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:
Thank you for those ideas!
I was wondering if you could comment on gold. When you did your interview with Brooke Thackary a little while ago, you both seemed bullish on gold as we were coming into the seasonality (July-September). Gold producers and the price of gold has sold off sharply in the past few weeks, so I am wondering your what your current opinion is about gold.
Bullion is near the January lows, which – given the rapid selloff–suggests an oversold condition at a former support level. My bet is for a move up in the fall. Remember–“sell everything” is the mode, but if something can hold support, that can be a good thing
I have been invested in BRK.b for about 25 years now. Have accumulated a little more along the way. It makes a ton of sense to invest in oil/gas because it compliments the growing energy/utility business for Berkshire. The renewables holdings are significant but they need cash flow which is where I think Occidental comes in to the picture. Plus he acquired the KNOWLEDGE/INTEL of total energy system which is invaluable for the long term. Would not surprise me to see them invest more into nuclear soon. Thats where the cash flow from Occidental comes in. Berkshire knows fossil fuels aren’t going to grow forever. But energy will grow forever. Berkshire will be ready for electrification growth and may be one of the leaders. With rail holdings, utility holdings, energy company holdings etc. they have the total energy system in their grasp. Even though Buffet won’t be around forever, the company is in very good hands. Your views on this help give me more confidence that Berkshire continues to be a good place to be.
Yes, we have traded in and out of BRK twice now – recently sold it a while ago (happy we did) but have NO reservation of buying it back if my view for a base begins in the next few months. We shall see. Like everything, you can add alpha to even a great holding like BRK by trading when it gets overbought (sell)—/oversold (buy). The nice thing about a quality name is, even if you miss time the trade, it all works out in the end.
Keith , sitting with 60% cash in the portfolio . Now that GIC’s are yielding 5% interest for 5 yrs should I throw 10% into this to maintain a safety net for a 65 yr old senior ?
Don, I am sorry, but I cannot advise you on things like on a public forum that unless you become a client. More than happy to talk if you wish to look at that option – over half of our clients are retired, so its what we do best!
And BTW–you’re only 65. I’m 60 … We aren’t seniors! Stop making me feel old!!!! Ha!
Hi, would you see capitulation in selling happening shortly or more over the next six months? I keep reading that the market still has a ways to go down. Do you think you would agree somewhat with that opinion?
Thank you, Linsay
Yes, I absolutely view the capitulation point happening in the next six months–if not in the next 3 months. Soon. But–I am not a crystal ball reader. I am an analyst, and must follow my system.
I don’t “know” when that point will be, but I have big faith in the Bear-o-meter. It has been accurate in picking extremes over time, although certainly there is always the potential that it may not be in the future. I submitted a paper to the CSTA for publishing in the journal -open to criticism of my peers. If nothing else, it is a legitimate and repeatable structured view of the market- it may not pick the exact bottom in the future, but I have faith that it will offer valuable insights as we approach or reach the bottom. I report it once a month. Its been buried in the high risk zone for months now–a move to neutral or outright bullish reading should be a very insightful reading.
Always super articles Keith, your right, we homegamers are struggling with the charts as support levels are almost all broken and the mindset is to preserve and not risk. You were very astute with your observations before Russia made a move in January, you don’t mention that headwind too much but since you were spot on in January, what do you think the next move is? I am thinking he cuts a gas supply to see what happens and tries to blame some twit like trudeau for not sending a gas line part – ..which makes the current 20% discount off the high a place to be then maybe OXY is a place to be until September?? – or has the west bought enough time to get production ready in which case oil really goes nowhere?., just curious. Thanks
My view is twofold: first, the population in the developed world NEED oil…they don’t have the $ or inspiration to pop windmills and solar panels etc up everywhere. See my “Opportunity” blog. Important read.
If you look at the XEG ETF as a proxy – the sector is still above its 200 day SMA. I beleive that the point of turnaround will happen in the fall, likely a test of that average, perhaps a brief consolidation or small break, and then up. This, mainly as the market becomes convinced that the recession (which is normally bad for oil) is going to be short because the Fed / BOC will reverse rates quickly–AND as the USD declines (which helps oil and commodities –gold too!)
–Putin, and Trudeau– always a wild card. I am not able to comment on Putin. This is like commenting on how stupid the next stupid thing Tru-duh does to ruin the country. Will it be as harmful as the last move (so many, hard to list without making this comment an essay). Will it be even worse? Putin- same question—same level of evil, more evil? Who knows?
As Rogan just today said–Trudeau is a sketchy guy acting like a communist. Can’t trust either of them. So thats the wild card.
Just wondering when looking at the tea leaves, what effect the energy crisis in Europe will have on markets over here in the coming months? Yes, many signs point to strong energy demand and the resultant stock performance of said companies, however the Equity portfolio has plenty of other stocks that are dragging it down and down…
Germany’s outlook over the next several months is pretty glum, with voluntary cutbacks in energy pegged currently at 15%. When the 4th largest economy in the world is going down the tubes, it’s ripple effect will be felt here.
Why not raise more cash during a brief upside, when those tea leaves are pointing towards an extended period of downward pressure on equities not related to carbon energy?
Good question Ken – two things:
-there is no assurance that we are 100% correct about further downside. Some are already arguing that the market got oversold, and will now start to base. That would imply that we now start to BUY! I don’t agree, and am not buying–but it goes to show you that everyone has an outlook, and only the future tells us which is correct.
The fact is, we don’t actually KNOW what will happen. As such, we (and any institutional investment firm) cannot take an “all or none” stance–or even an uber-aggressive posture in one direction or the other. If we are wrong and markets rise quickly, we get blamed for not being in when it was “obvious” (in hindsight) that it would rise. And visa versa if it falls.
Recall that this is a probability game, not a game of absolutes. No crystal ball here. I laugh at weather apps on my iPhone–it says 60% chance of rain most days this week. Um, ok. We deal with similar probability models (I had a nice meeting once with the CTV weather guy to discuss his models compared to my market models- very interesting discussion).
-Having said that – we are watching SPX to see if it holds 3900. If it does, we will stay at 32% (approx.) cash in our model(s) – if it breaks, we will raise another block of cash to bring us to somewhere nearer to 36-37% cash. We always work in steps. Again–to act otherwise is to claim that you “know” what will happen.
-Finally, our outlook (like the weather app saying 60% chance of rain) is for more downside in the next 2 months or so (could be longer), then a base that may just start in September (an educated guess, based on the late-Sept Fed meeting and speculation of less tightening talk leading into it that could create a bit of market optimism). Europe affects us, but all eyes are typically on the USA. What do they say? If the USA sneezes, the rest of the world catches a cold? So I watch the SPX to tell me what to do. That, and history. We are, based on my work, certainly in the final inning of the bear, but that doesn’t mean the inning is over. It might be. But, I don’t see the outright capitulation needed to mark the bottom. That could happen next month….or not. First things first. Watch the SPX to see if 3900 holds. Act accordingly.
Hope that helps.
I WAS WONDERING IF YOUR BEAROMETER HAS ANY RELATION TO THE CNN FEAR AND GREED INDEX?
P.S. I LIKE THIS HEADLINE FROM CNN: THE PARTY IS OVER AT ROBINHOOD BUT MEME STOCK LINGERS… YOU WERE RIGHT ON ZOOM STOCK LAST YEAR AND CATHIE WOOD MIGHT AS WELL LOOD FOR THE LONG HAUL FOR A DECENT RETURN.
The Bear-o-meter shares a few of my indicators but not the same