You’ve watched the coverage and read the headlines, so we won’t go over all the details, but suffice it to say that the market has had a historic crash during the past three weeks, though this morning’s bounce is providing at least a little calming influence. Today we’re going to get right into some thoughts and answer some of the common questions we’re getting.
First off, the past three weeks have been brutal and stressful, but the market (and the country) will get through this, and there will be amazing opportunities for investors who keep their capital and confidence intact. Just something to keep in mind during the dizzying headlines and market movements.
Next, clearly, the intermediate-term remains down, even with this morning’s bounce. For the trend to turn up, the market would effectively have to hit a fresh five-week high—that’s almost surely going to take some time. Market bottoms are usually a process, not an event. Thus, we advise staying cautious—capital preservation is key.
Now, with that said, Thursday brought some truly historic extremes (more than 4,400 stocks hit 52-week lows yesterday!), stuff that has only been seen in 2008, if even that. This has been a “rule breaker” of a market, but still, you have to think that some sort of bounce is becoming pretty likely, and this morning could be the start of it, though it’s too soon to tell.
That said, something we wrote a week ago still applies: When volatility is crazy high (and it is—the VIX closed yesterday at 75!), there’s an urge to do something, whether it’s buying low or shorting or somehow taking action to make money off the moves. But ironically, it’s when volatility is high that you should generally be doing less (assuming you are already in a defensive stance).
Translation: If you already have a ton of cash and want to nibble on this or that, that’s fine by us. Same thought for those that have emailed about taking a flyer on beaten-down oils or airlines—if you want to scratch that lottery ticket with a few dollars, we’re not going to argue. But the real money is going to be made by (a) protecting capital during this decline and (b) getting onboard some new leaders during the next sustained uptrend.
Finally, we’ve had a few questions about the short side—we’re not huge short-side players anyway, as your timing has to be much more precise. If you want to short, we’d look at inverse ETFs and do so after a multi-day rally. But again, for the most part, holding cash and making a list of potential new leaders is your best move for now.
BUY CANDIDATES
As we did last week, we’re not going to advise specific buys, but here are a few that have caught our eye due to some relative strength and/or resilient patterns:
eHealth (EHTH): Dipped this week but held the 50-day line (about 3.5% of all stocks came into today above their 50-day line!!)
Everbridge (EVBG): Closed yesterday north of its 25-day line and really has only had one bad day
GSX Techedu (GSX): Some lower lows this week but on light volume, and again, north of its 50-day line
Vipshop (VIPS) and ZTO Express (ZTO): Many Chinese stocks are still resisting, and these two are among the most resilient
Regeneron (REGN): Finally taken a hit but just down to its 25-day line
Zoom Video (ZM): I do wonder if these virus stocks will fade once the market finally bounces for more than a few hours, but the overall chart is strong and ZM could actually use a rest.
SUGGESTED SELLS
If you already have a lot of cash, you can use some judgment when it comes to selling, but we’re letting the following go due to an inability to bounce and/or outright distribution. If you want to sell some here/sell the rest on a bounce, that’s fine, but we’re cutting the following loose:
Atlassian (TEAM)Enphase Energy (ENPH)—too much of a dive off its earnings move
Franco Nevada (FNV)
PulteGroup (PHM)
RingCentral (RNG)
SolarEdge (SEDG)
SUGGESTED STOPS
None for now, as we’re using a little judgment and as we’re focusing more on building a watch list and only small nibbles, rather than more aggressive investment. But don’t hesitate to email me directly (mike@cabotwealth.com) for any questions on individual names.