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The Long Term View


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#51 K Wave

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Posted 28 March 2020 - 02:52 PM

As long as SOX continues to hold up, I am not yet in LT Bear camp.

 

SOX led both the decline into 2003, and the decline into 2009.

 

Today, it is doing just the opposite by showing tremendous relative strength.

 

Until that changes, I am now leaning towards the "one and done" severe panic correction into March 18, with retest on the 23rd , followed by 90/10 breadth thrust on 24th.

 

We will see things thing play out over next few days, but am now thinking possibility for "Y" type bottom in March without full retest of the lows in April, as I had previously been thinking.

 

That said, if SOX were to get a weekly close under 1250, then things would look a lot more bearish on all fronts.


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#52 Rich C

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Posted 30 March 2020 - 09:30 PM

As long as SOX continues to hold up, I am not yet in LT Bear camp.

 

SOX led both the decline into 2003, and the decline into 2009.

 

Today, it is doing just the opposite by showing tremendous relative strength.

 

Until that changes, I am now leaning towards the "one and done" severe panic correction into March 18, with retest on the 23rd , followed by 90/10 breadth thrust on 24th.

 

We will see things thing play out over next few days, but am now thinking possibility for "Y" type bottom in March without full retest of the lows in April, as I had previously been thinking.

 

That said, if SOX were to get a weekly close under 1250, then things would look a lot more bearish on all fronts.

Whether we are in a long term bear market, that really is the $64,000 question.  I think we are.  I think it is a different kind of bear market, as most are a result of the business cycle, and this one it not.  This bear market is a result of a biological event.  I suspect it will behave like most bear markets, but it could behave a bit differently since it has a different type of origin.  Everyone has to answer this question, is this a real long term bear market IMO.  If it is, investors need to behave differently than they do in bull markets.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.  During the Corona virus bear market I use more sector funds to avoid the bad spots in the SPY such as energy, hotels, and the airlines.


#53 Rich C

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Posted 15 April 2020 - 04:47 PM

Atlanta Fed GDPNow shows -.3% estimate for Q1 GDP, and analysts vary on Q2 from -8% to -20%, some worse.  That's technically a recession.  Factset is dropping earnings estimates rapidly through Q3.  The Fed has dropped interest rates to the floor and pushed out two asset purchase programs totalling $3 trillion, and Congress passed the $2 trillion rescue package.  That's a lot of rescue.  The long term chart is still bearish IMO, despite a 27% rise off the March 23 low.  The market has been rallying on the stimulus efforts and good news out of NYC about falling hospital admissions, talk of opening the country again.  Gilead has a phase 3 clinical trial of Remdesivir (developed to treat Ebola) that will end in April (this month), and preliminary reports of some "compasionate use" are positive.

 

The market seems to be focused only on the good news, and not on the poor earnings news.  The 12 month trailing GAAP PE on the S&P jumped from 19 to 23 on this rally, and that is not a good bear market PE, its too high.  I'm skeptical of the rally.

 

For me, the bear market continues.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.  During the Corona virus bear market I use more sector funds to avoid the bad spots in the SPY such as energy, hotels, and the airlines.


#54 Rich C

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Posted 20 May 2020 - 11:31 AM

Q1 GDP was -4.8%.  Estimates for Q2 GDP range from -10% to -40%, with most in the range of -20% - -30%.  The Fed has the Funds rate at .2% and longer term rates have moved up .1% across the yield curve, so they are steady at historically low levels.  Factset states blended earnings (90% actually reported, 10% estimated) on the S&P for Q1 will be -14% vs. prior year.  Their estimate for Q2 S&P 500 earnings is -42%.  That's real bad.  The trailing 12 month GAAP PE on the S&P with the most recent quarter being Q1 (90% reported) rose to 24.4, up from 23.2.

 

My long term S&P chart is mildly encouraging as the price action has risen and is back in the rising channel it has been in for a decade.

 

So, the economic data (GDP) and valuation metric (12 month trailing GAAP PE) are negative indicators and they are at odds with positive price action and the support of the Fed.

 

What is a body to do?

 

I think it is a bear market.  The market is supposed to trade on earnings, and earnings look poor.  At some point, valuation matters, it just looks to me we are not at the point where valuation matters yet.

 

I hold some large cap, low PE, good dividend payers, my largest holding is JPM that I am in at 92.  I pick up a little extra selling covered calls at 110 or 115, 30 days out.

 

I buy and hold in my taxable account, and trade in my IRA.

 

I trade some semi's, like TSM, hang a low ball buy out there, then hold for a rally and sell into the rally.  Same with INTC, QCOM.  If I have to hold them for a while, they pay a dividend.

 

For me it is a bear market, although the long term chart throws that opinion into question.  We're in a recession, the earnings are bad, and the earnings are going to get worse when the next reporting cycle kicks in in July.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.  During the Corona virus bear market I use more sector funds to avoid the bad spots in the SPY such as energy, hotels, and the airlines.


#55 Rich C

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Posted 17 June 2020 - 01:40 PM

The second estimate of Q1 GDP was -5%, and the Atlanta Fed GDPNow estimate for Q2 is -35%, very bad.  The Fed ended their June meeting a week ago and left the Funds rate unchanged at .2%, and Powell said he expects the road back to economic recovery to be a long one.  The trailing 12-month GAAP PE on the S&P 500 is 27 which is substantially overvalued compared to my trimmed 30 year average of 19.  Factset estimates that S&P earnings for Q2 will be -43% below last years Q2, that is going to leave a mark!

 

Clearly some stocks are big winners, the FANG names, Microsoft, technology, pharma, and all the "stay at home stocks" like Zoom (overvalued IMO).

 

I hear rates are at zero so the market can support a PE higher than normal.  I hear that investors will "look through" the bad earnings in July, to normal earnings in 2021, but that seems like wishful thinking to me.  Maybe they will, but maybe not.  I think it is asking a lot of investors to look a year out, or even to late 2021 or 2022.  Congress and the Fed have been helpful in providing support and liquidity to the markets, unprecedented levels of support.

 

I have thought we entered a bear market in March, clearly we are in recession and the market is overvalued on a PE basis.  But, the price action does not say "bear market", we are back up in the long term bullish channel we have been in for a decade.

 

July will tell the tale IMO.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.  During the Corona virus bear market I use more sector funds to avoid the bad spots in the SPY such as energy, hotels, and the airlines.