OT: Weekly Market Update

[Jeffreauxdawg]

Below is a chart of the levels I am looking right now. May 14th was what we consider in technical analysis a pivot low. The market was going sideways for a while, went down and spiked up on the bull run that ending last week. This pivot/swing low was 2766.6 on the S&P 500. It ran up, gapped over 3000, retested and went parabolic up to the high of 3233.1 on the 8th and of course last Thursday it made its move down.

You will see in the chart below the pattern that was created looks a whole lot like what we call a blow off top. Self explanatory I hope. These typically result in a retest of around where the rally started (2766.6 in this case.) The interesting thing I did not notice until today was that the swing low of 2766.6 and the top of 3233.1 would almost be perfectly split with the number 3000. Which was resistance on the way up and proved to be solid support so far on the way down. This 50% retracement from the top back to the swing low falls into the most important number in Gann Theory which I may get into later. But for now just know that 3000 is extremely critical. It will either be a launch pad for a move higher than 3233.1 or where the rug gets pulled out from this market for at least a little while.


View attachment 16427


A big fat number like 3000 being exactly in between a low and high like that makes me think this was in the plans all along...


I also wanted to share a couple of macro things. First I want to point out where the market was before Coronavirus and the fact that many economists (with their magic 8 balls) thought we would head into an economic recession by the second half of 2020 or in 2021. We had extremely high amounts of debt and there is a really large amount of workers would be entering retirement in the 20's. Believe it or not, I even wrote an article in a trade magazine back in 2009 that 37% of the workforce in that industry from 2009 would reach retirement age by the early 2020's.

View attachment 16424

How bad was this recession going to be? Well probably not to bad, but the economy was running out of steam after the 2017 tax cuts as gdp growth had been falling along with the EPS growth of the S&P500. The problem was, as the economy was slowing down, the markets were reaching all time highs. This might be best represented by the Buffet Indicator. This is Warren Buffet's favorite yardstick to determine if the markets are overvalued. It compares the market capitalization of all publicly traded companies to GDP. It was at 158% in February before the lockdown... The highest it had ever been.

View attachment 16425

https://www.yahoo.com/now/buffett-indicator-signals-warning-global-154545117.html


So according to Buffet's favorite indicator, P/E ratios, and P/S ratios... The market was already overvalued. Maybe even heading towards a bubble. Now we throw in this massive shock to the system. With far reaching implications we are truly not even close to fully understanding yet. Best case scenario is 8% unemployment by the end of the year. Election is coming that may threaten corporate tax rates, personal tax rates for the "investor" class, and even legislation to stock buy backs (one of the key drivers of EPS recently.) Consumers will typically become more conservative in economic downturns and it takes a few years for them to get back to pre recession spending historically. There is going to be a complete disruption to global trade for the next 12-18 months. We have no idea what will come of trade with China. Short term deflation looks to be a problem as everyone hoards cash, but then we have longterm inflation risk on the table from all of the money printing. I haven't even mentioned a second shutdown in the fall if the rona virus breaks out... (not trying to start that argument again, but whether we agree or disagree, if it breaks out in the fall there will be mayors and governors shutting down big cities and even states again.)

So with all of these things on the table, I present a little chart made about 5-6 years ago by a professor from Hofstra. He studied all previous economic/stock market bubbles and made this chart showing all of the different stages.

View attachment 16426

https://transportgeography.org/?page_id=9035

Do any of you think we are in a bubble? If so, where do you think we might be on this chart?

Good luck this week, keep an eye on 3000. Staying above is bullish. Closing the day below in the next few days, is not. Closing above 3123.5 this week is very bullish.

 

[Scottfield1]

Below is a chart of the levels I am looking right now. May 14th was what we consider in technical analysis a pivot low. The market was going sideways for a while, went down and spiked up on the bull run that ending last week. This pivot/swing low was 2766.6 on the S&P 500. It ran up, gapped over 3000, retested and went parabolic up to the high of 3233.1 on the 8th and of course last Thursday it made its move down.

You will see in the chart below the pattern that was created looks a whole lot like what we call a blow off top. Self explanatory I hope. These typically result in a retest of around where the rally started (2766.6 in this case.) The interesting thing I did not notice until today was that the swing low of 2766.6 and the top of 3233.1 would almost be perfectly split with the number 3000. Which was resistance on the way up and proved to be solid support so far on the way down. This 50% retracement from the top back to the swing low falls into the most important number in Gann Theory which I may get into later. But for now just know that 3000 is extremely critical. It will either be a launch pad for a move higher than 3233.1 or where the rug gets pulled out from this market for at least a little while.


View attachment 16427


A big fat number like 3000 being exactly in between a low and high like that makes me think this was in the plans all along...


