Near-term + long-term markets analysis & more
Last week, stock markets ended in sell-off with the major US indices down 2-3% on the day. It was the first time in six weeks that the S&P 500 moved more than 1% intraday.
Before the market tanked on, I’d written a piece called “Remember the pain and don’t be complacent” that outlined why we needed to start hedging our longs by trimming some winners, selling some losers and even buying some puts on the indexes:
“Who’s more scared right now, the bulls or the bears? Are any of you out there scared right now? Maybe we should be. It’s always best to get scared when others are complacent or greedy and the stock markets are hitting all-time highs. Take some profits on some of your largest positions. Trim a little of some of your stocks that have run 50% or 100% in the last few months. Doesn’t have to be all in our all out or drastic. Just trim 5% or 10% of some of your biggest winners. Sell some of your losers or those names you don’t have high conviction levels about.
The Nasdaq and many of our largest positions like Facebook and Amazon are at new all-time highs right now this morning. We’ve had a lot of exposure to the right kind of stocks for the last few years and the last few months and the last few days. Don’t be complacent. Likewise we can add a few index puts here and there as you’ve seen me do slowly but surely recently.
Trading and investing is hard, don’t ever forget that, especially when it feels easy. Remember how scared you were when Brexit hit or when the markets sold off 1-2% per day for weeks on end. Remember the pain. Don’t be complacent. Just a friendly neighborhood reminder to stay vigilant, objective and mindful of the ups and downs of trading and investing.”
Cody back in real-time now. People got reminded of some of that pain on Friday and lots of traders started to get scared on Friday. But few people actually freaked out.
Yet?
And that’s the big question now, isn’t it? Was Friday’s sell-off all the market is going to give back near-term? For the last six years, every time the market has gotten hit near-term over economic or geopolitical fears, it’s immediately bounced right back.
If you look back over the last five years, you’ll see that every one of those little sell-offs in the market turned out to be great buying opportunities, as the lower stock prices were short-lived. That’s the very definition of a bull market and we’ve been fortunate to have been right in our economic analysis, market forecasting and portfolio positioning. We’ve been buyers when the fear has been high, and we’ve been trimmers when the euphoria builds. So what about this time?
Well, as I also outlined recently:
“* Global Negative Interest Rates – As I’ve outlined repeatedly this year and have reminded you every time the stock markets have sold off, the negative interest rates around the developed world make the US stock market look ever more attractive relative to most people’s options in say, the EU or Japan. I expect to see more negative interest rates from central banks and on government bonds around the developed world throughout 2016 and into 2017.
* Fed cover – You do realize that the US Central Bank still has yet to pullback from the “emergency measures” and easy money policies it has created and added to repeatedly since The Great 2008 Financial Crisis. The Fed has lots of cover to avoid raising rates and/or even create new “emergency measures” if there’s “turmoil” in the EU or China, etc because every other major economy are in an even easIER-money mode. the US Dollar is the safest of all fiat currencies. No rate hikes for 2016 and into 2017.
* Earnings growth – As I’ve also repeatedly explained even when other analysts have declared the end of earnings growth (how many of those analysts foresaw the earnings growth that they’re now saying is over?), corporate earnings continue to grow. And leading the way is tech, specially #AppRevolution-related stocks and the other Revolution Investing names we own. Earnings growth looks like it will continue, lead by our stocks, for 2016 and into 2017.
* Cheap valuations – Unfortunately, it’s a lot harder to say stocks are cheap when many names have rallied 30-50% since the Brexit panic and/or are up 50-100% from their lows of the year during the January stock market crashes (what were the reasons for those again? I honestly can’t remember what crisis du jour was back then). Twitter was cheaper at $14 six weeks at the Brexit lows when I was adding to it than it is at $20. Same can be said for Facebook, Nvidia and the other names I add to while the stock markets were in the Brexit panic.”
Cody back in real-time again. Last week’s 2-3% pullback did little to change the valuations of most stocks, especially those that are still up huge from their Brexit lows and up even more from their February lows.
Feet to fire, with both Republicans and Democrats increasingly worried that the “other” candidate will win, there’s an overhang from the election that isn’t likely to fade until we get closer to the election itself. Say in early November, just as the angst amongst both Republicans and Democrats could be topping, we might really see the markets put in an hard bottom and start to take back off into the Bubble-Blowing Bull Market we’ve been riding for the last six or seven years now.
How to trade this set-up? Well, I think our playbook and prior moves have set us up nicely as our hedges can kick in if the near-term weakness continues as I expect it might, but we’ve got our long-term huge winners in our long portfolios and I’ve got a couple more I’d like to add in the next few weeks too. I don’t think it’s wise to try to game how thousands of stocks will collectively trade in the next six to eight weeks, and we aren’t doing that with our recent hedges and trimming and selling. But we are positioned in what I think is a good risk/reward set-up for the near-term and the long-term as our portfolios sit right now.
Stay tuned as I will be looking to make more trades, including some new Revolution Investing names for the portfolio, in the next few weeks as the market action plays itself out into the election. Be cool, as always, in the meantime.
A couple other random thoughts:
Messaging is huge. Did you know that messaging is bigger than Social now. As I’d predicted back a couple years ago when I wrote “The Trillion Dollar Messaging Revolution.”
Bubbles aren’t bad? My old friend, Tom Evslin, who founded a few tech companies like ITXC, used to argue that bubbles are incredibly virtuous, even after they pop. Would our Internet today be where it is with smartphones, apps and wireless broadband if the telecom/dot com bubble had never happened in 1997-2000?
Trump = Brexit? From a Trading With Cody subscriber: “Cody, I don’t see any Trump selloff in the markets in the months ahead. I think such fears are modeled after the same fears that permeated the runup to Brexit voting.” Not sure I agree, but it’s an interesting thought.
Biotech Buck Passing. Here’s a rare moment of truth if only because he wants to avoid responsibility. “We just didn’t get involved. It’s so convoluted. I don’t understand,” Sen. Joe Manchin on drug pricing: “We just didn’t get involved. It’s so convoluted.” … Most of our Republican Democrat Regime representatives who passed all these health-care laws have no idea how the medical industry works. I think biotech (IBB for example) is likely to be in more trouble heading into the election.
