Weekly Market Update

[Jeffreauxdawg]

Big move over the weekend. The S&P spent 6 weeks range bound in a channel between 2780 and 2972.

View attachment 16270

Yesterday it broke through the top level resistance after many attempts. We are in the 3010 level premarket and I would like to see it come back and test the 2980 level and stay above before I call it a definite win for the bulls. But if that happens, next stop is 3110ish and after that, gulp... It may be on to a new all time high.

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Unless some wild news comes out about Covid 19 cases breaking out over the summer (which doesn't seem likely), the next big obstacle is 2nd quarter earnings later this summer. So if we can stay closed above 2972 this week, I expect higher highs for the next couple of months.

With that said, I don't trust anything right now. I'm still actively trading with stops on when I am not able to watch everything real time. Even with all the bullish signals, this feels like a house of cards.

Anyone else have other thoughts?

 

[randystewart]

Q2 earnings are when it is going to get real. Those reports are going to be a bloodbath for everyone except a few blue chips

 

[Jeffreauxdawg]

Q2 earnings are when it is going to get real. Those reports are going to be a bloodbath for everyone except a few blue chips

I agree... It's one of those deals where everyone says they know it's coming and the bad Q2 is baked in to prices. I don't buy it. It reminds me of my wife and her natural birth ****... 45 minutes in she was begging for the anesthesiologist.

 

[patdog]

Even with all the bullish signals, this feels like a house of cards.

This definitely seems to be the case to me.

 

[Dawg1976]

The stock market makes zero sense to me right now. The dow may go to 50,000 over the next couple of years but it will do so w/o me. But I'm old. If I were young like most here.... I would just stay the course and keep averaging in.

 

[BoDawg.sixpack]

Until interest rates and the coupon payment on bonds starts to move higher, the stock market is essentially the only game in town. And then Jerome said that they have "unlimited" capacity to fill in for the lack of economic activity during the shut downs. So there you have it. The U.S. market represents the most innovative economy in the world, where else is the world going to place their bets?

 

[TheStateUofMS]

For the umpteenth time, the market is forward looking 6-12mos out. The market dropped 38.% from high to low anticipating these awful earnings. Now market is saying earnings look okay for 2021. Market may be ahead of itself, but Q2 earnings are baked in. I think most Q2 GDP estimates are around -35-40% for the US right now.

Earnings are a lagging indicator by the way.

 

[TheStateUofMS]

My thoughts: If you're investing your retirement monies, you should have maintained asset allocation targets and continued to re balance. If you felt you were taking too much risk, parring back some risk is fine, but staying invested in accordance to your long term goals is the correct move with retirement accounts and other long term investments.

If you're trading, don't fight the tape. Momentum is to the upside right now, but we're at the top of the trading range. If we get heavy volume next few days, the breakout will be confirmed. Thurs and Friday of last week were light on trading volumes. Light volume breakouts are how breakouts fail.

 

[TheStateUofMS]

Big money clients asking: "Where can I park my money right now to get some interest?"

Bond ain't paying ****. Large Cap stocks with history of safe, growing divs may see the most PE expansion if rates stay low.

If the economy is somehow close to back to where we were this time next year, rates will have to go up and rates will go up before the Fed announces it pricing in those rate hikes.

It really is a challenging conundrum, but why I like T so much right now.

 

[TheStateUofMS]

There will be some folks caught off guard and get hit with the "realization" of how bad things were. That's the "dumb money" though. As long as we stay on the path the virus is currently on, major weakness in the market as a result of Q2 earnings is a buying opportunity as the dumb money sells.

This market is 100% driven on the virus being contained and economy being re-opened.

 

[johnson86-1]

Until interest rates and the coupon payment on bonds starts to move higher, the stock market is essentially the only game in town. And then Jerome said that they have "unlimited" capacity to fill in for the lack of economic activity during the shut downs. So there you have it. The U.S. market represents the most innovative economy in the world, where else is the world going to place their bets?

^^^THIS^^^

The market seems overpriced, but the next question is over priced compared to what? Real estate is sky high in most places. Bonds are extremely expensive. Most people aren't accredited investors, so PE is out. Investing in small businesses you know is just a different ball game and not one that most people want to play even if they can.

