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Single Best Trade: Hedge fund manager Doug Kass gives his top contrarian pick

A portfolio manager with nearly 50 years of experience shares his best idea for what to buy right now.

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Finding investments deserving of your hard-earned cash is a challenge. There are thousands of publicly traded companies, exchange-traded funds, and bonds to choose from, and knowing when it's the right time to buy makes picking an idea even harder.

In a bid to help, professional investors are sharing their single best trade idea with TheStreet. 

Related: Single Best Trade: Portfolio manager at firm managing $7 billion shares favorite tech stock

While everyone's crystal ball is hazy and plenty can go wrong with even the best investment thesis, professional investors have years of experience and resources Main Street investors only dream about.

In this latest edition of Single Best Trade, Doug Kass shares his most compelling pick now. 

Kass has seen a thing or two over his nearly fifty-year career. He's navigated more than his fair share of bull and bear markets, and having experienced runaway inflation first-hand in the 1970s, he's uniquely positioned to maneuver headwinds associated with sticky inflation, economic uncertainty, and strife in the Middle East.

His career, which stretches back to working for the global money manager Putnam Investments in the 1970s, includes serving as Senior Portfolio Manager at Omega Advisors, one of the world's largest and most successful hedge funds. 

Nowadays, Kass is the portfolio manager for Seabreeze Partners, L.P., an active long/short hedge fund. In his daily trading diary, he also shares his daily buying and selling on Real Money Pro.

A self-described contrarian with a calculator, Kass is most comfortable when he's going against the herd. You'll often find him buying when others are selling, so his single best trade now is perhaps unsurprising.

Doug Kass's Single Best Trade.

TheStreet

What is your single best trade idea?

My favorite trade is buying  (TLT) - Get Free Report ($82.99 as of market open on Oct. 20).

TLT is the bond ETF iShares 20+ Year Treasury Bond ETF | TLT. It comprises Treasury securities with an average effective duration of about sixteen years with a yield of approximately 5.06%. This ETF is liquid (average daily trading volume of 52 million shares and about $37 billion is managed by the Fund).

Why do you like it?

Interest rates have risen dramatically (from virtually zero) since March 2022, when the Federal Reserve began to tighten monetary policy and raise rates.

That increase in rates has accelerated in the last two months, providing a good entry point.

I currently view credit as more attractive than equities and I expect investors to continue to buy Treasuries, which are not volatile and provide a high absolute and relative return. In fact, at over five percent yield, this is nearly equivalent to the long-range return on stocks.

Moreover, I expect the domestic economy to begin to experience decelerating growth and morph into a mild recession in the first half of next year. Interest rates should decline as the variable and lagged impact of tighter Fed policy should shortly be felt.

Consumers should lead the economy lower — under the weight of a deteriorating jobs market, higher mortgage/consumer installment rates, and still elevated inflation.

Finally, the geopolitical problems around the world could lead to a flight to safety - benefitting Treasuries by placing pressure on yields.

What could go wrong?

The economy may remain resilient. 

Sign up for Real Money Pro to learn the ins and outs of the trading floor from Doug Kass’s Daily Diary.

Single Best Trade does not represent investment advice from TheStreet. All investments should be researched carefully through consultation with an investment professional.

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BTC price hits 2-month high amid bet Bitcoin will break $32K ‘soon’

Bitcoin consolidates below $30,000, with the BTC price weekly close of interest to market analysts.
Bitcoin (BTC) tapped $30,000 into…

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17 mins ago

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October 20, 2023

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Bitcoin consolidates below $30,000, with the BTC price weekly close of interest to market analysts.

Bitcoin (BTC) tapped $30,000 into the Oct. 20 Wall Street open as analysts directed attention to the weekly close.

BTC/USD 1-hour chart. Source: TradingView

BTC price sets up weekly close showdown

Data from Cointelegraph Markets Pro and TradingView captured new two-month BTC price highs of $30,233 on Bitstamp.

The pair showed continued strength during the Asia trading session, with a slight comedown taking place at the time of writing, taking the spot price back below $29,500.

With volatility still evident, market participants argued that a weekly candle close was needed in order to establish the rally’s true staying power.

For Keith Alan, co-founder of monitoring resource Material Indicators, the 100-week moving average (MA) at $28,627 was of particular importance.

“This move is one to watch, but what I’m watching for right now is to see if this Weekly candle closes above the 100-Week MA and if next week’s candle can stay above it with no wicks below,” he wrote in part of an X post on the day.

“Some might consider that a confirmation of a bull breakout, but this market is known for squeezes and fake outs so I’m looking for more confirmations. For me BTC will also need to take out prior resistance at $30.5k, $31.5k and ultimately $33k to call a bull breakout confirmed and validated.”
BTC/USD 1-week chart with 100MA. Source: TradingView

Eyeing required support zones, popular trader Pentoshi flagged $28,900 as the line in the sand for bulls to hold.

