Broad Market Outlook
Most talking heads were claiming it would take years for us to get back to highs, its been less then a month of trading and the market has reclaimed half of the overall down move, a 50% retracement. If we think of stretching that slinky or rubber band as far as possible (how far the market dropped) and then let go, it snaps back with almost equal power. Which is what we are seeing, that most could not explain if they tried. We don't care for trying to explain why the market retraced half the down move, all that matters is that it did.
Now with that same rubber band, after you stretch it and let go, each subsequent bounce of the rubber band loses momentum (volatility subsides). As we are seeing in the overall market, the 10% down days seem to be a thing of the past as people are becoming more accustomed and adapting to whats going on.
This is a time where we can think a bit more rationally then we might have been thinking at the end of March. Cashing out your 401k might have felt like the smartest idea a few weeks ago and now you might be seeing how costly that would have actually been. If you still are a bit nervous, and your investment is currently worth more now then a few weeks ago, you could have a more rational discussions on what the best course of action could be.
For myself, I am starting my spring cleaning after this bounce, anything that I don't care for and can get out of (last week selling IDXX and PFPT for example) I will take off. For things that I still like AXP, DIS, Dow 30, major sectors, I have no problem continuing to hold and adding to.
The more you can remind yourself that the money you are investing is in fact for investing, the easier it will be to hold through the ups and down. We went through a short and sharp period of the market dropping and now we have been in a short and sharp period of upward price movements. We cannot forget that the market moves in both directions.
Macro Rotation Outlook
If we didn't want to buy $180 2 weeks ago and want to buy $240 today, we have a problem. 5th day up could be just a tad extended from a short term standpoint.
The overall market has retraced 50% of the overall down move in less then 1 month. Most talking heads said it would take years to get back to highs, yet we are half way there in less then a month. When it comes to trading, we rarely bring up retracements, and some of the most common are the 33,50 and 66% retracements. To keep this as simple as possible say a stock was at $100 dropped to $50 and bounced back to $75, that would be a 50% retracement.
These are usually short term tops in the particular position, the market moves in ebbs and flows, rises for a few days, drops for a few days, makes a new pivot low, then makes a new pivot high, so on and so forth.
When we get these retracements they are usually gifts to get rid of stock you were not thrilled with to have during the down move.
The Nasdaq has retraced over 50% of its overall down move so far and is actually trading higher then the 8,000 breakout level that was setting up all 2019. Did we forget about sneaky buy backs?
MDY Mid Caps
The thought was that the prior 2019 lows would hold up, yet I was quite to forget that on the way down the shake out tends to be much more then we could image which we are seeing as clear as day now (lesson learned). Mid Caps have so far broke back up it, yet we have to remember its 5th day up.
IWM Small Caps
Small caps breaking out into the gap fill area, still plenty of real estate on the upside for the small caps to work its way back into, we just have to be aware of it being 5th day up.
Sensitive - sectors that have moderate correlations to overall market conditions.
Tech snapped back to levels pre the end of year breakout. Every single investor who bought VGT anytime in the past 2 decades except for the 3 months in 2020 when it was above $230 are profitable. That crowd is sitting on gains.
Energy still in the dog house among its peers however we are seeing quite the range forming, if this can pull back and then make another go at $48 down the road we could see a move higher. Down here are the really hard buys, however people are quick to forget that if you get stock at $30 and it goes to $90, that is a 300% return. Overall return wise the money is still here however with that also comes the fact that $30 to $20 is also a 50% drop. We can focus on lowering our risk as much as possible however market risk will always be there.
Industrial's showing us the 3rd times a charm breakout, however losing some steam after 5 days up.
Telecom continues to inch along after putting in that double bottom at $66, this was a great and extremely lucky example of balancing in a sector. We were buying in the $80s and $90's selling into $100 and then buying back in the mid $70s. Have to remember that this was over the span of almost 2 years. The sectors for the most part are slow.
Cyclical - sectors that are more sensitive overall market conditions.
We can see the textbook 3rd times a charm set up working like a charm in the Materials sector. We have to remember that this is its 5th day up into a gap fill, which could mean a short term top is on the horizon.
VCR Consumer Discretionary
Discretionary's filled the gap which is actually quite surprisingly as the overall mindset of the average consumer has been solely focused on buying staples. Market is disagreeing and say they will continue to spend foolishly.
Financials working its way to the gap fill area at $60, where we should see the next level of resistance come into play.
REIT's so far have snapped back 50% of the overall drop and short term just a tad extended. If you picked up any sub $80 and don't want to give back any profits, LOD stop.
Defensive- sectors that tend to outperforming during sub par market conditions.
VDC Consumer Staples
Staples has snapped back more then half of what they dropped, time to continue to up stops and be defensive up here.
Healthcare showing us that just as quick as they fall, something they rise back up exactly how they fell. Healthcare has reversed more then half of its overall drop already. Great time to up stops in profitable positions.
IBB Bio Tech
Among all the sectors, this IBB add was one of the best risk reward trades among the sectors that we grabbed so far. Few more up days and its back into the range pre market crash.
The market is still reminding us that chart patterns are in play, we can see the 3rd times a charm breakout in the utilities sector retracing more then 50% of the overall drop in less then a month. If you were thinking of panicking out at lows, this should be a reminder why it never pays to panic.
Big Picture Set Up
DIS DCA 108
A few weeks ago we started to pick up some DIS up through $96 and recently we have seen a new range forming between $92 and $108. For now $108 continues to act as resistance and as we have seen in most of the major sectors and some stocks, 3rd time was the charm. Will look to add above $108 in time to add to this position.