I think a lot of people (including me) are steadily putting money in the stock market through their job and even if it looks overpriced, there doesn't seem to be a good alternative.

 

[Jeffreauxdawg]

Very well put. I have not touched my retirement accounts. I am trading like a maniac in my brokerage accounts. Big pivot this morning from the tech and healthcare sectors to financials and transports.

 

[TheStateUofMS]

You still should "touch" your retirement accounts unless you're in target date funds that do the asset allocation adjustments for you.

Most folks would have been underweight equities by early March and what a perfect time that was to re-balance since the market bottomed at the end of the month.

 

[Go Budaw]

^^^THIS^^^

The market seems overpriced, but the next question is over priced compared to what? Real estate is sky high in most places. Bonds are extremely expensive. Most people aren't accredited investors, so PE is out. Investing in small businesses you know is just a different ball game and not one that most people want to play even if they can.

I think a lot of people (including me) are steadily putting money in the stock market through their job and even if it looks overpriced, there doesn't seem to be a good alternative.

Overpriced compared to holding cash until the time to buy arises. Too many people look at buying a stock as simply something that’s gonna go up in value so you can sell later, and if it does go up without you buying first you feel like its a missed opportunity. The reality is you are buying a business (or collection of businesses, in the case of mutual funds / ETF’s). If the fundamentals aren’t sound, it doesn’t matter what the next FY outlook is or if it gains 15-20% in the short term, it won’t be a sound investment over time.

To that end, you have companies right now like Netflix trading at near record highs, in spite of carrying debt that is 10x its annual net income (and increasing every year). Not sound fundamentals. You have Apple who has seen slowed growth in recent years and is valued in the $240-$260 range by many folks, and its trading at $317. Just a couple of examples.

All that being said, if your approach is to DCA over time and take the good with the bad, you’ll still be fine over the long haul. But if you prefer more the Buffett approach and concentrate a large amount of your wealth in a few companies with really sound fundamentals, good management, and continued growth, all at a BARGAIN price relative to all of the above, then there’s a strong argument to be cash-heavy for awhile longer. The fallacy is thinking you HAVE to buy something.

 

[Jeffreauxdawg]

You still should "touch" your retirement accounts unless you're in target date funds that do the asset allocation adjustments for you.

Most folks would have been underweight equities by early March and what a perfect time that was to re-balance since the market bottomed at the end of the month.

No need to rebalance those index funds, the market does it for me.

 

[PineGroveBully]

You still should "touch" your retirement accounts unless you're in target date funds that do the asset allocation adjustments for you.

Most folks would have been underweight equities by early March and what a perfect time that was to re-balance since the market bottomed at the end of the month.

Not a lot of those on the pack

 

[TheStateUofMS]

The Buffet Approach, as I know (I haven't read any of his books), is to buy the index. That's not putting a large amount of your wealth in a few companies. It advises the average person to not buy individual stocks because he doesn't think the average person can beat the market. That is correct: the average person cannot beat the market over the long run.

 

[TheStateUofMS]

Savage

 

[randystewart]

A little off topic but interested in the thoughts of those that follow more closely than I do. I can't see how all this doesn't cause (for very different reasons) another 2008 of sorts. Commercial real estate has to be about to take a huge plunge. Estimates that up to 50% of restaurants and retail will not make it until 2021, and companies seeking cost savings by slashing office space in favor of remote work. On the residential side, I guess it is possible most of these job losses are in the non-homeowner category, but there has to be at least a sliver of a mortgage crisis in the next several months.

 

[Jeffreauxdawg]

For the umpteenth time, the market is forward looking 6-12mos out. The market dropped 38.% from high to low anticipating these awful earnings. Now market is saying earnings look okay for 2021. Market may be ahead of itself, but Q2 earnings are baked in. I think most Q2 GDP estimates are around -35-40% for the US right now.

Earnings are a lagging indicator by the way.

