Volatility is back with a vengeance, as is erratic and non-sensical price action, states Steve Reitmeister, editor of Reitmeister Total Return.
Let's talk about how that effects our game plan coming down the home stretch of the year. Here are the important sections from last week’s commentary:
If Omicron = Delta (in terms of economic impact) = Buy this dip for the rally to come.
If Omicron > Delta (meaning negative economic impact) = Stock will press even lower than where we stand now.
Right now, I would say odds are that Omicron is no worse than Delta, which is why we are not getting more defensive in the Reitmeister Total Return portfolio at this time. Instead, we are staying fully invested because the next bull run could emerge at any time and could quickly stampede back up to the old highs...or higher (more on the year-end target further below).
Now let’s switch over to price action as stocks did close below the 50-day moving average (4,547) to end last week. Once again that move was rejected today (closing at 4,591.67). Helping matters was Dr. Fauci saying that the early indications are that Omicron symptoms appear mild.
That fits in with the current thesis that Omicron is not worse than Delta so there's likely no real economic damage, and thus soon enough stocks should be heading back higher once again. Perhaps we have seen the lows already. Or perhaps we need one more good rush down to the 100-day moving average at 4,493 to shake loose any complacency leading to a nice capitulation rally.
All in all, I strongly believe we are closer to the near-term bottom than the top and thus believe we should stay fully invested, expecting stocks to bounce higher. And yes, it is quite likely that we get a Santa Claus rally that takes us up to the previous high of 4,743 or higher.
Heck, I will actually go on record now and say that we will touch 4,800 before the year is out. And if I am wrong, then likely that will occur plenty early in 2022—as well as making it to a more significant mark of 5,000.
Yes, I am sharing this with you again to show that our strategy WAS basically on the track, but today’s action calling it slightly into question. No we are not back down at 4,500 again, but the violent losses for many is risky. Positions today give the impression that the sky is falling.
This kind of pain is not just happening today. In fact, going back the past month we find that the mega-cap stocks are basically breakeven. But from there, the smaller the stocks the bigger the losses.
-3.36% Large-Caps
-8.74% Mid-Caps
-11.83% Small-Caps
-13.61% Micro-Caps
-15.55% Nano-Caps
Some might see that and say “Okay...we need to load up on mega-cap stocks to generate outperformance.” But the value investors don’t believe the trend from the past is what continues. This shows you how off-balance the market is.
Instead, the best strategy going forward is to assume the opposite will take place. And thus why, stated for the 12 millionth time, we hold onto the stocks that fall the most as they should rise the most when the bull market gets back on track. Or more specifically, when risk-on investing gets back on track.
When is that?
No idea. But soon enough. And if you try and time your way to the sidelines and back on the bull, then most likely you will miss a good chunk of positive returns. This is why I am having us keep our grip on this bull market no matter how much it tries to buck us off.
Learn more about Steve Reitmeister at StockNews.com.
