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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.



#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.


#56 Rich C

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Posted 15 July 2020 - 03:24 PM

GDP is in a recession so it is bearish.  The Fed has short term rates near zero and plans to hold them there for the foreseeable future (2 years), plus they are buying bonds to keep longer term rates low and provide liquidity to the bond market, and that is bullish (old saying, “don’t fight the Fed”).  S&P earnings for Q2 are projected to be -44% compared to Q2 last year, which is bearish.   The PE valuation (trailing 9 month GAAP PE  with Q2 estimated) is 31, which is bearish.   The geo-political factors (COVID19 virus and downturn in US oil jobs) are bearish.   Technically the chart looks bullish.

By that way of looking at it, the bears have it four to two.  A successful vaccine in the near term would brighten that outlook considerably.

Most expect that Q2 earnings will be the bottom for the economy.

My conclusion is that short term I am remaining cautious based on the position of the large indicators I follow.  The outlook should brighten after we get through an ugly Q2 earnings season, as long as the good news on the vaccine continues to come in.


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.


#57 Dex

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Posted 15 July 2020 - 07:44 PM

The key is the market expectation.
"The secret of life is honesty and fair dealing. If you can fake that, you've got it made. "
17_16


#58 Rich C

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Posted 19 August 2020 - 05:06 PM

GDP for Q2 was about as bad as had been forecast, -33% annualized, or a quarterly decline of about 8%.  The Atlanta Fed GDPNow forecast for Q3 is +20% annualized, or quarterly advance of 5%.  The Fed remains on the sideline with the Fed Funds rate near zero.  S&P earnings came in a little better than expected, -34% vs. the prior year, vs. the forecast of -44%.  The 12 month trailing GAAP PE on the S&P rose from 31 to 34 times earnings, using Q2 earnings with 90% of companies reporting and 10% of companies estimated.  That is in the danger zone from a market valuation perspective.  Geo-political factors are negative, with the virus continuing to dominate the news, and having material negative impact of several sectors of the economy.  There are some companies that have benefited greatly from the "stay at home" trade, like Amazon and Zoom.  Technically the S&P has decisively broken above the downtrend line on a daily chart and is back in bull mode.  The market advance has broadened out in the last few weeks, looking to GDP growth in Q3.  News on the vaccine front is encouraging for early 2021.

 

Bottom line, the market is back in bull mode.  However, it is dangerously overvalued on a PE basis.  What will the pace of the recovery be in Q3?

 

I bought a little SPY for the first time since March, but I have a trailing stop under it.  I want to participate in the market, in a cautious way.


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.


#59 Rich C

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Posted 16 September 2020 - 02:42 PM

GDPNow still forecasting Q3 GDP to be +20% annualized, or around +5% for the quarter, so the forecast is the recession will have ended in Q2.  After today's Fed meeting, their dot plot shows the Funds rate remaining at .1% through 2023.  This could change your investing philosophy.  Higher PE's may be tolerated longer.  The danger to bonds, bond funds, and bond proxies like utility stocks, of higher rates, is off the table for the foreseeable future.  The trailing 12-month GAAP PE remains at 34, dangerously high in my opinion, relative to my trimmed 30 year average of 19.  Geo-political factors remain negative, but a bit less so than last month.  The virus still dominates, but the infection rate in the US is moderating slightly (it remains to be seen what the fall and flu season will do to COVID rates).  The congressional stimulus held up the economy along with the Fed accommodation.  Will we get a second stimulus?  It would be good for the market.

 

We're in bull mode, but the valuation is a concern.  The recent tech correction was welcomed by me, we needed a correction there.  I have kept my core holdings, mostly big banks that I bought in early April.  I bought more SPY, the advance is broadening out.  Even the airlines are moving up, anticipating a return to normalcy next year, maybe not normal, but significantly improved over 2020.  I still keep a trailing stop under the SPY.  There is more in the blog.


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.


#60 Rich C

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Posted 22 October 2020 - 10:58 PM

The Atlanta Fed GDPNow estimate for Q3 GDP is +35% (which is annualized, so about +9% for the quarter).  When you net that against Q2, the last six months have been about flat.  Factset projects that earnings for Q3 will be -18% vs. the prior year's Q3.  The 12 month trailing GAAP PE on the S&P 500 is 35:1, up from 34 last month, which is high and a risk factor.  The Fed Funds rate is pinned near zero, but longer term rates ticked up slightly.  Is the bond market signaling they think the worst is behind us and as economic activity rebounds, higher rates are warranted for longer maturities?  That's my interpretation, but one month is not enough to draw a conclusion.  The banks rallied a little on the hope their net interest margin can expand a little.

 

Outside of the market, the scene is mixed.  The virus is spreading again in most states as we go into fall and the flu season.  If COVID behaves like the flu virus, and we don't know this, you would expect it to minimize during the summer and come back in the fall.  Recent statistics indicate this may be happening.  On the plus side, we move closer to a vaccine.  We seem to move closer to a deal on the stimulus package and I think we will get one because real pain exists in the country, and the Fed continues to say we need fiscal stimulus.

 

The bull market continues, but there are pockets of weakness in the economy and market valuation is high, so the risk of a correction is there, particularly around the election.


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.