You are a sharp guy, but it does take a while to learn a few things.. you are probably a little too young to remember the last recession in 08-09 and definitely are too young to remember 2000-2001. So make sure you take good notes on this go around. One note I will give you now is that the market is always looking forward for good news... But it's reactionary as hell when it comes to bad news.

Wait till the fall when the forward looking market realizes we have ****** earnings, high unemployment, consumers that are forever changed in behavior, a Fed that wants to raise rates because of inflation, a virus that wants to come back, and an election that may mean corporate tax rates going back to 35% and individual rates may go through the roof for high earners... That forward looking market does not want to consider any one of those risks right now. If the dominoes fall the wrong way you could have the worst confluence of events in the history of our economy.

When I hear Buffet, Tepper, Druckenmiller, Ichan, and Dalio singing in chorus, I tend to listen. I will trade the ride up, cause that's what I do... But I am always looking for the rug to get pulled out. I prefer for it to happen now, because a lot less people will get hurt.

ETA. PTJ is singing the song too. Hell, that old Forex trading fart is heading into Bitcoin... I may join once the halving shakeout becomes clear.

 

[Go Budaw]

The Buffet Approach, as I know (I haven't read any of his books), is to buy the index. That's not putting a large amount of your wealth in a few companies. It advises the average person to not buy individual stocks because he doesn't think the average person can beat the market. That is correct: the average person cannot beat the market over the long run.

Should have stopped at “I haven’t read any of his books.”

You are correct that Buffet’s approach for the average “hands off” investor is to buy the index. In that regard, he’s no different than anyone else trying to give nickel advice to the average Joe Blow who doesn’t want to spend several hours per week combing through financial statements and earnings reports. But that is not what he does, its almost the complete opposite.

Buffet’s portfolio genius is in its simplicity. His statement that you you can’t beat the market Over the long run” could be more accurately described as “you can’t beat the market over the long run with a fund or with several funds”, and he’s right not because funds are bad, but because funds ARE the market. Over 80% of the market to be exact. And this advice holds true whether you are a 16 year old stock market rookie or a Harvard MBA who is a fund manager. Your chances of picking, say, 100 companies to form an index that will beat the market are about equal. It’s not just the “average investor” that can’t do it, its pretty much anyone.

Targeted investment in individual equities that are purchased at deep discounts are where he makes hay. The overwhelming majority of his Berkshire investment portfolio are concentrated in only 15-20 companies, all of which are practically bulletproof. Find the bulletproof company, find how much its actually worth based on the fundamentals (not a bunch of analyst predictions, shoddy hype, or price trend), then cut that number in half to find your point of entry. 99% of folks don’t want to do the homework to find those companies, but those that do can beat the market. Buffet himself has been doing 20% per year on average for 40-50 years. Even if you only do half that good, you are right on par with the market as a whole, maybe even a tad better.

 

[Jeffreauxdawg]

A little off topic but interested in the thoughts of those that follow more closely than I do. I can't see how all this doesn't cause (for very different reasons) another 2008 of sorts. Commercial real estate has to be about to take a huge plunge. Estimates that up to 50% of restaurants and retail will not make it until 2021, and companies seeking cost savings by slashing office space in favor of remote work. On the residential side, I guess it is possible most of these job losses are in the non-homeowner category, but there has to be at least a sliver of a mortgage crisis in the next several months.

This is a weird one. The biggest difference is how quickly the Fed pumped money in.. That's why everything is so back and forth. My opinion is that the Fed can temporarily prop up markets, to the point where we may reach all time highs... But the reckoning will come. Here are my pros and cons facing the market:

Pros:

If small private businesses go under, it may lead to growth for public companies. (I am not rooting for this, it's horrible, but could lead to more business for big boys.)

Fed pumped money into the market and reduced rates. This is a way to make sure there are "buyers" in the market. It also makes bonds less attractive so all investors are looking at cash or equities.

Nearly every company cancelled guidance so they get to play the "we knew it would be this bad" card for a while.

The rest of the world markets suck too, US markets look like a safehaven.

Cons:

There are consequences of printing money and low rates... Inflation. The way to prevent this is raising rates. Anytime this happens, the market tanks.

