Sell in the news phase but Buy in the rumour phase
Welcome back to the weekly video that I’ve been doing for a few months. I hope you are enjoying it. We’re going to recap as I try to every week, the blogs of the previous week. And we’ll start off with a very brief commentary on my first blog of the week, which was my monthly update of the ValueTrend Bear-o-meter. The Bear-o-meter is a very straightforward compilation of 11 indicators that I kind of squished into one mass rating. And the rating tries to give us an indication of how much risk versus how much reward there is on the S&P 500 and focusing on the S&P 500 because that is the larger index in North America.
As of Monday of this week, the Bear-o-meter read four out of eight. Now that’s as straight down the middle and neutral, I guess you could say, as one is going to get. So the Bear-o-meter moved down from six out of eight a month ago. So that means that a month ago, the conditions on the market were actually a little bit more opportunistic. They were lower risk, a higher return than they are now. That’s not to say that the conditions on the market are risky. In fact, they’re absolutely neutral according to the Bear-o-meter, but a couple of factors have changed.
We’ve seen increased potential overly exuberant sentiment by market participants. I will encourage you to read the blog rather than me actually show you the charts because it’s pretty straightforward stuff, but basically, a few of the sentiment indicators such as the put-call ratio the smart money, dumb money, the percentage of stocks over their 50-day moving averages, these are indicators that are telling us that the market’s a little bit too exuberant right now.
And that’s a dangerous thing.
However, those indicators were offset by things like a positive trend, exceptionally good breadth, like very widespread positive breath. It’s a yin and yang market, I guess you could say. And I would like you to take a look at the blog from the week on the Bear-o-meter, just to get a feeling for that. I’m going to add a bonus chart right now though, that I think you’ll enjoy. It’s one that I’ve shown you before and want to bring it up again. So let’s share the screen. And I think when you see this, you’re going to see a chart that you have seen before.
Now you might recognize this chart. This is a chart of the S&P 500. It’s a very simple chart. It’s a line chart. I’m not using candlesticks here, and I’ve got little green boxes around the last two weeks of every month, going way back to last April, and you will see that virtually every month except for August of last year, the market has had some weakness in the latter half of every month. And it’s been an absolutely amazing phenomenon because here we go again in March, the month that just went by, we had another two-week period of weakness. Now, off the market goes for the first half of the month. And here we are in early April of 2021 and the market’s going up, but it fell the last two weeks of March just as it has for the better part of a year.
So this is really interesting. I thought I’d bring this up again because that observation that I made more than a month ago on one of my blogs and on this video has not changed. Nothing’s changed. The pattern remains. That doesn’t mean the pattern won’t, at some point stop it could return to a more random pattern as far as the early months versus the end of month pattern. But for now, I’m going to assume that there’s a good probability that here we go in April, maybe in the last week or two, we’ll see a bit of weakness if this pattern continues. So I thought that might be of interest to you. And again, I didn’t post that on my blog. So, you had to have been watching the video.
The next thing I wanted to talk about is my second blog, which was presenting evidence of why you should always sell on news and buy on rumour. It’s really kind of a way of looking at markets from a technical perspective. So when you think of it, a base followed by a breakout, and then an uptrend is probably based on a piece of news that has caused a breakout. Okay. But what happens is after that breakout occurs and you get a period of trend, the news becomes absorbed in the market, and it’s no longer as exciting as it was perhaps a year or two ago.
I’m going to give you some examples of that. And I’d like to start with marijuana, which is the example I use on the blog. I use the Horizons ETF, but I’m picking on Canopy Growth right now. It really doesn’t matter though. Canopy growth is the big one on the Canadian index. And what I want you to notice is the pattern here.
We’re going into the October of 2018 period. When they announced the legalization of marijuana. Leading up to that point, everybody and their brother or sister wanted to own a marijuana stock because the news was that it was going to be legalized in Canada. Companies are going to be super profitable and everybody was going to use marijuana products for recreation or for medicinal reasons. And it’s just going to be a brave new world. Well, what happens is they actually announced it right here. It goes kind of sideways for a while falls on its face.
