TL;DR: We keep the event-aware kNN core and lean into large-cap catalysts while staying factor-balanced. The 10-name, equal-weight basket targets clean neighbor behavior into/around prints, adds a small energy overlay, and retains staples ballast. New rules active: Mandatory RVOL ≥ 2.0 (or 1h ≥ 1.3×), hard stop at −10% (or tighter 2×ATR), ex-post shock flag, and IV term-structure slope filter.
Key Takeaways (trade desk)
- Run 3–4 catalyst names with repeatable 3–5D drift; avoid steep IV slope.
- Cap tech exposure at ≤3; diversify across Comm Services, Discretionary, Financials, Industrials, Energy, Healthcare, Staples.
- Use auction → first-hour VWAP entries; half-size where bias is modest with same-week prints.
- Apply ex-post shock (halve size intra-day) and monitor front/2nd-week IV slope.
- Stop-loss: hard −10% (or tighter 2×ATR), trail to −1×ATR after +2.5×ATR profit.
CIO Note
Event-Aware kNN
Execution Discipline
Executive summary
Dispersion should remain elevated with a dense earnings slate across megacap tech, payments, industrials, and energy. We favor names where our like-state analogues indicate positive short-horizon drift and where crowding/IV metrics are not extreme. News/sentiment remains a 12% cap and can only tilt decisions inside a ±10% kNN band.
Selection method (refresher)
- Primary: kNN state (5/10/20D returns, curvature, EWMA vol, vol-of-vol, quarticity, distance to earnings, IV vs RV, front/2nd-week IV slope).
- Secondary: Residual momentum (sector/market-neutral), event proximity, dispersion, crowding; valuation used to de-risk extremes only.
- Risk: ≤3 names per sector; 10× $1,000 equal-weights; near-zero beta; stops at 2× 20D ATR or −10% (whichever tighter); time stop = Friday close.
The 10 for this week (equal-weight longs)
| Ticker | Company | kNN bias | Catalyst window* | Why now | Risks & guards |
|---|---|---|---|---|---|
| MSFT | Microsoft | ↑ | Earnings window (verify day-of) | Clean neighbor clusters; steady revisions; IV slope not extreme. | FX/cloud mix; half-size if pre-print drift > +2× ATR. |
| GOOGL | Alphabet | ↑ | Earnings window (verify) | Ad/search mix; neighbors show positive 3–5D drift post print when IV slope flat. | Regulatory headlines; use ex-post shock rule if needed. |
| AMD | Advanced Micro Devices | ↑ (tempered) | Earnings window (verify) | Improving residual momentum; favorable neighbor set in mid-IV regimes. | Guide sensitivity; no chase > +2.5× ATR gap. |
| META | Meta Platforms | ↑ | Earnings window (verify) | Revenue quality; neighbors favor controlled IV term-structure. | Policy headlines; crowding guard active. |
| AMZN | Amazon | ↑ | Earnings window (verify) | Retail/cloud blend; kNN likes residual momentum + event proximity. | Margin mix; half-size if IV slope steepens sharply. |
| V | Visa | ↑ | Earnings window (verify) | Payments seasonality; neighbors with stable drift and low left-tail. | Cross-border volumes; FX. |
| CAT | Caterpillar | ↑ (balanced) | Earnings window (verify) | Backlog/support; industrial dispersion supportive. | Order commentary; tighten stop to 1.75× ATR if pre-print ramp > +1.5× ATR. |
| XOM | Exxon Mobil | ↑ (overlay) | Earnings/energy tape | Energy overlay to diversify factor; neighbors show modest positive drift. | Commodity shock; cut size if WTI +>3% d/d. |
| MRK | Merck | ↑ | Earnings window (verify) | Defensive growth; event proximity + muted IV slope. | Pipeline headlines; standard guards. |
| WMT | Walmart | ↑ (defensive) | Staples ballast | Path smoother; offsets megacap/event risk; neighbors low left-tail. | Consumer elasticity; standard. |
Alternates — pre-approved swaps (v1.5 rules applied)
Swap triggers & mechanics
- Volume trigger: Planned name fails RVOL ≥ 2.0 daily or first-hour volume < 1.3× 30-day avg → swap to the highest-ranked alternate in the same sector.
- IV slope trigger: Front/2nd-week IV ratio > 1.25 and rising → half-size or swap.
