Man, Friday felt different… in a not so positive kind of way. Is the market reversal really about to happen or are we experiencing another head fake? There is no way to know – stop asking.
There are a lot of theories around what’s holding up this record-setting bull run… low unemployment, strong consumers, the Fed, ETF money flows (big one here), etc. I tend to believe the market has been held up by a combination of a lot of factors, not to mention the world still believes that US equities is the best place to put your money. But, is that now changing?
Regardless of the why, the focus for traders must be to have a plan and manage risk. Strategy discipline and risk management are part of an active process that punishes the lazy. Don’t wait for the equities market to fall apart before you think about what to do next. You’ll panic and you’ll make bad decisions, guaranteed.
As an investor with multiple strategies, time-frames, and goals, it’s important that each one of these channels is approached uniquely. As of Friday, the TLT is at all time highs and SPY is down on the week, however still very high. The obvious translation – people are betting both sides of the barbell: TLT for safety and SPY for growth. This can’t be good. ONE of them is wrong and more and more traders are moving to the sidelines as TLT booms.
So, what now?
The market is concerned about Bernie Sanders and Covid-19. Covid-19 has spread to other countries and South Korea is experiencing an alarming rise in new cases. There could be a real problem if the eurozone start experiencing double-digit growth in newly reported cases. They can’t pump money into the market to counter the productivity loss like China can. The global GDP is in danger of taking a huge hit and, of course, this is an awful humanitarian disaster. However, at some point there will be some amazing buying opportunities as great companies get discounted for a quarter. This is where I’ll focus most of my attention over the next few weeks – discounted quality.
For Monday, I’m watching for buyers. If they don’t come in, I’ll likely reduce 401k risk. That’s as far as I’ll commit, for now. Tuesday will be a whole new day.