Tracking low-timeframe (LTF) market conditions, meanwhile, fellow trader Skew suggested that a sweep of late longs could result in an entry opportunity prior to upside resuming.

“I suspect longs are starting to fomo in here around $30K,” he told X subscribers alongside a chart of exchange order book data as $30,000 reappeared.

“So if this LTF trend breaks a nice sweep could be a nice entry before higher wouldn't be surprised to see something like this play out.”
BTC/USD order book data. Source: Skew/X

Forecast expects “mass adoption,” Bitcoin ETF approval

In an optimistic longer-timeframe view, trading team Stockmoney Lizards predicted that resistance immediately above $30,000 would soon crack.

Related: Hodling hard: Bitcoin’s long-term investors own over 76% of all BTC for the first time

Updating a chart fractal comparing BTC/USD in 2023 to its 2020 breakout, analysts argued that the time for significant upside is now. An approval of the United States’ first Bitcoin spot price exchange-traded fund (ETF) would form the clinching factor.

“31/32k will break soon,” part of accompanying commentary read.

“P.S.: Many of you will once more say: ‘But 2020 was after halving, here we are before’ — answer: doesn't matter. This year mass adoption / ETF approval will be THE driver.”

Stockmoney Lizards referenced the upcoming block subsidy halving scheduled for April 2024.

BTC/USD comparative chart. Source: Stockmoney Lizards/X

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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Treasury Loss? You’re Also Paid Back In Depreciating Dollars

Treasury Loss? You’re Also Paid Back In Depreciating Dollars

Authored by Simon White, Bloomberg macro strategist,

Selloffs in Treasuries…

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17 mins ago

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October 20, 2023

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Treasury Loss? You're Also Paid Back In Depreciating Dollars

Authored by Simon White, Bloomberg macro strategist,

Selloffs in Treasuries are compounded by the real loss in the purchasing power of the dollars they are denominated in.

US Treasuries are in the midst of their worst drawdown, or peak-to-trough decline, for at least half a decade, with the Bloomberg Treasury Index down over 17% from its peak.

At first look, the slide appears small, compared to the other major assets. However, for longer-duration Treasury debt, using the iShares 20+ Year Treasury Bond ETF with ticker TLT as a proxy, the maximum drawdown is approaching 50%. That’s still smaller than gold, the Nikkei, Bitcoin, the S&P 500, but huge for an asset that is supposed to be “risk free”.

But we are in an inflationary world again, so it is real values that matter most. Using US headline CPI indexed to 100 in 1990, we can build real indices for each asset. Applying US CPI for all of them means we can compare like for like. Now, when we look at maximum drawdowns, we get a different picture. It is no longer the S&P 500 with the largest one (in the Great Depression), but the dollar.

The dollar has seen a maximum peak-to-trough fall of 91%, which occurred in the 1970s. The dollar declined in nominal terms, but inflation rose sharply through the decade, meaning the dollar’s real value was eviscerated, being worth only a tenth of its purchasing power at the end of the 70s versus what it was at the beginning. The closing of the gold window in 1971, the Arab oil embargo in 1973 and the Iranian revolution in 1979 all contributed to its decline.

The decline of the real dollar’s value when inflation is elevated is an additional kick in the shins to those holding Treasuries: what you’re paid back in is losing value in real terms too. Since the end of 2019, the dollar is down ~9% in real terms, compounding the 11% total loss in Treasuries over the same period.

As the 1970s showed, the dollar’s real value is acutely exposed to elevated inflation, adding a sting in the tail for those already nursing losses in their Treasury positions.

Tyler Durden Fri, 10/20/2023 - 10:05

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These 3 Stocks Keep Hitting New Highs And Can Still Surge: This Is The Time To Look For An Entry

When the stock market turns to the downside, it’s discouraging. But not all stocks go down with the market. Running daily scans can help you identify some…

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19 mins ago

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October 20, 2023

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When the stock market turns to the downside, it's discouraging. But not all stocks go down with the market. Running daily scans can help you identify some gems. Here are three stocks that have hit all-time highs in a market struggling to decide which way to go. 

But just because a stock reaches an all-time high doesn't mean you should blindly buy it or think that since the stock has reached a high, it has no room to go further. You still need to have a strategic plan in place.

Why Invest In Stocks That Reach All-Time Highs? 

Before diving into the three stocks, it's necessary to understand the benefits of capitalizing on stocks at all-time highs and the risks.  

Legendary trader Jesse Livermore liked to find stocks at all-time highs because he thought there was a reason these stocks had gone high. There was enough buying interest to push the price higher. But will that momentum continue? That's where the challenge lies. 

Stocks that have reached all-time highs may experience a period of consolidation or even a price decline. And if the overall market trend is down, price can change quickly. So, if you decide to open a long position, you must have tight stops in place, just in case the momentum dwindles. 

How do you find stocks hitting all-time highs?

The simplest way is to use the Sample Scan Library in StockCharts.com. Here's how to find it:

  1. Select the Charts & Tools tab.
  2. Scroll down to Member Tools.
  3. In the Sample Scan Library select Browse Scan Library.

