A sampling of some of the analysis I've made that has come to pass is or happening now...
Welcome. The content below is free to the public. It might be worth what you are paying for it. Having studied economics and being in finance for over two decades, I have learned that only one thing is certain - that almost nothing is certain. As we endeavor to come up with our best analysis of the world around us, the opportunities and risks, we have to try to overcome a myriad of issues including our own ignorance, biases and emotions. What follows are my attempts to overcome those obstacles. Welcome to my view - publishing Monday and Friday afternoons.
This stock market is moving very fast right now. As I discussed a few days ago in "This Correction Could Have Another Leg Down:"
The surge in volatility might be more than just an isolated event, it could be a harbinger of what might come next.
Well, what is coming next appears to be an actual real live bear market. We can't be certain of course, but if Friday ends with the S&P 500 below $253 on both the daily and weekly chart, well, that's a recipe for a full on search for strong support. As I show in one of the charts below, strong support is quite a bit lower.
In real estate it is "location, location, location." In stocks it's quality, quality, quality. The problem is that in the stock market, basically everybody knows who the quality stocks are. There are certain companies that only go on sale once or twice a decade, usually during correlated market corrections when "everything" falls in price.
So, now that we are hitting 10% on this correction in the stock markets, let's focus on a dozen or so quality stocks to add or round up positions for our portfolios. These are stocks we rarely can get with a discount.
I'll start with a half-dozen dividend growth stocks that actually have growth. One day folks who don't understand that just because a dividend grows doesn't make a company strong, i.e. they borrow to pay the dividend, or look good going forward, i.e. if there's no growth how do they keep growing, or maybe even paying, the dividend.
I'll then move to growth companies, virtually all in tech, that are part of the massive changes that are occuring in the world. There will be a common theme to all of them - they are all profitable or on the verge of being profitable. No speculations. We don't need to.
I will follow up tomorrow morning with some options trades for this group, but to be sure, selling cash-secured puts on any of them, a month or two out just a shade below the money is a great trade. Premiums being paid are very high right now, so there is added built in margin of safety.
I was near Albany, NY when the flash crash of August 24, 2015 hit. I was on my way out to a retreat with friends in the White Mountains of New Hampshire. The stock market was down 5.3% the first few days after the open that day.
Buying stocks quickly that day worked for me as I had put 10 good til cancel limit orders in before I left for vacation the day before because the market had already become jittery. All ten trades hit as over 765 stocks in the Russell 3000 were down more than 10%. I got stocks like Google (GOOG), Lockheed Martin (LMT) and Intel (INTC).
There is certainly a strong argument for keeping open limit orders on our favorite stocks in case of such corrections. However, buying a few ETFs is probably the easiest thing to do on a correlated correction. We can always sell off pieces of the ETFs and replace with stocks when we are ready.
Here are some ETFs I have open good til'cancel limit orders in for, the reasons why and the price levels I've set. Remember, I'm 25% in cash because of the overvaluation of the markets.
Are you getting scared yet? I want you to take a few minutes and meditate on how you feel about investing right now.
The stock market has sold off a couple percent, yes, just a couple, and volatility has risen to almost the normal average. That's right, volatility isn't above average yet.
This will be very quick before I head out to play poker, which is sort of appropriate for talking about our volatility trade (VXX).
Virtually everybody should have made money on this trade. The question to ask if you still own the calls is what now? Do you take the big profits to close out the week and see what happens or do you let it ride into another government shutdown week?
Nobody can tell you what to do here. The best I can tell you is what I did. Remember though, I manage money for other people, so I have to be very careful about "letting it ride."
Several of our VSL stocks have fallen to the lower-end or even below their assigned "buy ranges." I've discussed this long ago, but buy ranges are not absolute areas to be a buyer. Those are areas to do a last deep dive into the research in order to make a decision. Due diligence is an ongoing process.
Right now, for all the reasons I've discussed over and over, the stock market is overvalued. While we are on ice now, there is no telling how long that ice stays firm. From government to rising interest rates to trade wars to potential real wars, all on top of stretched valuations and what appears to be peak earnings, there is a lot of reason for caution.
I know that the feeling of "missing out" can be powerful. I get it all the time when I don't play a hand at the poker table or don't introduce myself to a nice woman. But the reality is that most success is found in saying "no."
I have about had it with the chasers, know-it-alls and greater fools right now. I'm telling you, the investor attitudes, lack of education and inexperience are very similar to 2007 and 1999 right now. The Millennials are in big trouble soon. They are about to get their first big fleecing. They should listen to me, I'm on their side, but boy, oh, boy, are the an interesting group.
I don't know if it's arrogance, ignorance, self-loathing, entitlement or some weird combination that makes Millennials think they are somehow smarter than those who came before them, but that is the vibe they throw off. They certainly don't like to stand on the shoulders of giants. That's how I got a boost and I think they should take the lesson.
In any case, I have three articles in the keyboard right now that will be out this weekend and early next week as a response to things I'm seeing and hearing, they are:
Here's the skinny.
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