2/10/21
S&P 500: 3910
Nasdaq: 13972
10 Year Treasury: 0.11%
David R. Snyder, CFA
Speculation continues to run rampant. Any stock market short term scare is met with frenzied buying. And so it goes. This afternoon the short term sell was closed out with a 2.3% loss at S&P 500 3911. Initially after my short term sale recommendation the S&P 500 dove 105 points or about 3%, but it rebounded 6% very quickly. The total correction was 4% and investors snapped up shares as if it were the bargain of a lifetime. I wrote that the correction would be quick and sharp but thought it would be 5 to 10% instead of 4%. When my short term sell recommendations haven’t worked out in the past, the stock market at least initially does decline similar to this call, giving investors an opportunity to make a profit.
Several factors influenced my decision. First the volatility index (VIX 22) did a complete round trip within a matter of days. Historically it has taken some time for the stock market to correct again after such an event. Second, the stock market increased six consecutive days in a row, which in the past usually led to some follow through. Third, the danger period according to my technical indicators was to last in to early to mid-February, and we are close to the end of that period. Fourth after six straight up days with a cumulative 6% increase in the S&P 500, all the stock market could muster was two days of flat trading with little give back, which is bullish. Fifth, stock market breadth has been very strong with all sectors participating.
The technical indicators that I follow are still bearish, but in the context of a surging first year of a bull market they are not as predictive. However, the ARMS index has corrected to neutral territory. Fundamentally over the last week or two there has been a sharp reduction in Covid cases and the prospects for a $2 trillion stimulus package have increased. Both are obviously bullish for the stock market.
We are getting close to the end of the first stage of the new bull market. My short term sell recommendation was not a high conviction trade as I noted when it was issued, but my call that the stock market will have at least a three to five month correction of 12 to 15% starting sometime in March or April is a high conviction recommendation.
Also the last three months have been the most speculative period in stock market history except for the 1999-2000 period. In some measures it is worst than 2000 as I don’t remember this many stocks tripling and quadrupling in three months. Just this year there are over 150 stocks that have more than doubled. This is not fundamentals folks. With high conviction this will end by April and there will be a lot of money lost.
Still expect the stock market to be higher by March and possibly April, but we are on the last leg of the first stage of a bull market. Enjoy it while you can.
Full Disclosure: I own several of the securities mentioned positively. None have been purchased within the last month. The opinions merely represent the opinion of the author as CIO of Journey 1 Advisors, LLC and intended to inform the readers about our investment philosophy and strategy. The contents of this report are based on sources believed to be reliable. It is not intended for circulation. It is not intended to offer investment advice, or to recommend the purchase or sale of any securities or investment product. Investment advice is only given after a client has signed an investment advisory agreement with Journey 1 Advisors, LLC and will be subject to the terms and conditions therein. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock’s expected performance and risk.