Fittingly for Veterans Day, I’m dashing off a dispatch from the front, in this case New York City.

We’re here launching the Market Structure Scorecard tomorrow at IR Impact on AI and Technology in Investor Relations. 

Our focus at ModernIR is analytics and expertise that helps companies (and investors) thrive in quantitative markets. To do that, you need different practices and metrics. Quantitative markets don’t turn on fundamentals but on market structure, liquidity, stability. 

Enter the Market Structure Scorecard metering all three. You can manage, public companies, toward scores of 50 or better for all three. Do that and your product, your stock, is thriving. 

As with life and health – we patterned the scorecard after a health checkup’s metrics – you can’t control everything. Some of it is genetic. But as with GLP-1’s and statins and so on, there are remedies to some matters, best practices to follow. 

To riff off a client meeting yesterday over lunch where we talked about the Running of the Bulls in Pamplona Spain (he’s done it), some practices increase the odds of a shorter life. Or as my friend put it, “You can short that.” 

Think about this for executive teams and Boards.  The market wants beta, not alpha. How about three scores as measures.  If you keep your scores better than your peers, your sector, your market cap segment, there’s your compensation package. Deliver BETA, not Alpha. 

Alpha is almost unachievable. Not entirely.  We consistently do it with model portfolios built on market structure. But nobody knows because we don’t have a distribution partner for them. We’re working on it. 

Make beta the new goal, companies, and make your scores your metrics. 

Speaking of metrics, despite the apparent ebullience of stocks after the election shake rattle and roll, there’s a disturbance in the force (mixed metaphors?).  I just ran a Scorecard for SPY, which we use as the price metric on our platform, Market Structure EDGE.  ETFs distort Demand/Supply balances, just like central banks. More on that to wrap in a moment.

Here are the scores for SPY vs the core of the S&P 500:  Market Structure: 53. Pretty good, not bad, can’t complain. High Short Volume the only issue. Liquidity: 98.  Can’t be better, no surprise. SPY is among the most liquid securities in the world. PVV – the ratio of Passive flows to volatility: 0. 

It scores zero.  The patterns are flying apart like a meteor hitting atmosphere.

Broad Sentiment is 6.4, Short Volume is 48%. The market is rarely anymore net long. There are too many short-term instruments dependent on market-makers exempt from locating short shares. So most of the time the stock market is about 51% short. 

The point is the broad measures look good. Yet 60% of the S&P 500 is down 20% or more.  Across its sectors, some like Real Estate, Materials, Utilities, Consumer Discretionary, show over 90% of components down at least 10%.

How can it be? The stock market is not what it seems. So, what is it? We’ll conclude with that.

Now, over the past 20 trading days, Broad Sentiment has been over 6.0, over the red line signaling a top, for 17 of them. The main reason the market hasn’t imploded is falling Supply – short volume. Also, there’s only been one truly negative day.

What’s propping up stocks? Derivatives. Risk management. The pattern – we measure patterns, periods – is staggering. Almost nothing has decreased behaviorally. That is, not everyone can be at the head of the queue. Some things rise, something fall. 

The up/down patterns are mismatched. Everything is above the zero axis. Well if everything is up and nothing ever recedes, where do shares come from?

Which brings us to our conclusion.  ETFs are the Big Instrument of the day. They are collateralized substitutes for stocks that depend on Demand and Supply in the underlying asset. Your shares. 

Tokens are collateralized substitutes for stocks.  Covered puts and calls are collateralized substitutes. 

Ultimately, the health of any market depends on a clear view of Demand and Supply. To understand the impact of these instruments on stocks and markets, one must know the condition of Demand and Supply in the underlying asset.

That’s what we measure.

You can’t see it by looking at ETFs, tokens, options. You’ll get the wrong view.

My reference to central banks? They alter the supply of money to smooth out imbalances in consumer and business behavior. It’s a tragic and woeful practice. If nobody knows demand or supply, how do we know that prices are correct?

I bring you back to the stock market. You have to measure the right things. The Market Structure Scorecard will tell you the truth.  Ask us about yours.

And with that, I’m headed back to the front…