I also wanted to share a couple of macro things. First I want to point out where the market was before Coronavirus and the fact that many economists (with their magic 8 balls) thought we would head into an economic recession by the second half of 2020 or in 2021. We had extremely high amounts of debt and there is a really large amount of workers would be entering retirement in the 20's. Believe it or not, I even wrote an article in a trade magazine back in 2009 that 37% of the workforce in that industry from 2009 would reach retirement age by the early 2020's.

View attachment 16424

How bad was this recession going to be? Well probably not to bad, but the economy was running out of steam after the 2017 tax cuts as gdp growth had been falling along with the EPS growth of the S&P500. The problem was, as the economy was slowing down, the markets were reaching all time highs. This might be best represented by the Buffet Indicator. This is Warren Buffet's favorite yardstick to determine if the markets are overvalued. It compares the market capitalization of all publicly traded companies to GDP. It was at 158% in February before the lockdown... The highest it had ever been.

View attachment 16425

https://www.yahoo.com/now/buffett-indicator-signals-warning-global-154545117.html


So according to Buffet's favorite indicator, P/E ratios, and P/S ratios... The market was already overvalued. Maybe even heading towards a bubble. Now we throw in this massive shock to the system. With far reaching implications we are truly not even close to fully understanding yet. Best case scenario is 8% unemployment by the end of the year. Election is coming that may threaten corporate tax rates, personal tax rates for the "investor" class, and even legislation to stock buy backs (one of the key drivers of EPS recently.) Consumers will typically become more conservative in economic downturns and it takes a few years for them to get back to pre recession spending historically. There is going to be a complete disruption to global trade for the next 12-18 months. We have no idea what will come of trade with China. Short term deflation looks to be a problem as everyone hoards cash, but then we have longterm inflation risk on the table from all of the money printing. I haven't even mentioned a second shutdown in the fall if the rona virus breaks out... (not trying to start that argument again, but whether we agree or disagree, if it breaks out in the fall there will be mayors and governors shutting down big cities and even states again.)

So with all of these things on the table, I present a little chart made about 5-6 years ago by a professor from Hofstra. He studied all previous economic/stock market bubbles and made this chart showing all of the different stages.

View attachment 16426

https://transportgeography.org/?page_id=9035

Do any of you think we are in a bubble? If so, where do you think we might be on this chart?

Good luck this week, keep an eye on 3000. Staying above is bullish. Closing the day below in the next few days, is not. Closing above 3123.5 this week is very bullish.[

 

[Shamoan]

You are obviously more knowledgeable, but my gut tells me the slack will continue to wipe out losses until we bear a small + position. I’m probably wrong.

 

[57stratdawg]

Well - Dow futures are down 600+. Looks like it could be a rough Monday.

 

[TheStateUofMS]

Just hope we can chop around a little bit. Healthy pull back I think. Thursday's blood bath was very orderly selling. There was never a big panic moment.

Good time to nibble at some high quality stocks if you need more exposure to equities.

 

[TheStateUofMS]

I've said this many times, the morning and over night futures are not very reliable. Sure you'd rather them be up than down, but so many times the market does opposite, just like today....so far.

 

[Shamoan]

got any in your sights you wouldnt mind sharing?

 

[TheStateUofMS]

I'd love to. Like I was saying last week (or was it week before that?) airlines/travel stock's runs were likely driven by short covering and if anyone is wanting to play those stocks, taking profits is something you must do. If you want to be Long, that's fine, but it may be a loooong time until the businesses are back to where they were. In my opinion, there's so many other industries to be in than airlines and cruises. Why make it so hard on yourself? That's been my view since this started and I still think it remains true. If you do want to go long some type of travel/leisure stock here, I'd do it through BKNG.

Might sound like a broken record, but I would still look back at my post from 3/19/20 where I listed several stocks to buy. I think that list still applies.
https://forums.sixpackspeak.com/showthread.php?210932-Time-to-Buy-stocks&highlight=time+stocks

Here's some more stocks to add to that list: DKNG, RH, PYPL, APHA (very speculative), AMT, CRWD, Z, SWKS, JPM, GS, MDLZ, ETSY, AKAM, OKTA, ULTA, TJX, AAPL, NET, BIG, WDAY, NOW.

Don't blindly buy stocks, ever. Please do some research and make sure you at least understand what the company does. Look at a CEO interview or two and see if you like the management and their vision. At least do some basic homework first, but those are some other names I like and follow.

I'll say this, that 3/19/20 call was lucky. There's was so much pessimism, I just felt the bottom had to be near especially when every single asset class was being sold indiscriminately. The actual bottom was 3/23/20, so I was a few days early. Right now feels like a "buy the dip" and not a "go all in." You don't get many times to buy like we did at the end of March. Once every decade probably.

 

[Jeffreauxdawg]

You don't get many times to buy like we did at the end of March. Once every decade probably.

