Three important thoughts for investors

November 9, 20209 Comments

I’m pressed for time today, but I wanted to pass on a couple of thoughts given the move on todays market.

The VIX is getting close to another trade entry point

A contrarian indicator, the VIX is getting close to the point (near 20, gold horizontal line on chart) where I noted on this blog I entered for a neartermed profitable trade. But even if you don’t like to speculate on VIX instruments (and its understandable if you don’t want to – its a risky game), you can appreciate that a low VIX implies a contrite market. And that’s a bad thing. Risk may be approaching as the market flirts with all time highs.

 

Pot rallied, time to take profits

Also on the blog noted above, I presented an argument for buying marijuana stocks with a focus on the Canadian names. I noted that a paired trade might be to own some oil and some “pot” names – A Dem win would be pot-friendly, a Rep. win would be oil-friendly. We bought the Horizons ETF, seen below. We had a target of $8-9, per the chart. I sold it this morning in our Aggressive Strategy at about $8. When stocks move too quickly, it makes me nervous.

 

Oil, reopening stocks, and metals just popped. Now what?

Everyone is excited about a potential vaccine coming out of Pfizer. The stock is up, but more importantly – the “old economy/ go outside” stocks and even value / dividend stocks are up huge today.

QUESTION…what have I been POUNDING THE TABLE ON LATELY???

ANSWER: I believe that this is the beginning of the move to value/reflation stocks.  I’ve been harping on this since the late summer. Just read ANY of my blogs over the past 3 months to see that I’ve been on this strategy like flies on poop. I hope you’ve been listening.

After Pfizer noted success with its vaccine today, the market moved hard on the re-opening (go outside) names. More to come, methinks, although there will be pullbacks along the way. Depending on how the balance of power in the senate turns out, there could be a $1T to $1.5T fiscal deal with Biden in February. We look to buy the reflation on  dips; Resources, Agriculture, and Energy names. Point is:  leg into these stocks, with a portion of your portfolio. Not just energy and mining. Look at value, old economy, and reopening names like entertainment, travel etc.

Oil

BearTraps research makes an interesting point: “Biden will have to appease the green crowd with “executive orders” which should further add to a supply deficit issue for crude.” Good for the producers, finally! And before you ask – yes, there could be some tax loss selling coming, but if momentum continues in energy names, you may not see so much of that as I originally anticipated. So, don’t be too hesitant to buy on minor dips. We bought a little last week on a dip. No crystal ball – we didn’t see todays move coming. If we did, I would have bought more!!!

I’ve noted recently that I see oil as one of the great contrarian trades in this market. WTI will likely be higher a year from now as we reopen, fly more, turn around testing cheapens, and vaccines arrive. A smart strategy is to buy into quality re-opening names (if you haven’t already been doing so), including energy. The sector is building a base. Its not out of the woods yet. Plenty of time to pick your entry points. It probably wont be a smooth ride. Lots of supply comes in on the XEG chart, below, near $5.50 – $6.00. Keep an eye open for a blow-through that level. Then we are in for a ride. Until then, its going to be choppy, so we have time to get in.

Is your portfolio positioned for the next market shift?

Perhaps you agree with me that there may be a massive shift in the markets away from the overweight and overvalued technology and “stay inside” names back into reflation, and value names. If you, or your friends and family are not protected against the coming shift in the markets, do yourself (or anyone who may not be well positioned) a favor. Contact us. We’ll explain how we can manage your money as prudently and conservatively as we do ValueTrend clients. Feel free to send the link to this blog to your friends and family. At the very least, they will gleam some investment ideas from it.

 

9 Comments

  • Hahaha, I was thinking of you today with the shift in the markets. You called it!
    Well done Keith!

    Reply
    • More to come Wendy. That shift was obvious to me, but for some reason, not seen by many investors who loved their overpriced tech stocks.

      Reply
  • I check for your blogs daily. Love them.
    You didn’t comment on GOLD with the big drop today.
    What does your crystal ball tell you?

    Jack

    Reply
    • Jack
      I like gold- inflation hedge, currency hedge, and its got a nice chart. Its pulling back to a longer termed up-trendline and its above an up-sloping 200 day SMA. The pullback took out the overbought condition from the summer. Its in a nice healthy down-flag (bullish consolidation within an uptrend). I am long gold, bullish.

      Reply
    • Lance–be careful with VIX plays. I bought and sold the Horizons HUV ETF. I am not in it now, and I re-enter only if I am very confident of the trade. You need an environment of high bullish sentiment, not just an overbought market. Also… Very important to understand: all VIX ETF’s lag the actual VIX a bit, which can be frustrating, and then only rise on a big move by the VIX – the ETF’s don’t react to small changes to the upside (although they love to fall in a down move by the VIX–another frustration) usually. Read up on the website’s before buying. An upside move seems to be about 1/3rd of the upside of the actual VIX. The VIX itself tends to rise fast, spike, and fall within a day or two, while the ETF will not give you the same upside on a % basis. So you REALLY need to be careful if you enter a trade. No sleeping at the switch, Lance. Basically, you need to keep it on your cell phone and look at it constantly because its move will come and go as fast as you can say “Rumpelstiltskin”

      Reply
  • Hi Keith,

    Is it a good idea to add to S&P 500 at level 3500. one third of the cash. Than you. Sam

    Reply
    • I can’t advise you on your strategy Sam. I believe things are set up for a decent market this winter, assuming a republican senate. So we are in, although doing it in stages.
      For what its worth, we took a small amount off the table today given the strong move in some of our value stocks this week, but anticipate being fully invested in a week or so again.

      Reply

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