Hi guys, I popped out from my cave a couple days ago to say that there were probable signs that a near term bottom was forming, that the market might consolidate for 2-4 weeks (not make a new low) giving a chance for bombed out stocks to normalize. I made the assessment based on VIX studies comparing the market with 2008, and other signs, including sentiment, technicals and investor buying.
We suggested stocks like NOV, DK, STWD, NRZ and Planet Fitness to nibble back in because the probability of short term gain was high. All of those picks are up. Most of them are up by more than 25%,
STWD, NRZ, Planet Fitness, DK have all popped from 20% to as high as 50%. Only NOV is only slightly up, and can only go on a big move if oil price cooperates. See here.
PLNT up 35% since our last report.
Up 40% from last report ($5.15).
So what do we do now?
Before I continue, I want to say that I definitely am not "God". I wonder what makes me qualified to give any sort of advice. But at the same time, I realize that somehow my intuition is on the money more times that what is out there, so I humbly share our strategy going forward. My hope is that whatever you do, that you have a plan so that you won't get whipsawed out, and mentally tormented with the financial market volatility due to the CCP virus. Yes, I am calling it the CCP virus, not the Wuhan virus, and not the China virus, because there were honorable Chinese people like the honorable Dr Li that tried to warn everyone about the virus, and the CCP shut him up and he died serving those with the virus! The same virus the CCP arrested him for alarming his friends about. Reports are out there, that the CCP knew about the virus at least 2 months before they officially broke the news out. Imagine that, they spent 2 months preparing and researching cures while they were happy to let the rest of the world get infected. That said, after this CCP virus has blown over, I expect push back on China because of this, not before that.
Anyway, here's what we think.
Here's the thesis.
1) The MACD on the SPX has cut on the back of insider buying plus a news cycle that turned positive. Our thesis worked out precisely.
So we stand by our last report that:
a) There is 2-3 weeks where the bad news won't overwhelm the good news. The market can consolidate and go down, but unlikely to make a new low.
b) There could be a pull back because of the 3 day surge.
2) After Easter, markets 3 weeks later. By this time, the VIX would have died down and this will reset the short sellers to short the market again on bad news. After Easter is when US is supposed to get back to work, this means you will easily see headlines of "infection numbers increase! X number of people dead!"
Taking all this together, we suggest taking profit from companies that have already had a surge from a MACD cut and recycle them to laggards with prices not far from insider trading. We think most bombed out stocks will "normalize" up before the bad news starts to overwhelm us again in 2-3 weeks.
It's probably a good idea not to bet the farm, and invest what you are ready to lose.
Here are some examples of this:
We had sold Planet Fitness and recycled the cash into WFC.
As you can see, WFC has not surged like PLNT, and the price of $30.9 is close to the insider buy price of $28. The MACD has only just cut, so its lagging. If there is a pull back today or tomorrow, that would be a good place to add. We could hold it till it reaches $40-$45 or until Easter comes, whichever comes first.
XOM and NOV below, are kind of lagging, but buying these will require oil price to pop before they can have a sustained pop, but, if you have a long term outlook it would be totally fair to buy some at these levels.
VST and LNC are candidates to look at, and buy on dips.
For LNC, the CEO buy price is at $35 and that is our price target, however, because it surged more than 25% in the last 2 days, there could be a pull back first. I'd wait.
TEVA doesn't have any insider buying, but the MACD is about to cross upward, so some short term gain is possible.
We think the next 2-3 weeks will have a consolidation type of feel so that bombed out stocks can normalize to levels that are not bankruptcy levels.
However, based on historical market movements from 2008, as the VIX goes to more calmer levels, we may have 2 weeks of sentiment where the positives slightly outweighs the negative. This coincides with the re-opening of work in the US at Easter, where infection levels will rise and might dominate the media again.
Some stocks have already surged, and the broad index has had 3 good days. A 1-2 pullback is not unexpected. It would be prudent to take profit on stocks that have already surged more than 50% from the lows and recycle it into stocks that are lagging, like WFC.
If you can stocks like LNC, VST on a pullback, that is good.
To keep you in the stock, you should know that the insider buying prices are and make sure you buy it close to those prices.
Stay safe everyone.
Your once-in-while popping his head out of the cave QuantZombie.
Peace I leave with you; My peace I give to you. I do not give to you as the world gives. Do not let your hearts be troubled; do not be afraid. (John 14:27)
This information is for educational purposes only. Please consult a professional financial advisor before investing.