Intentionality. It’s what separates the stock market from datasets of random noise. After all, humans are the beneficiaries of financial transactions and thus, by logical deduction, an incentive exists to forward a decisive and profitable strategy. Subsequently, by understanding intentionality, we can identify the behavioral state of the market — and more importantly, better predict what may happen next.

Of course, this brings up the million-dollar question: how do we go about identifying intentionality?

Let’s go back a few years to the tragic Titan submersible implosion. When the crew lost communication with the vessel, search and rescue teams immediately began combing the waters for sonar clues. Essentially, they were listening for someone in the Titan banging an SOS signal against the hull: three short taps, three long bangs, three short taps. Such a pattern is non-random and confirms intentionality.

My argument is that it’s the same principle with the stock market; it just doesn’t look like it because the share price, as a continuous scalar signal, is unbounded and often chaotic. However, we can get around this problem by discretizing price action into Morse code, for lack of a better phrase. That’s what market breadth is — sequences of accumulative and distributive sessions.

Now, if every week, the market was signaling up/down/up/down in perpetuity, then we would have strong evidence that the equities sector runs randomly. But that’s not what we see at all. Instead, we find — following discretization — that investors collectively operate rhythmically.

My contention is that, by analyzing the unique cadence of each stock, we can mathematically identify intentionality. Further, from this identification, we can empirically determine the likelihood that one state of intentionality transitions into another state.

This, my friends, is the future of financial analysis.

Netflix (NFLX)
We’ll begin our journey with Netflix (NASDAQ:NFLX). Unlike the typical fluff you’ll find in the financial publication space, I’m not going to bother with rehashing old news about NFLX stock. More than likely, whatever news that’s out there, whatever opinions that people are thinking about, they’re all priced into the share price. No, we need to focus on intentionality.

In the past two months, NFLX stock has printed a 6-4-U sequence: six up weeks, four down weeks, with a positive trajectory across the 10-week period. Since January 2019, this sequence has materialized 81 times. What’s significant here is that in 61.73% of cases, the following week’s price action results in upside, with a median return of 2.98%.

Scientifically, the null hypothesis is 56.14%. This is the baseline probability of NFLX stock rising on any given week; that is, the likelihood of success given that there is no mispricing. My alternative hypothesis is that, because of the 6-4-U sequence flashing, there is a (favorable) mispricing, that NFLX has a nearly 62% chance of rising.

Running a one-tailed binomial test on the aforementioned sequence reveals a p-value of 0.1839. Colloquially, this means that there is an 81.61% confidence level that the 6-4-U is not a random signal but possibly an intentional one.

With the market intelligence above, I’m looking for NFLX stock to reach roughly $1,236 in short order. If the bulls maintain control of the market for the next two to three weeks, I anticipate a push toward $1,252 to $1,255.

Petrobras (PBR)

Another intriguing idea to consider is Petrobras (NYSE:PBR). Again, I’m not really interested in going over all the news items that have impacted the business. I’m not going to assume that you have a reading comprehension problem. Instead, my job is to provide an analysis that you can’t find anywhere else — otherwise, what’s the point of reading this or any other finpub piece?

What I will say is that in the past five sessions, PBR stock dropped about 6%, which might be a speculative opportunity. In the trailing two months, PBR has printed a 3-7-D sequence: three up weeks, seven down weeks, negative trajectory. Ordinarily, the greater balance of distributive sessions versus accumulative should scare off investors. Instead, we’re seeing the opposite development.

Sine January 2019, the 3-7-D has materialized 19 times. In 68.42% of cases, the following week’s price action results in upside, with a median return of 4.21%. Here, the null hypothesis (baseline probability of upside) is 52.05%. Theoretically, then, the 3-7-D dramatically tilts the odds in favor of the bullish speculator.

Running a binomial test reveals that the sequence features a p-value of 0.1146. That’s colloquially a confidence level of 88.54% that 3-7-D is not a random signal but an intentional one.

With the above market intelligence, I’m anticipating PBR stock to hit $12.52 quickly. Should the bulls maintain control of the market for the next four weeks, a push toward $12.65 to $12.90 should be on the cards.

Arista Networks (ANET)
Finally, we’ll end this list with a discussion on computer networking company Arista Networks (NYSE:ANET). ANET stock has been off to a slow start, gaining just over 1% on a year-to-date basis. In contrast, the benchmark S&P 500 index has gained over 7% during the same frame. Still, for those seeking short-term rewards, ANET could be intriguing.

In the past two months, Arista has printed a 6-4-U sequence: six up weeks, four down weeks, positive trajectory. Since the beginning of 2019, this sequence has materialized 70 times. What we find from past analogs is that, behaviorally, ANET seems to respond to this implied momentum shift, with strength begetting more strength.

In 64.29% of cases, the following week’s price action results in upside, with a median return of 2.71%. Here, the null hypothesis (baseline probability) is 55.26%. Therefore, the 6-4-U provides a conspicuous lift in favorable odds.

Running a binomial test reveals a p-value of 0.0802, which colloquially translates to a confidence level of nearly 92% that the aforementioned sequence isn’t random but intentional.

On Friday, ANET stock closed at $111.78. With the 6-4-U sequence, the bulls will be looking for a push toward $115 soon. If the bulls maintain control of the market for another four weeks, ANET could drive toward $115.50 to $116.

— Joshua Enomoto

Out of 23,281 Stocks... Only ONE is This Profitable and Undervalued. [sponsor]
$3 billion+ in operating income. Market cap under $8 billion. 15% revenue growth. 20% dividend growth. No other American stock but ONE can meet these criteria... here's why Donald Trump publicly backed it on Truth Social. See His Breakdown of the Seven Stocks You Should Own Here.

Source: Money Morning