Ordinarily I would agree with you.... But it might happen twice this year.**

 

[Grove Sh*tter]

I immediately fully funded my Roth for the year when you posted that. I'm thankful for the advice.

You also inspired me to start learning more about investing and described it as self-empowering. Now, I'm doing just that and having a good time doing it. I guess it's always fun when the charts are climbing, but I'm not trading. I'm long-term investing.

Joe Lee has been an excellent temperer for the time, too. I like the guys who pay attention to historical trends to make smart decisions. Glad to have free advice from experts with different approaches, yet both obviouslywell intentioned.

 

[TheStateUofMS]

And if it does we'll be ready! Never be 100% invested. Certainly not 100% in stocks unless you're under 35-40.

 

[TheStateUofMS]

Really happy for you! Way to go on learning. You'll never stop either that's what's so interesting about it. Joe Lee knows his stuff and very good at putting things into context.

Hopefully the advice is worth more than you paid for it!**

We'll keep it coming too as long as the demand is there! It's actually pretty humbling to hear you say that. Thanks for the kind words. I'm fortunate my passion is my career and it's really rewarding when folks are able to tell me I helped them.

 

[rynodawg]

And just like that, the FOMO train is back full speed ahead. With these wild swings, it’s scary to commit to anything. I’m about 75% cash still, planning to unload my remaining travel/retail calls today, and will stay mostly cash awhile.

 

[TheStateUofMS]

That's why going that heavy in cash is almost always the wrong move. You never know when to get back in. Knew a guy who got out before the collapse in 2008, but missed getting back in for years.

Stay with your allocation targets and re-balance when things get out of whack. If you get really nervous, I tell folks to have 1 to 2 years of liquidity on hand so they can sleep at night. That would be for someone already in retirement or pre-retirement. If you're still in the accumulation phase, you need to stay invested and re balance on occasion.

 

[TheStateUofMS]

It's not FOMO today. It's fundamental:

1) HEALTH AND SCIENCE[FONT=&quot][h=1]Scientists hail dexamethasone as ‘major breakthrough’ in treating coronavirus[/h]https://www.cnbc.com/2020/06/16/steroid-dexamethasone-reduces-deaths-from-severe-covid-19-trial.html

2) ECONOMY[/FONT]
[FONT=&quot][h=1]U.S. May retail sales surge 17.7% in the biggest monthly jump ever[/h][/FONT]

 

[randystewart]

Any thoughts on when it may be time to dump some funds into an inverse ETF? I've got some money I play with in an Ameritrade account and have been looking hard at those. Obviously a short burn, but I just can't fathom we don't have another dip coming when Q2 actuals are reported.

 

[Seinfeld]

I appreciate what y'all have been sharing as well. As I'm a manufacturing data analytics guy by trade, I've always thought that I'd have some interest in this realm, but I just never had the time to study much until this lockdown. Every once in awhile, I'd get a little time to read up on things during a trip or something similar, but after buying up stock in this or that, it would immediately go to my mental back burner and I'd learn that individual stocks don't always work well in "set it and forget it" mode. =)

Anyway, I was curious as to how you guys are feeling about oil right now. I took your advice and grabbed my gains from JETS right before it started dipping again because I just don't like where the airline industry is right now. However, even though I'm up 27% with COP since I grabbed it in mid-March, I'm having a tough time deciding whether to dump it or not.

 

[TheStateUofMS]

You're pretty much trying to get lucky and time a major market move in a certain direction and that's impossible to do with any consistency. I do play the leveraged ETFs some, but I pick my spots. I sit in them 1-3 days max and a 3 day hold is pretty rare. Typically I go into it ready to buy the ETF 3 or 4 times to build the position. If you get in the wrong day, I usually buy a little more and average down and take some more stabs at it, and if it's still going against me, you just gotta cut bait. Limit your losses to 5-7% is usually my rule.

As far as when to time it, I look at whatever the ETF is tracking, and I try and look at short term indicators for trend reversals, or trend strength and then go on the bullish side.

Good luck. These are extremely risky and I wouldn't recommend anyone using them unless they are disciplined and have a good understanding of how they actually work.

 

[TheStateUofMS]

Good for you, Seinfeld. I consider you pretty knowledgeable too. Certainly capable just got to put in the work like you said and have an understanding you can't blindly buy something and think it's going to go up, which you clearly do.

I think oil has long term structural problems. I personally don't own any oil investments and don't recommend any more than what we need to hold, but even then I'm mostly underweight until situations like this where it's super depressed and you can give yourself some wiggle room like you have on your COP.

There's some income investments in the oil sector I'm okay with (OKE and ENB), but that's really all I'd use it for other than a small way to diversify and get SOME exposure to the energy space in a name like CVX or possibly COP.