Is marijuana currently staging a bit of a comeback now, based on guess what?
News in the United States, President Biden is going to legalize marijuana. Now everybody’s excited. There could be all kinds of profits they think everybody’s going to be smoking dope in America. I jest, but the point is that we’re in the news phase on the US side now and so it’s causing a bid on marijuana stocks. But that pattern that we’ve seen before is going to repeat, it’s going to be a period, where the news is absorbed, it’s old news and the stock falls.
Another example of that in recent times is, I don’t know if any of you guys are aware, but there was this virus that came out of China about a year ago and the whole world kind of freaked out and shut their doors. So this may be news to you. I jest again, but what happened was that AstraZeneca was on an uptrend, but when the virus broke out, it was one of the companies that was very much involved with creating a vaccine. So you can see, that after the COVID crash last March, March 2020, AstraZeneca really had a strong move.
And in fact, if we look at this bar here, we’ll see that it really did peak right around the latter part of the summer. Now the stock has begun to fall because at that point not just AstraZeneca, but Pfizer and Johnson and Johnson and whatnot. There they were all involved in the production of the vaccine, but into the latter part of the year and year-end, the American government at the time President Trump had back in July, placed some orders for specifically the Pfizer vaccine. So the whole industry knew that there was going to be some vaccine distribution coming into 2021. So what happens? The market started selling the news. Now AstraZeneca sold off a little harder than the rest of them, which is why I’m showing you this chart because they have found fairly conclusively that in some subjects there’s blood clotting.
Anybody that’s looking at getting up vaccine may want to check that and find out if they’re one of the people that could be subject to this potential blood clotting, but I’m not an advisor in that field. I’m not a medical advisor, but I am a stock advisor. And I do know a chart that is rounding over when I see one. And you’d see the same thing if you go to my blog and you look at the Pfizer chart. Same thing. The excitement was there. The news came out, everybody’s going to get a vaccine. Hallelujah market absorbs the news, and the market pushes the stock down.
So that’s really the gist of today’s blog and a video follow-up. I want to invite anyone that has questions or concerns about your own portfolio to give us a call at ValueTrend. 1-888-721-8736
We’ve been noting some serious rotations, and I would encourage you to visit one of our blogs. I wrote about two weeks ago on the new sector rotation. I called it “You don’t want to miss this next rotation“. Read that blog it’s probably one of the most important blogs I’ve written in a while.
And we’re just putting out a newsletter right now to our clients. But I have a non-client version that you can sign up for. We just don’t name the specific stocks in our non-client version. And I’m talking about the rotations we are doing right now. Okay. Which includes a few of them that were not discussed in my past blogs. So I want you to consider getting a subscription to our newsletter. Take a look at the blog from a couple of weeks ago called “You don’t want to miss the next rotation”.
And if you have any questions about your own portfolio, please give us a call. That’s what we’re here for. We are really good at managing money in a sector, rotational violent, volatile market like we’re seeing right now. And I think there’s going to be a pretty good chance of a pretty big rotation this summer out of the growth and tech names. Please refer to my blog of last week, where I talked about the Momentum ETF’s that may be selling some of these names that are no longer doing so well. So there’s a lot of information I present to you on this blog. And there’s a lot of trades that I am doing along with Craig as portfolio managers at ValueTrend these days. The buy and hold thing is not the best way to do things. It probably will turn around and we’ll be back into, a non-volatile bull market.
But at this moment in time, I encourage people to either get some sort of a sector rotation strategy, some sort of a stock-picking strategy or come to someone like us who can do it for you. We’re really good at it. This is our thing. I’m actually really lousy in bull markets because I like to rotate. And when everything’s going up and it’s sort of hard to beat the market, but in markets like this, we tend to very much reduce volatility and perform very well compared to the market. So come to us, if you feel you have a need or keep watching these videos and try to create a similar strategy where you are not just standing still because this market is not going to reward people who stand still.
Thanks again for watching. We’ll see you next week.