- Gap discipline: Open > +1.5× ATR above prior close → skip or swap.
- Risk constants: Equal-weight $1k; hard stop −10% (or 2× ATR tighter); time stop Friday close.
| Ticker | Company | Sector | Why it qualifies (signals) | Use when (swap triggers) | Risk guards |
|---|---|---|---|---|---|
| COST | Costco | Consumer Staples | kNN bias ↑; residual momentum positive; IV slope flat; repeated RVOL spikes on catalyst days. | Replace WMT if RVOL test fails or beta skews; also when staples ballast needs more growth tilt. | Stop −10% / 2×ATR; no chase > +1.5×ATR. |
| PEP | PepsiCo | Consumer Staples | Defensive ballast; clean neighbor drift around updates; stable IV term structure. | Alternate to WMT/KO if they miss RVOL or beta neutralization needs more staples weight. | Standard; watch FX/input costs. |
| JPM | JPMorgan Chase | Financials | kNN ↑ with steady residual momentum; RVOL often clears >2.0 on macro days. | Swap into Financials if V underperforms RVOL/IV tests or sector balance needs a bank. | −10%/2×ATR; macro headline shock flag applies. |
| UPS | United Parcel Service | Industrials | Event-aware clusters show 3–5D drift post updates; RVOL surges on guidance days. | Alternate for CAT when pre-print ramp > +1.5×ATR or IV slope steepens. | Tighten to 1.75×ATR if pre-print ramp > +1.5×ATR. |
| BA | Boeing | Industrials | High-dispersion name with frequent RVOL spikes; kNN selective but attractive when IV slope normalizes. | Use only if CAT/UPS both fail volume and IV slope is ≤1.1. | Headline/shock sensitive → ex-post shock rule likely. |
| LLY | Eli Lilly | Healthcare | Quality growth; neighbors show clean drift; RVOL bursts on drug headlines. | Alternate to MRK if RVOL/IV tests fail or need more growth skew in Healthcare. | Trail to 1×ATR after +2.5×ATR. |
| NVDA | NVIDIA | Information Technology | Strong kNN when IV slope contained; powerful RVOL confirms on catalyst flow. | Use if AMD fails RVOL or if beta stays neutral and sector cap allows; avoid if IV slope >1.25. | Half-size by default; crowding penalty active. |
| ORCL | Oracle | Information Technology | Lower-beta tech with repeatable post-event drift; RVOL >2.0 on updates. | Alternate to MSFT/GOOGL when those fail IV-slope or crowding checks. | Standard; avoid chase. |
| CVX | Chevron | Energy | Energy overlay; neighbors favor modest positive drift; RVOL often clears on tape shocks. | Swap for XOM if WTI beta alignment needed or XOM fails RVOL at open. | Cut size if WTI +>3% d/d; −10%/2×ATR stop. |
| UNH | UnitedHealth | Healthcare | Defensive growth; smooth neighbor sets; RVOL confirm on policy days. | Use if MRK/LLY unavailable or to balance sector exposure after swaps. | Standard guards. |
Execution blueprint
- Entry: Monday auction → first 30–60 min VWAP. Avoid chase > +1.5× 20D ATR above prior close.
- Sizing: $1,000 per name; half-size for same-week prints with only modest bias; reallocate remainder to WMT/XOM if needed.
- Risk controls:
- Stops: hard −10% or tighter **2× 20D ATR** from entry; trail to **−1× ATR** after +2.5× ATR move.
- Time stop: Exit Friday close regardless.
- Ex-post shock flag: If non-operational shock confirmed (price < open & VWAP falling in first 15m), **halve size** intra-day.
- IV slope filter: If front/2nd-week IV > 1.25 and rising, cut intended size by 50% unless bias is strong.
What could blindside us (and responses)
- Macro tape swing: If VIX +>3 pts intraday, tighten all stops to 1.5× ATR and pause new adds.
- Sector contagion: On the second same-sector miss within 48h, pull residual peer risk to 25% for the week.
- Commodity spike: If WTI +>3% d/d, reduce XOM to half-size; offset with staples ballast.
Do Your Own Research. This is a tactical, 5-day equal-weight basket guided by quantitative signals and public information. It is not investment advice and does not consider individual circumstances. Confirm exact earnings timing before entries.