The counter argument is that we may actually be facing a deflationary problem. It's complicated, but effectively when everyone is in so much debt, all of our money goes to paying back the debt. This leaves less money available for buying power. So companies have to lower the price of goods. Revenues fall. The market tanks.

Consumers quit spending and start saving. There are a lot of tricks to make businesses look better based on earnings... But the Fed, Congress, and no accounting trick in the world can cover up lower revenues across the board. I don't know about all of you, but I am not going to be spending as much money for a while. If this is the case with most people, the market tanks.

The nightmare scenario with coronavirus has always been a big spike during the late fall or early winter time line that we usually see the flu. Whether it's isolated or broad, if this happens there will be some local to even statewide lockdowns. If so, the market tanks.

China and US enter no holds barred trade war... The market tanks.

Democrats take office ( potential exists for House, Senate, and Oval office to all turn blue.) In this case the primary driver of earnings growth over the last few years (lower corporate and personal tax rates) will likely be gone. The market will tank.



So from where I sit, that's one hell of a minefield to navigate. The election risk alone is enough to keep me ready for a major pullback.

 

[seshomoru]

Total market cap is what? Around 30 trillion? They've pumped $10 trillion into the economy so far. It's almost impossible for the market to go down right now. Airlines are even moving back up and I'm not sure they are even flying at 10% of what they were. Ride the wave while you can, because it's gonna come crashing back down.

 

[johnson86-1]

Should have stopped at “I haven’t read any of his books.”

You are correct that Buffet’s approach for the average “hands off” investor is to buy the index. In that regard, he’s no different than anyone else trying to give nickel advice to the average Joe Blow who doesn’t want to spend several hours per week combing through financial statements and earnings reports. But that is not what he does, its almost the complete opposite.

Buffet’s portfolio genius is in its simplicity. His statement that you you can’t beat the market Over the long run” could be more accurately described as “you can’t beat the market over the long run with a fund or with several funds”, and he’s right not because funds are bad, but because funds ARE the market. Over 80% of the market to be exact. And this advice holds true whether you are a 16 year old stock market rookie or a Harvard MBA who is a fund manager. Your chances of picking, say, 100 companies to form an index that will beat the market are about equal. It’s not just the “average investor” that can’t do it, its pretty much anyone.

Targeted investment in individual equities that are purchased at deep discounts are where he makes hay. The overwhelming majority of his Berkshire investment portfolio are concentrated in only 15-20 companies, all of which are practically bulletproof. Find the bulletproof company, find how much its actually worth based on the fundamentals (not a bunch of analyst predictions, shoddy hype, or price trend), then cut that number in half to find your point of entry. 99% of folks don’t want to do the homework to find those companies, but those that do can beat the market. Buffet himself has been doing 20% per year on average for 40-50 years. Even if you only do half that good, you are right on par with the market as a whole, maybe even a tad better.

It's not that 99% of folks don't want to do the homework (although there is that), it's that there are enough people willing to do the homework with enough money behind them that there are rarely any deals to be had just by doing homework. You've got to do the homework and then catch something that other very smart people spending a lot of time researching it are missing. For the vast majority of people, when they think they see a deal, it's much more likely that they think there is a deal because they are misunderstanding something, not because they have some sort of insight that everybody else is missing.

 

[PineGroveBully]

China and US enter no holds barred trade war... The market tanks.

I think this is a matter of when, not if (the trade war..y’all know how that will effect stocks better than I). Countries such as Australia and Germany have more or less taken “our side” on this handling of the virus deal. It’s going to become a you are either with us or against us thing and any hope of a US/China trade deal might be as dead as the dinosaurs. A lot of Europe will side with us and a lot of Africa will side with them. That could have worked out really well for us if we weren’t $23-24T in debt.

A lot of it may come down to what this virus does in the Southern Hemisphere. If Brazil is any indicator it may get ugly. And I’m not at all saying that I want it to get bad, but the facts of the matter are that the more countries that line up against China the more leverage we have to force China into an enforceable deal, which might stir us away from a TRUE Cold War with them. That’s just the way I’m reading the geopolitical tea leaves, but we will see. What sat ye?