The first scan on the list is the New All-Time Highs. Select the Run button and you'll get a list of all stocks and ETFs that meet the scan criteria.

Let's dive into the three stocks that showed up on a scan of stocks that reached their all-time highs on October 18 and how they performed after hitting the high.

Diamondback Energy (FANG)

If you pull up a longer-term weekly chart of FANG—not to be confused with FAANG stocks—you'll see that the stock has been in an uptrend since 2020, although it went through a consolidation phase from the end of 2022, when the stock's price action went through a relatively shallow symmetrical triangle pattern. The stock broke out above the triangle pattern at the end of July. However, the breakout wasn't accompanied by a significant volume spike. There were some days with volume spikes after the breakout. Regardless, the stock has been trending higher along the support of its 21-day exponential moving average (EMA). For a couple of weeks (September 20 to October 6), FANG fell below the 21-day EMA (blue line) and its 50-day simple moving average (SMA) displayed by the red line. But FANG recovered and is not trading well above its 21-day EMA.

CHART 1: FANG STOCK IS PULLING BACK. Look for price action at the first support level (pink dashed line). It could go lower toward its 21-day EMA (blue line). Keep an eye on the RSI (lower panel) for an increase in momentum during up moves. Chart source: StockChartsACP. For educational purposes.

The stock hit its all-time high on October 12 and continues to rise. Keep an eye on the relative strength index (RSI), which indicates momentum. If the stock reverses and trends higher with a rising RSI, expect FANG to move higher.

Progressive Corp. (PGR)

Who doesn't know Flo? Progressive's ubiquitous upbeat commercials have etched the company's name in our brains. Perhaps the commercials are paying off. Progressive's stock has been trending higher for years, with higher highs and higher lows. 

Looking at the weekly chart of PGR (see below), it's clear the stock went through some pullbacks during the uptrend. In April 2020, PGR stock went below its 100-week SMA (green line) but recovered. More recently, in April 2023, there was another pullback to its 100-week SMA, which looks like a textbook classic. PGR bounced off the 100-week SMA by mid-July and has been trending higher.

CHART 2: WEEKLY CHART OF PROGRESSIVE INSURANCE (PGR). Overall, the stock has been in an uptrend with a few pullbacks. The stock is now trending well above its 21-week EMA. Chart source: StockChartsACP. For educational purposes.

The daily chart gives a more granular view. You can see that recently, the stock price gapped up and hit a new all-time high. It's now pulling back on low volume, indicating that the selling pressure isn't dominant.

CHART 3: DAILY CHART OF PGR. The stock is pulling back on lower volume. Keep an eye out for a reversal and increase in volume. Chart source: StockChartsACP. For educational purposes.

Murphy USA, Inc. (MUSA)

Next time you shop for motor fuel at your local Walmart, you will find Murphy USA products on the shelves. It's not exactly the sexy company that makes it to mainstream media headlines, but the stock acts like one that deserves much more attention than it gets. As a side note, MUSA was mentioned in StockCharts TV. Our chief market strategist, David Keller, CMT, focused on the stock in a recent episode of The Final Bar. It made it to the top 10 stocks to watch in October.

MUSA has had its share of pullbacks but has recovered from them. The daily stock chart of MUSA below shows that the stock pulled back in March but recovered. There were some bumps along the way, especially the price action on August 3, when the stock went as low as its 100-day SMA and bounced back. The stock is trading well above its 21-day EMA and continues to rise, making new all-time highs. 

CHART 4: MURPHY USA KEEPS ON RISING. Keep an eye on the RSI (lower panel). A pullback could be an opportunity to accumulate some shares of MUSA. Chart source: StockChartsACP. For educational purposes.

When To Make the Trade

You're probably thinking, well, if these stocks keep hitting new highs, won't they hit the brakes soon? They might, but they could also keep rising, especially when the high-flying big tech stocks are going through a volatile rotation. So, before acting, keep the following points in mind:

  1. Add charts of FANG, PGR, and MUSA (or any others filtered through your New All-Time Highs scan) to your StockCharts ChartLists.
  2. Keep an eye on momentum using an indicator such as the relative strength index (RSI). As long as RSI keeps moving higher and isn't at an extremely overbought level, there's a greater chance of the stock continuing to move higher.
  3. Looking at past price action in each of these stocks' charts, price pulls back and usually recovers, sometimes in a classic textbook way. Take advantage of those pullbacks and again watch the momentum. Add another confirming indicator, such as the moving average convergence/divergence (MACD), to the mix. 
  4. Take a quick look at the fundamentals using the Sector Summary tool in StockCharts. Know key factors such as earnings reports, revenue growth, and key fundamental ratios. 
  5. If everything lines up, the stock looks like it's recovering from a pullback, and you've identified an ideal entry point, know that anything can make a stock's price move against you. Know your exit points before hitting that buy button. 


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

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