September 26, 2022
The market’s meltdown continues, with the buyers completely on the sideline as just about every stock and sector cracks. The Model Portfolio is already in a highly defensive stance (72% cash coming into today), so we’re not craving more cash, but we’re also not simply going to hold onto things as they melt away.
WHAT TO DO NOW: The market’s meltdown continues, with the buyers completely on the sideline as just about every stock and sector cracks. The Model Portfolio is already in a highly defensive stance (72% cash coming into today), so we’re not craving more cash, but we’re also not simply going to hold onto things as they melt away. Today, we’re selling Devon Energy (DVN), which not only is breaking long-term moving averages but could be doing so from a bigger-picture top. Our cash position will now stand near 80%; details below.
After the maelstrom of the past couple of weeks, the market did bounce earlier today, but as rates headed even higher, stocks have faded steadily as the day wears on. As of 2:30 pm, the Dow was off another 306 points while the Nasdaq was down a tamer 29 points.
There’s really not much new to say at this point—the trends of the market are firmly down, the broad market is unhealthy and, as opposed to the prior few weeks, many resilient stocks are now coming under pressure (though many are still holding near some support).
Looking at secondary measures, there’s no question pessimism is rampant at this point—and combined with the fact that most indexes are in the vicinity of their May/June lows, could easily lead to a sharp rally, if not something more. (So far today there are around 35 total new highs in the market, vs. 2,270 new lows.) At some point this will end, and the market will begin discounting better times ahead, but as we’ve probably written two dozen times this year, we have to see it happen first before doing getting involved.
In the Model Portfolio, our cash position stood at 72% as of this morning, which is clearly a defensive stance. We’re not craving more cash and are willing to give our three remaining holdings a chance to hold up … but at the same time, we’re not just going to watch them melt away if the sellers keep at it.
That leads us to Devon Energy (DVN), which has been a great performer to us (we’ll actually be collecting another tidy dividend this week), but after a sharp correction and recovery this summer and early fall, is now again cracking with the group—raising the prospects of a major top after a huge run.
Very big picture, we’re still believers that the oil patch’s “new playbook” of limited CapEx, big dividends and usually share buybacks, too, could lead to the group doing well during the next bull phase. But with DVN now below its 200-day line and many peers also cracking, we’re going to rake in the rest of our profit (we’ve sold two-thirds of our initial stake previously) off the table and hold the cash. SELL
The sale of DVN will leave us with something around 80% in cash, so we won’t rule out nibbling on a resilient name if the market can stabilize—but for now we’re content hiding out mostly on the sideline.
Don’t hesitate to email me directly at email@example.com with any questions. We’ll have our regularly scheduled update on Thursday (September 29) with further thoughts and updates on all of our positions.