 

[Jeffreauxdawg]

Total market cap is what? Around 30 trillion? They've pumped $10 trillion into the economy so far. It's almost impossible for the market to go down right now. Airlines are even moving back up and I'm not sure they are even flying at 10% of what they were. Ride the wave while you can, because it's gonna come crashing back down.

I think you mentioned before you are relatively new, and were interested in learning. I will walk you through a trade I am looking for.

Now that we appear to have a market cycling out of coronavirus stocks into depressed stocks, I am going to start trading some of the airlines and financials. I think I am going to start with LUV since it's always a fan favorite. It looks like we just hit the 23.6% fib retracement level ($31.00). It was a big gap up and over, so I want to see it retest that level before I jump in.

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3 parts of trading I focus on:

1. I look for sound fundamental stocks (LUV has a kick *** balance sheet and will be the last airline standing if it gets to that point.) LUV checks that box even in this environment.

2. Are we in a trend or a range. I prefer trends, but will trade in a range if it's not real tight. These days we are getting huge ranges. In this case I am thinking we will start an uptrend, but will play it like a range between 23.6 and 38.2 fib levels to be safe. I will explain how I do that in a minute.

3. I set firm entry and exit points. I'm looking for a buy point at a retest of the $31.00 level. If it's triggered, I will first set my stop loss level. Based on the gap up over, I don't want to get whipsawed out, so I want to be below the gap because prices move quick in gaps. I am looking at 29.50 as my stop loss. That is roughly 5% below entry. So I am only willing to lose 5% on the trade. Now for my sell orders. I am first going to sell 1/2 of my position at the next fib level (38.2% fib or $36.25.) At this time, I will immediately move my stop up halfway between the buy point and sell ($33.62 in this case.) This is how I trade a range, if I hit 38.2% and pull back to the 23.6% I still make an average of $3.94 per share profit or 12.7%. If it tests $31.00 again, I will consider it range bound and do the same trade again. If it doesn't pull back to my stop at $33.62, I will look to ride the trade all the way up to the 50% Ievel or $40.50 where I will sell it all. If this is the case I made $5.25 per share on half the trade and $9.50 per share on the other half... For an average of 23.7% profit.

A lot of numbers here, but my strategy is basically to lose 5%, make 12.7%, 23.7%, or possibly more if it's range bound and can ride it up to the $40.50 level on a second attempt to break through. There are two keys for this type of trade to work. I have to be ironclad on on my entry and exit points and it has to give me an entry point... I am still guilty of trying to force these things at times and it always burns me.

(I never actually pick round numbers, it was just easier for math, so I will enter at $31.13 and put a stop in at $29.46... etc.)

 

[Go Budaw]

It's not that 99% of folks don't want to do the homework (although there is that), it's that there are enough people willing to do the homework with enough money behind them that there are rarely any deals to be had just by doing homework. You've got to do the homework and then catch something that other very smart people spending a lot of time researching it are missing. For the vast majority of people, when they think they see a deal, it's much more likely that they think there is a deal because they are misunderstanding something, not because they have some sort of insight that everybody else is missing.

The deals are pretty obvious if you wait for the market to bring them to you. Thats the problem right now, the market isn’t bringing anybody much of anything. Its very overvalued still, even after the COVID correction from 29,000. The Buffett’s and Munger’s and Dalio’s of the world spend 99% of their time simply waiting. They know who they want to buy and when. Those guys made a lot of money when the Dow dipped below 20k in March, just like they did during the dip at the end of 2018, and again right after the 2016 election. The problem is a lot of folks don’t the time to do the homework AND the patience to wait extremely long periods of time before acting on the info they gather.

 

[johnson86-1]

The deals are pretty obvious if you wait for the market to bring them to you. Thats the problem right now, the market isn’t bringing anybody much of anything. Its very overvalued still, even after the COVID correction from 29,000. The Buffett’s and Munger’s and Dalio’s of the world spend 99% of their time simply waiting. They know who they want to buy and when. Those guys made a lot of money when the Dow dipped below 20k in March, just like they did during the dip at the end of 2018, and again right after the 2016 election. The problem is a lot of folks don’t the time to do the homework AND the patience to wait extremely long periods of time before acting on the info they gather.

