I’ve noted of late that the market has moved from a technology and growth focused selloff (aka NASDAQ & the FAANGs) to a “sell everything” mode. This, as noted in my recent explorations of previous bear markets, is pretty standard. Recall Bob Farrell’s rules – the final leg in a bear is typically an extended selloff. The good news when observing the shift from a focused selloff to a broad based selloff is that – the further down the “sell everything” tunnel the market goes – the closer we get to that wonderful moment of panic and capitulation. And that’s the moment of opportunity for those of us with cash.
As an aside, we are now pushing 1/3rd cash in our ValueTrend Equity Platform.
As I have observed in recent blogs, there are indicators that I follow to quantitatively guide me in identifying that moment of flush-panic. They are not showing we are there yet. Still, the fact that markets are now despondently selling off most every sector is encouraging for us contrarian investors. Panic is beginning to appear. And that is a good thing! I’d encourage you to read my book Smart Money/Dumb Money to get a better handle on how you can identify the most opportunistic point of capitulation. That moment of opportunity may appear by the fall or early winter. Watch for the basic trend rules of the bear trend ending, a base, and a trend reversal. As I noted in my Technical Analysis Course, when we have a positive capitulation and reversal signal coming out of the sentiment and trend following rules, we have liftoff!
In the meantime, today I’d like to look at four sector/focused securities that are trading near support. One of the challenges within a “sell everything” environment as we are seeing now is that, well, everything is being sold off. As such, its getting REALLY hard to find ANYTHING that has not broken key support levels. This is one of the reasons why I feel that the market has more downside to go. But, its also interesting to know that there are still a very few number of stocks and sectors and markets that, while down, have not yet cracked key support. Its hard to say whether the four securities I am about to discuss can maintain their technical support levels if markets continue their journey down (as I am suggesting). But, one of the factors within Technical Analysis that we need to be aware of is the “relative strength” concept. That is, stocks that can outperform in a bear market have a greater potential continue to do so. So, keep these on your radar screens.
Emerging market economies are being hit by market forces along with the strong USD. However, some of these markets are net producers of commodities, which trade in USD’s. Further, if you buy into my argument for an eventual re-investment in the energy space (I noted we at ValueTrend reduced our energy a few months ago, with the intention of rebuying later), Brazil is a big producer in that space.
The iShares EWZ-US Brazil ETF – which we at ValueTrend hold (and subsequently we hold personally through our models). Brazil is testing, not breaking, support. That is a good sign. Here’s the chart:
ValueTrend is also holding a position in the SPDR XLP-US Consumer Staples ETF, along with two individual staples stocks. It, too, is holding support. Great news in a bear market means you are more or less treading water, and that’s what staples seem to be doing. The best part of it, though, is that the sector has maintained its bullish trendline, and is currently in its seasonally strong period.
Warren Buffett’s famous value-fund (BRK.B-US) fell hard in the recent market malaise. But its found support at a prior strong demand point. It may be of interest for readers of this blog to know that Warren Buffett is taking on a BIG position in energy – specifically Occidental Petroleum. Clearly, he sees value in the sector, and has not fallen prey to the moronic and crushing ESG policies of the current US and Canadian Liberal governments. Buffett knows that the world needs carbon based energy products for many more years to come, even if the fools on the hill don’t. Its nice to know that my view on the energy trade is shared by the worlds most successful investor.
Probably the strongest sector on the market during the recent market meltdown, the utilities sector is in its seasonally strong period. Here in Canada, the two dominant utilities ETF’s are the BMO version (ZUT-T) and the iShares version (XUT-T). They are both experiencing a bounce off of support, with the BMO version showing the most positive technical profile of the two. My only caveat on this chart might be that the long termed trendline suggests that, should ZUT regress back to the line, the strength we are seeing now in the sector might evaporate. So far, so good, though. Here’s the BMO ETF chart: