Broad Market Outlook
When will we hit the bottom? Is the common theme, yet no one really has a clue. Hearing all of the insane investment ideas lately (not from the TE circle) is continuing to make me feel that we are getting closer. Sector wise (dollar cost averaging) I added more last week to each sector then I have in as long as I can remember.
We so far have spent 2 days in a technical bear market in the Dow Jones and SPY, 1 of which was the worst day in the last decade (percentage wise) and the following was the best day ever. 10% swings in overall markets are not normal and will die down once the market can get 1 little piece of positive news related to the flu. The monetary fixes which are great is not going to help the guy buying 10,000 rolls of toilet paper to think rationally.
The crowd that is panicking wants the uncertainty to end. Once we get that little piece of news, this headline will be put to bed. Back in 09 H1N1 was the headline for about 6 months, then there was a vaccine and no one cared about it. Bitcoin mania had a similar run, going into last election that was the topic for a similar amount of time, we are what 2-3 months into this?
Way less is much more, there are deals and opportunities to make money down here. If you are asking how, this is not the time to learn by jumping in with both feet to try and find long term investment. Right now is the time to be light, find support buys on the way up (same as always), move your stops as close to break even as soon as possible and realize that any price you buy, at some point the stock will most likely trade lower (don't get married to a name).
If you can think logically right now, and tune out the news, there will be some great learning experiences and money to be made.
Macro Rotation Outlook
At its lowest the Dow Jones was down 27% and has spent 2 days so far in Bear Market territory, with 1 of those days being one of the best trading days in history. When the market gets scared, I spent my charting and focus on the biggest ships in the ocean, not the little jet skis that cannot handle the rough waters.
At Thursdays low the SPY was down 27% and we so far in this 3 day long bear market, one of the day's was one of the best days in trading history with the SPY up 9%. Do we expect the market to open up higher on Monday and gap and go? Probably not, more likely it will reverse at least half Friday's move, and even tickle a new low just to drive every mad.
At its lowest Nasdaq dropped 26% off all time highs and only the most savage trader who bought into the close on Thursday is sitting pretty. On Friday the entire Nasdaq rose 10%, just say that out loud for a second. On average Nasdaq stocks rose 10% on Friday. On Thursday they were down 10%, how many people do you think puked into the close on Thursday to chase back into the close on Friday?
MDY Mid Cap Stocks
Mid caps were in 2nd to last since the start of 2019 with small caps in last, mid caps held the prior low for a day before the sharp gap down, however on Friday it almost filled the gap running up 9% into that $290 area.
IWM Small Caps
Small caps like the Material sector were both in there respected last places among there peers, Small caps blew through there 2019 prior low which looked like a great buy, only to walk into the next day with an 8% gap down. First time in my experience seeing that big of a move, yet a day later, they snapped back 7%, which was another first. Right now most are not acting rationally and a select few will reap the rewards while most will spend the next year licking there wounds.
Sensitive - sectors that have moderate correlations to overall market conditions.
After dropping 26% off highs, just peep how steep that uptrend was. It was still a bit difficult to want to get back in since it was not near some of the bigger pivots ($190 and $160). Still added some this week.
This is a perfect example of when you can get the exact price you want on the way down, its a bad sign (i.e. if you were waiting to buy $70), now that this sector broke down and look like its going to zero tends to be near the end of the move, just like when that stock that went from $20 to $50 in a week, most expect it to go to $100 when its at $50, yet it pulls back to $30. Same here and we saw something similar with Telecom going into 2019 they were the dog of the major sectors, yet in 2019 they were one of the best % winners. Started to add up through $40.
This sector so far has been my best grab along with UTX (industrial), after dropping 34% I was able to grab some above $114, UTX up through $96 vs $92 was another great buy when most were not looking. Could we still take out that low? Of course, however grabbing some down here vs buying $156 a month ago.
Got super lucky taking profits in this sector at the start of the year, started to buy back some more up through $75, 2019 low is $70.
Cyclical - sectors that are more sensitive overall market conditions.
The Materials sector took a 33% haircut this month and was one of the first sectors to actually take out the 2019 low and blow through it. One thing to remember this sector lagged the whole way up. Not too much of a surprise they got hit much harder on the way down. If we take out $90 next stop would be the 2016 low at $80.
VCR Consumer Discretionary
At its lowest, this sector was down just about 30% before snapping back up 5% on Friday, we can see how close it almost got to the retest of the 2019 low. We can just as easily get back down there and even lower, however if you can grab some and be patient, the upside will be much greater then buying $184 in 6 months.
Fin names dropped 36% in 16 trading days, if this is not a dead vs $50, I am not sure what is. These were pre trump election prices.
REIT's got a bit more banged up then most dropping 28% at there lowest, and snapped back almost 9% on Friday. $70 to $72 for the last half decade has been macro support, if this area is going to continue to hold, we don't want the chance to be able to buy $70, we want it to hold above or if it gets down there, be quick. On Friday you had all of 3 hours to get stock in the $72's.
Defensive- sectors that tend to outperforming during sub par market conditions.
VDC Consumer Staples
At its lowest Staples were down 24% and in a mere 8 hours of trading they reversed a quarter of it ripping 8% higher, got filled on some above $136 on Friday.
At Fridays low Healthcare was down 22%, the 2019 low is $150, was getting a lot of questions later in the day on what to buy. Very hard to expect the market to come into Monday and rally higher after some sectors, I repeat sectors 10-12% in 1 day! That is a years worth of returns in 8 hours. We can just as easily continue to roll over lower.
IBB Bio Tech
Great shakeout of the prior support level, started to add some on the way up through $100. Everyone can't wait for a bear market to buy, then they all want to sell?
At its lowest, VPU was down 26% off highs, for now $116 is the current out, I added more to my weekly dollar cost averages in the later part of the week, taking advantage of the deals. Funny how on Thursday everyone wanted to sell into the low and by Friday afternoon, most were looking to find something to buy.
The New Big Picture Set Up
We can see how HLI has respected this $50 level for quite some time and even with all the crazy swings in the market, we can see how all last week, buyers were bidding this guy up. Given how wide names have been trading, you really need to give it vs the low, so trade your size according.