That is not how markets work. If you can buy something at a price, it's because most people think it's worth less than that. There are occasionally opportunities that seem pretty obvious and are small enough that professionals haven't traded it away, but more often than not the person that thinks they are obvious just doesn't understand what he or she is missing. And that's ignoring that the market can be "wrong" long enough that waiting won't necessariliy give you the opportunity to make money. Even if you are willing to go short or buy put options, you still have to not be "right" too early.

Most people would be far better served by increasing their earning power than trying to focus on stock picking. If you have a $1,000,000 portfolio, an extra 2% over the market net (which is extremely hard to do), would give you an extra $20k a year before taxes. With $250k a year, it's an extra $5k. If you enjoy it, it's a great past time as long as you don't risk too much. But it's not a great investment of time for most people.

 

[horshack.sixpack]

Fixed income yields have been a tough play for a long time now.

 

[TheStateUofMS]

Things are typically not as bad as they seem nor as good as they seem.

The difference between 2008 and today, was this is a government caused recession. The economy was not fragile beforehand. 2008 was a global financial meltdown and the policy response was a year or more in some cases. The policy response we got this time was unprecedented in terms of size and speed. The consumer was in great shape before the lock downs. The banks and financial system was in the best shape it's ever been in and if you can't see that right now, you're paying too much attention to the Perma Bears out there.

Now the lockdowns were unsustainable and never should have been instituted in the first place in hindsight, but I think we likely ended them just in the nick of time. There's a lot of uncertainty out there on how many of the jobs lost will be permanently lost. One thing I never see mentioned is there were a record number of job openings before he lock downs. Most of those jobs were not in hospitality/travel/leisure either. The jobs that don't come back, hopefully those folks are able to find a different job. No doubt a good many of folks will be hurt for a long time, but how many? I'm not sure. No one is. I can tell you Memorial Day weekend seemed to be folks acting like normal. If folks go back to normal quickly and the job losses aren't as bad as feared, this economy is going to look closer to a V than an L and the market is getting it right. When I mentioned the "size" of the policy response one thing never mentioned is the generous unemployment that was included. Many of the laid off Americans are making at least as much as they were if not more by NOT working right now bc of the enhanced and extended unemployment insurance program in the stimulus. Don't be surprised if that's not extended, but hopefully it's extended in a more targeted fashion as to not encourage long term unemployment benefits.

The real answer is probably somewhere between a V and an L, which is absolutely nothing like 2008.

ETA: I think you're right on commercial real estate. I think there could be pressure there bc of more remote work, but also businesses will still need to maintain physical offices. I can tell you I want to get back in the office. I love the amount of time I save every day not commuting, but being in the office is a good thing I think.

 

[TheStateUofMS]

Things were looking much much better there for about the past year with rising rates. Cash was paying 1.5%. That went away quickly though.

 

[TheStateUofMS]

I hear ya man. And you're right I'm pretty young (31). I do appreciate history though generally and when it comes to the market, so although I may not have "lived" it, I have been through some interesting times the past 10 years in the business especially what we just went thorugh. I see your points though and they're well taken. Thanks for the compliment as well.

I'm very active in my personal portfolio. I'm 31, but I'm 10% cash as we speak. Near the bottom I was well over 20%. I do a lot of active trading as well. I try to keep my advice on here more long term in nature and not as tactical as how I invest personally.

I definitely listen for cues as well from the guys you mentioned. Buffet not as much but I do appreciate what he has to say. I'm just complete opposite in style from him, but he's got great perspectives I find valuable. Tepper, Ackman, Chanos and Tudor Jones are my favorite hedge fund guys. Cramer is an overall favorite of mine when he's not too full of himself. I like him more generally for his knowledge of how the big boys are thinking day to day.

 

[TheStateUofMS]

I guess I follow Buffet to a degree then, but I bet most folks who actively manage their accounts do including hedge funds, bc I too have large concentrated positions.

AMZN is currently 17.4% of my account. Down from 24% when I trimmed at $2,400, which was obviously early, but I also trade around my core longs.