Moderating Valuations - Deploying Capital

Recent Turbulence

Inflation, interest rate hikes, employment, Federal Reserve taper, new omicron pandemic backdrop, Washington wrangling, supply chain disruptions, and travel restrictions are culminating and resulting in the current market swoon. September saw a 4.8% market drawdown for the S&P 500, breaking a seven-month winning streak. November saw negative returns, and thus far, December is off to a bad start. Prior to the September meltdown, stocks were very overbought and at extreme valuations as measured by any historical metric. Heading into September, valuations were stretched across the board, with the major averages at all-time highs and far away above pre-pandemic highs.

The recent two-week stretch over the November/December transition was met with heavy and vicious selling. Valuations have moderated overall and cooled investor enthusiasm, especially in the more speculative momentum stocks in cloud software, SPACs, and recent IPOs. The technical conditions (RSI and Bollinger Bands) are shaping up for a strong relief bounce that may coincide with the infamous Santa Claus rally. The tremendous volume of selling has inflicted damage across the board, indicating that valuations do, in fact, matter after all. Many opportunities are presenting themselves, and being too bearish may prove ill-advised over the long term.

Vicious Selling

As of the beginning of December, a third of the S&P 500 is off at least 15% from its high, and nearly one in eight Nasdaq stocks logged a new 52-week low. Furthermore, the CNN Money Fear & Greed Index, a composite of market-based indicators that gauge risk appetite across stocks, bonds, and options, dropped to its 2021 lows, seen during previously equity pullbacks. It has only tended to plunge below this when the market is in near-crash mode, such as December 2018 and March 2020. Continue reading "Moderating Valuations - Deploying Capital"

Market Swoon - Deploying Capital

Market Swoon

Inflation, interest rates, employment, Fed taper, pandemic backdrop, Washington wrangling, supply chain disruptions, slowing growth, and the seasonally weak period for stocks are all aggregating and resulting in the current market swoon. The month of September saw a 4.8% market drawdown, breaking a seven-month winning streak. The initial portion of October was met with heavy losses as well. Many individual stocks have reached correction territory, technically a 10% drop, while the Nasdaq is also closing in on that 10% correction level. Many high-quality names are selling at deep discounts of 10%-30% off their 52-week highs. The outlook for equities remains positive after the weak September as the economy continues to move past the pandemic. During these correction/near correction periods in the market, putting cash to work in high-quality long equity is a great way to capitalize on the market weakness for long-term investors. Absent of any systemic risk, there’s a lot of appealing entry points for many large-cap names. Don’t’ be too bearish or remiss and ignore this potential buying opportunity.

Deploying Capital

For any portfolio structure, having cash on hand is essential. This cash position provides investors with flexibility and agility when faced with market corrections. Cash enables investors to be opportunistic and capitalize on stocks that have sold off and become de-risked. Initiating new positions or dollar-cost averaging in these weak periods are great long-term drivers of portfolio appreciation. Many household names such as Starbucks (SBUX), UnitedHealth (UNH), Apple (AAPL), Amazon (AMZN), Micron (MU), Adobe (ADBE), Qualcomm (QCOM), 3M (MMM), Facebook (FB), Johnson and Johnson (JNJ), Mastercard (MA), Nike (NKE), PayPal (PYPL) and FedEx (FDX) are off 10%-30% from their 52-week highs. Even the broad market indices such as Dow Jones (DIA), S&P 500 (SPY), Nasdaq (QQQ), and the Russell 2000 (IWM) are significantly off their 52-week highs. All of these are examples of potentially buying opportunities via deploying some of the cash on hand. Continue reading "Market Swoon - Deploying Capital"

Has the economy strengthened enough to withstand the pullback?

Hiring is soft, pay is barely up, consumers are cautious and economic growth has yet to pick up. And yet today, the Federal Reserve is expected to take its first step towards reducing the extraordinary stimulus it has supplied to help the U.S. economy rebound from its deepest crisis since the Great Depression. That begs the question....

Has the economy strengthened enough to withstand the pullback?

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As always, we would love to hear your thoughts on the subject. Please take a moment to vote and leave a comment.

Every Success,
The team

Gold: "Taper This"

The media love to get a hold of buzz words and then give them a spin and a life all their own.  Recent examples were the mainstream media's presentation of 'Operation Twist' – which was simply an official yield curve manipulation designed to sanitize and dampen inflationary signals – as an inflationary operation, and the 'Fiscal Cliff' drama that sent herds of conventional investors to the sidelines* when they should have been contrarian (and bullish) back in Q4, 2012.

Now we have the media on the job tending the 'Taper' herd.  Among the many hyped up implications of 'Taper' according to the media are that it is bearish for gold.  But I would put forth not only a rejection of that assertion but just maybe a call for the opposite; a bullish stance on gold in the face of a Fed being coerced by natural movements in the Treasury bond market to talk 'taper'.

As part of its QE operation, the Fed buys long-term Treasury bonds with newly printed money.  It does so to try to keep interest rates down so that the economic recovery they have promoted does not fold in on itself, wheeze, roll over and die.  They also buy distressed MBS, but this is a story about Treasury bonds. Continue reading "Gold: "Taper This""

If You Missed Today's Up-Move, Don't Blame Us

If You Missed Today's Up-Move, Don't Blame Us

yeahInterestingly enough, 24 hours before Ben Bernanke made his announcement and spruced the markets up dramatically, MarketClub's Trade Triangle technology picked up buy signals on the DOW at 15,340.09 and on the S&P 500 at 1,654.19. These signals came in a day before today's huge move to the upside.

If you're not yet a MarketClub member, I'd like to invite you to take advantage of our special free trial so you can see what MarketClub can do for you. Remember, MarketClub covers stocks, futures, precious metals, ETFs, mutual funds and foreign exchange.

Here is the link you need to start your trial:

Every success in your own trading. GO

Adam Hewison
Co-Creator, MarketClub