It seems world leaders (and many investors) are going more and more with the electrification of the grid route and wanting to rely less and less on fossil fuels even if it's not near as economical. You can't ignore that fact. The fact is investors aren't willing to pay premiums on fossil fuel companies any more. These companies are too reliant on the spot prices of the underlying commodities when it comes to their stock prices.

 

[horshack.sixpack]

If trying to time the market, use play money, treat it like a trip to the casina, but with no assurance of free drinks.

 

[Jeffreauxdawg]

It's not FOMO today. It's fundamental:

1) HEALTH AND SCIENCE[FONT=&quot][h=1]Scientists hail dexamethasone as ‘major breakthrough’ in treating coronavirus[/h]https://www.cnbc.com/2020/06/16/steroid-dexamethasone-reduces-deaths-from-severe-covid-19-trial.html

2) ECONOMY[/FONT]
[FONT=&quot][h=1]U.S. May retail sales surge 17.7% in the biggest monthly jump ever[/h][/FONT]

Add on NAHB housing market index of builder confidence soared. Dropped to 30 in April. Up to 37 in May. Analysts hoped for 45 in June, but it jumped to 58. Anything above 50 is positive. For reference, it was at 64 last June.

I was able to get into some building material stocks this morning at the lows of day, with everyone focused on all the other news.

Do your own research, but Boise Cascade (BCC) is a great company. I know the CEO a little and listened to the last earnings call. They are both a manufacturer of engineered wood products and abig 2 step distributor. With all of the uncertainty, inventories at lumberyards and mills were scarce for various reasons. Those drove up both prices and demand from 2 step distributors like Boise.

They are not huge, but are best in class in my opinion in their space. I expect a blowout earnings call for Q2 for several companies in this space. Building materials suppliers are going to have a great 2 Q2 compared to many other industries.

 

[TheStateUofMS]

I like your idea. I actually know who BCC is as I had a friend who was a sales rep for them here in Florida. I haven't studied the company lately, but I like where your head's at especially if you know the CEO.

I have a friend who's been in Weyerhaeuser for forever. Are they direct competitors? I think Weyerhaeuser is big into timberland management too.

 

[Jeffreauxdawg]

I like your idea. I actually know who BCC is as I had a friend who was a sales rep for them here in Florida. I haven't studied the company lately, but I like where your head's at especially if you know the CEO.

I have a friend who's been in Weyerhaeuser for forever. Are they direct competitors? I think Weyerhaeuser is big into timberland management too.

Interesting you bring it up.

They do compete. WY is much bigger due to the timberlands exposure and they are a bigger primary producer of wood products (specifically lumber and osb.) Boise is bigger in distribution, which should do well in this environment.

I have WY on the books as well. They are interesting because there is so little long term risk due to the land/timberlands holdings. Ironically, they switched to a REIT in the last recession for tax purposes, so this time they are getting punished with all of the other REITs.

WY is currently priced about 30% below it prerona high, which almost puts it in line with some of the airlines... One reason is that they are popular with dividend investors and on the earnings call, the new CEO announced they cancelled the dividend for the time being and built up the balance sheet. A good move in my opinion. But since the downturn has not been to harsh on them (other than being HQd in Seattle near CHAZ) I would expect them to reinstate the dividend on the next call. If it went back to where it was prior, it will pay 6.5% at today's price. All the timber/lumber/land makes it a great hedge against inflation.

My favorite WY stat is that if you added up all of the land they own in the US, they would be the 42nd biggest state.... That size would fall between Maryland and West Virginia.

WY is my Alamo in this market. Also, the number 2 guy is an MSU Grad.

 

[Grove Sh*tter]

Please explain how REITs have suffered

 

[Jeffreauxdawg]

There's a bad stigma about rents not getting paid. Probably true around retail and office.... Not sure about the others. I decided to go pull the data and I am shocked at how well infrastructure and data center REITs are doing... Up 17% for the year each. Right behind Zoom and Twilio on ytd returns I guess...

Here's the data. Most REIT sectors (including Timber REITs) are way down ytd compared to the S&P (-4.5% ytd.)

View attachment 16438

 

[Shamoan]

I have US Concrete. Not a bad day up 22.5%....dumb luck has found me.

 

[TheStateUofMS]

Good stuff my man. Very good info.

 

[TheStateUofMS]

Anytime infrastructure bills are in the news, these stocks move a lot and then get faded because no infrastructure deal ever goes through. I'm not saying it fails again, just giving you a little context.

Nice pick though.

 

[Shamoan]

yeah, im holding until a second term for DJT. dont see much getting done if the Dims keep the house save maybe an infrastructure bill, but i think the two sides are 2 trillion apart. one thing is for sure, the fed doesnt mind spending their way out of a recession, so I see it as kind of a hedged bet.