, is the only conifrmed GorillaPick that does not hold an unrealized gain. Six different GorillaPicks hold 22%-28% unrealized gains each. Fiserv Inc. (FISV) and Fidelity National Information Services (FIS) hold 32% and 37% gains, respectively. CME Group Inc. (CME) holds a 48% gain, while Marsh & McLennan (MMC) leads the portfolio with an impressive 60% gain! In addition, after O’Reilly Automotive Inc. (ORLY) achieved its first target for an 8% profit today, 19 of the GorillaPicks have now achieved their first target!



Gorilla Commentary:

The major indices closed mixed as the Federal Reserve held interest rates steady and suggested it would continue to raise rates gradually. The Dow was up 11, to 26,191. The Nasdaq lost 40, or 0.5%, to 7,531, while the S&P 500 dropped 7, or 0.3%, to 2,807. Declining issues narrowly exceeded advancers on the NYSE, where volume was just above average.


Traders said the major indices widened their losses in the aftermath of the Federal Reserve’s statement and a drop in the price of oil. As one trader explained, “Having fallen more than 20 percent from their highs on October 3, U.S. crude oil futures reached bear-market levels and were a large drag on energy stocks. Meanwhile, the Federal Reserve said continuing job gains and consumer spending were helping the economy, but business investment had moderated from its quick pace early in the year and could lead to an economic slowdown. However, some investors were expecting the Fed to hold off on a rate hike in December. These investors were disappointed by the Fed’s statement and were hoping for a more dovish tone given the moderate inflation and stocks’ gyrations in October.”


All eyes were on the Federal Reserve and Jerome Powell today, as the Central Bank announced its rate decision and monetary statement in the afternoon. The Fed didn’t offer any major surprises, and the major indices had their least eventful session in quite a while, despite a brief hectic period following the announcement. Volatility continued to decline following the tumultuous October, with the Volatility Index (VIX) hitting its lowest level in a month, and although the Nasdaq and the S&P 500 finished with small losses, the Dow managed to climb back into the green before the closing bell.


While we saw a muted reaction to the Fed’s statement on Wall Street, short-dated Treasury yields hit their highest levels in more than a decade, and even the lagging long-end of the yield curve finished at a new 1-month high. The fact that the Fed didn’t mention the recent turmoil in financial markets likely means that as long as the economy is solid, asset volatility in itself won’t halt the Fed’s tightening cycle. On a positive note, stocks barely budged following the new highs in yields, which could mean that last month’s “yield panic” may be over.


The busy week will end with a couple of important economic releases, and the Producer Price Index (PPI) will likely make the biggest waves. Last month the index came in at 0.2%, and analysts expect prices to rise at the same rate again. However, some recent reports pointed to building price pressures in the supply chains due to the new trade tariffs. A higher than expected reading could push Treasury yields higher again, since it would be a sign of increasing supply-side inflation.


The prelim Michigan Consumer Sentiment number will also be out tomorrow, and although analysts expect a slight downtick, sentiment is still very positive from a historical perspective. The consumer economy has been the engine of growth in recent months, which bodes well for stocks as we approach the holiday season. Bulls are hoping for a continuation of the post-election rally, and as volatility remained low today, the odds seem to be in their favor.


Technical Corner:
Technicals have improved substantially so far this week, with the major indices’ divergences all recovering a large part of their recent losses, despite the persistent divergences. Still, the S&P 500 and the Nasdaq are below their declining 50-day moving averages of 2,831 and 7,712, but the Dow is already back above its short-term average of 25,870.  While the short-term trend is still in question, now, all three benchmarks are above their 200-day moving averages of 25,116 for the Dow, 7,520 for the Nasdaq, and 2,763 for the S&P 500.


Although the large-cap indices are in much better shape following the recovery, small-caps are still relatively weak from a technical standpoint. Even after an almost 10% rally in two weeks, the Russell 2000 remains below both its 50-, and 200-day moving averages. The short-term average is also close to crossing below the long-term one, completing the “death cross” pattern, and even though the death cross is not generally considered to be a reliable pattern in a bull market, the weakness in small-caps is something to keep an eye on in the coming weeks. Stay tuned!


Question of the Day:


Q: Dear Gorilla, if I solely rely on the GorillaTrades system, how will I be able to ensure that I am always diversified? Can you address the topic of diversification in one of your daily questions?


A: Since the GorillaTrades portfolio is already inherently diverse (by sector and market capitalization alike), your obligation is to spread capital according to your individual tolerance for risk. The version of “diversification” you exercise should always be defined through, and set, to reflect your individual objectives; capital shall be positioned to avoid any excessive account drawdowns from any inevitable misfortunes.


In addition, diversifying your GorillaPicks by their respective Risk Rating may drastically reduce the volatility of your overall portfolio. When the market experiences a correction or steep decline, those stocks with a Risk Rating of three or less will generally maintain a more stable composure than “higher” risk-rated stocks. Although the “higher” risk-rated stocks may have the potential for larger gains, the path to achieve these gains may contain extreme price fluctuations.


Note: During portfolio management, the inclusion of diversification is absolutely ESSENTIAL for your success in the market. This powerful component is recommended for use within the GorillaTrades system, and may be used to spread a portfolio’s capital throughout individual sectors or by Risk Ratings alike. Given that these tactics are often used for portfolio protection, they may ultimately improve your overall performance. Please never over commit capital to any ONE position, and as always, assign an exit strategy to each and every trade!


Quote of the Day:


In the words of…Wendell Berry, “It may be that when we no longer know what to do we have come to our real work and that when we no longer know which way to go we have begun our real journey.”


Key Long-Term Technical Levels:


Index Support Resistance
Dow 21000 +/- 27000 +/-
Nasdaq 6000 +/- 8140 +/-
S&P 2300 +/- 2940 +/-