Green shoots growing out of the cow patties

I recall seeing green shoots sticking out of the cow patties in a farmers field on a ride one day. This market has certainly been a field of cow patties. But like the cow field, there are some signs that the bounce (green shoots) we are seeing today may follow through for a few days or more. I do feel that there is an above average chance for this rally (if it’s going to stick) to turn back down and selloff in one last death convulsion before the true bottom is seen.

So for my part, I expect to sell into this rally, while leaving most of my buying for the time when we either get more evidence of this rally being more than just a rally – or that final washout followed by a consolidation. Please read this blog for more on that pattern. Here are some green shoots that support the current rally, at least for now…

  • Fed stimulation like never before
  • China and Korea seeing virus under control
  • North America seems to finally be “getting it” and cooperating rather than resisting common sense (aka the goofballs partying on Daytona beach during March break and ignoring requests to leave).
  • Massive washout in sentiment and momentum indicators indicating capitulation.
  • Our VT clients are typically more investment savvy than the average Investment Advisor or Bank client. So we don’t get the panic that 99.9% of those in our industry hear in their clients. However..In 2009 we had 2 clients sell within a few weeks of the bottom, despite ongoing conversations with both to stay the course. One person sold in Feb. 2009, the other (I am not making this up) sold on the very day and the very hour (no lie) of the low point of the market panic–March 2009. We always try to keep everyone calm and assured at times like this, but sometimes you just can’t. We watch for that as a sign of the bottom. We are hearing the fear, and some will panic–its human nature.
  • A potential bottoming (hammer) formation on daily and weekly charts–per below.
  • Finally: watch for follow through. If the rally fades late today, it’s less likely to have much more upside.

SPX weekly hammer

SPX Daily hammer

 

Final thoughts

For what it’s worth, I eat my own cooking. Beyond some personal and recreational real estate, my entire portfolio is invested in the ValueTrend platforms. I am not the poor advising the wealthy.  I have a good portfolio that was built a bit at a time. Like most ordinary people, I didn’t inherit a trust fund or large inheritance, and have never felt entitled to the support of others/ the government. Instead, I saved a bit at a time for my entire life, even when I made a very low income and “couldn’t afford to save”, to acquire what I have today. I don’t just talk about investing to others, I have believed in it since my 20’s.

I own the Equity, Aggressive and Income platforms, spread between my various personal and family assets. I don’t hold anything else. I am by default following my own advice. And like many of you, I don’t have a pension. So this is what I will live on some day. As such, like my clients, I don’t want to lose money. Yet, my accounts are down just like everyone else. We have dampened the risk in this market – but certainly have not avoided it. This has happened before. I didn’t panic then either. Hopefully, the fact that I am not panic-selling may inspire you to act similarly. I would not have been as successful in acquiring my assets, or building my company, if I had acted irrationally in times of stress – like now.

I hope that helps all of you.

 

16 Comments

  • My timing was impeccable as well. I sold everything in March of 2009; market turned back up the very next day. I was all mutual funds then, mostly stocks with a few foreign ETFs now. And I haven’t sold but I have some cash to deploy. I sent a comment on your last blog but as we’re into another, here is that comment again:

    Watched a Larry McDonald video last week suggesting now would be a time to buy. Average True Range and volumes spike a the peak sell-off. Both are happening now on the TSX and SPX. And today’s market is up.
    Should I wait three days?

    Reply
  • Hi Keith, could the low of yesterday March 23rd on the S&P 500 which came in around 2,191.86 be seen as a possible bottom? Or could it still go down further then that?

    I’m not sure if investors are starting to get used to the situation.

    Reply
    • I do not view this as “the bottom”–I implore you to read my prior blog where I outlined how the 2001 and 2009 bottoms came in. Its linked in this blog. In a nutshell, in both cases–you had a rally like this one, some sideways movement, then a really big final washout.
      I can’t predict exactly how this plays, but I am convinced that this current rally will last a few days or a week, then I will sell into it. My buying will start only after that final leg. If anything, I anticipate buying hedges in the coming days or weeks.

      Reply
  • Thank you for your supporting message. I feel the pinch, also.

    Reply
  • Keith, with reporting in about 10 days amid layoffs, closures and reduced commerce would you agree the S&P could fall to mid teens which is about 2 x book and or 15 x reduced earnings of about 100 a share. If so would you not sell all but the most resilient utility or gold ?

    Reply
  • Hi Keith, what % cash position do you anticipate moving towards, and are there any factors that would cause you to potentially modulate from that number?

    Reply
    • Mark- we are near 15% cash now. Yeah, I wish I was double that, but that’s life….
      We anticipate at least doubling that to 30% or – likely – higher. We will not carte-blanc bail out, because who really knows what will happen? So we will elect to keep only our best quality companies.

      Reply
  • Unrelated to this topic but I will pick on your experience.
    When a mutual fund says it’s distribution date is say Dec 28 correct my understanding is that:
    – they will distribute a value that they have earned from capital gains realized inside the fund and
    – the holders of that fund only on that day receive the tax slip for “capital gains” of the fund for the full year. In other words if I held that fund during the year but sold prior to that dist date (or some other date near it) I would not get the tax slip. Yes I still pay capital gains if I sold the fund for a profit, same as selling a stock for a profit.
    Thanks

    Reply
  • Possible topic for now. SELLING INTO THE MARKET

    I agree with your last two blogs but I am wondering if you have any tools or techniques that would help deciding when is a better time to sell into the market.

    I know, I know, I’m asking for the impossible and that it’s a balance of selling before and not after – better miss some gains than take a bigger loss.

    I moved into precious metals and oil at a great time and gains are happening …. but I would like to certainly keep those gains for the next wave. So selling into this market makes a lot of sense – BUT I’m sure that for you, like myself and everyone else, the big question is WHEN and how to make the best decision?

    Thanks in advance

    Bruce

    Reply
  • Hello Keith,
    The jobs report is coming out tomorrow in the U.S. …..it will be interesting what kinda of spin the talking heads on CNBC will put on it. I heard in Canada there was 1 million people claiming EI last week. The U.S being ten times the population of Canada, it should be in the several millions. I wonder if Trump’s team will be able to manipulate those numbers too look better. I agree with you this rally over the last two days was too fast and furious……a pullback is in order. You mentioned a final BIG leg down, my guess is this will happend whent he market realizes the virus spread is much more spread out in the U.S and more states begin a ‘shelter in place policy’. I might add, I do not agree with the corporate bailouts. These companies spent the last ten years trashing their ballance sheets to buy back shares, without saving any more for a rainy day. Now they are getting bailed out….which is wrong. Let them go bankrupt and hold the excutives repsonsible for spending foolishly over the last many years.
    Just wonder if you think the market will fall below the previoius low for a final washout?

    Reply

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