We previously have talked about the bearish fallacies being put forth on inflation, higher rates, and Goldman Sachs earnings, states Steve Reitmeister, editor of Reitmeister Total Return.
These were vetted to show that there is not a sound fundamental reason for the recent market decline. Rather, it must be technical problem.
Meaning a testing of investor convictions to the downside where fear takes the helm over greed. And when that test of faith is done, then it creates a firmer foundation for the next bullish run to emerge.
The one fundamental point we didn’t discuss so far is the concern of military action. Like, what if Russia tries to take control of the Ukraine? That begets the question...is military action a cause for market decline?
No. Typically there is an initial shock that produces a modest correction followed by a raging bull run. That’s because military action is quite stimulative to the economy because of a massive increase in government spending.
So again, each individual item we discuss is not bearish in its own right. But the growing number of these individual concerns for the market to digest all at once is likely weighing on investor sentiment helping to clean house on excess valuations. The biggest shame is that even stocks that were reasonably, or even attractively priced, come down too. Meaning that no one is spared the lashings at times like these.
Reity, why not sell now and buy back in after a bounce?
That logic always sounds so good on the surface. But it works very poorly in reality because the speed of the market makes it nearly impossible to say when the bounce is for real. And when you finally feel comfortable enough it is often at a higher price than where you sold.
And by speed of the market, just look at the last two days. How massive 2-4% losses for the overall market became gains intraday. And in the case of today, that gain frittered away to another loss by the closing bell.
Also remember that I am not just giving recommendations for myself, where I can go from thought to action in ten seconds at my online brokerage firm. Instead, it is a longer process when running a newsletter like Reitmeister Total Return that goes a bit more like this.
Initial thought on the market > Determine if window is 24-48 hours giving customers enough time to act > If yes, then write up trade > If not, then take a pass. I know that the above flow may seem unsatisfying to some that are willing and able to act on a moment’s notice. However, the majority are not. Investing is a hobby rather than a burning passion. And there are many other things on the list of life that come before acting on a trade.
But even if I did tune up the service to be more timely, then you have the part that is truly most important “timing the market is a fool’s errand”.
Meaning that timing market moves is much easier said than done with accuracy often no better than a 50/50 coin flip. Which is why I rely more on the fundamentals as my guide of where the market “should be headed”. And that is higher at this time given the economic evidence in hand.
When that happens is always a mystery. Anyone pretending otherwise is a charlatan. The closest thing I have to a market timing indicator is what I playfully call the “Reitmeister Nausea Index”.
That being where the market drops so precipitously beyond any rational point that I start to get queasy and think that maybe I am wrong. This causes me to think about throwing in the towel to sell out. However, I have found if I just wait one-two more days past that point of pain, that the market very often will hit a point of capitulation that begets a serious and lasting bounce.
And yes, right now that Reitmeister Nausea Index is hitting highs not seen in quite a while. And thus, why I am staying the course with my fundamental view that stock prices should go higher in the weeks and months ahead.
Will it be easy? Heck no!
Easy is not on the menu at this time. Likely the bounce will come when you least expect it. And just when you start feeling comfortable the bull run is for real, then we will violently sell off again. As the smoke clears, we should find ourselves moving closer and closer to the previous highs...then on to new highs.
That is why we are staying fully invested at this time. And even hold on to some of our biggest losers because they are typically the ones that bounce the most when the tide turns.
Portfolio Update
In the intro I shared details on our strong two-day outperformance over the market. Now let’s pull back to the year to date picture.
-8.60% for S&P 500 (GSPC)
-3.12% for Oppenheimer ADR Revenue ETF (RTR)
That 5% advantage doesn’t seem so great now as it still shows up with a minus sign. But that much smaller negative will make it that much easier to leap into the positive camp when the bull is ready to run again.
And now on with insights on some of our key positions:
Even when the S&P was down nearly 4% we were outpacing the pack. That is because so much of the pain being levied on the market is stripping out excess from overpriced growth stocks. As a value investor, I obviously try and avoid those shares, leading to a lot less pain in our portfolio.
As the day ended, the S&P got back just above breakeven. Gladly, small caps and value led the way which is why our portfolio rallied +2.84% on the day. That is about as magical a spread over the broad market as one could hope for. Here are some of the top players on the session:
+9.19% American Eagle Outfitters, Inc. (AEO) (and another +2% today)
+5.74% Avid Technology, Inc. (AVID)
+3.85% Kulicke and Soffa Industries, Inc. (KLIC)
+3.34% Alarm.com Holdings, Inc. (ALRM)
+3.21% MKS Instruments, Inc. (MKSI)
+2.40% Schneider National, Inc. (SNDR)
+2.29% ManpowerGroup Inc. (MAN)
In fact, all 14 positions were in positive territory. Truly one for the memory bank to help remind us of the good times when the market is not so kind to us.
Olin Corporation (OLN): At this stage I believe that OLN’s woes are market related where cyclicals are taking it harder than most other groups. However, with earnings due out Thursday after hours, we might as well hold through the report for the potential of a positive catalyst to spring higher. Yes, there is always a risk of a poor report, but at the current low price level, upside potential greatly outweighs downside risk.
Earnings Season Begins Tomorrow: Earnings season for RTR kicks off Wednesday after hours with MKSI. This is typically a steady as she goes performer. Rarely a big beat...but even more rarely a miss. So, I like our odds of starting off on the right foot.
Here are some more dates to know: 1/26a MKSI, 1/27a OLN, 2/1b MAN, 2/2a KLIC, 2/3b SNDR, 2/4 VRTS
(a = after market close / b = before market open)
With markets down this much, then investors should respond with gusto to any positive news that emerges. (Please cross your fingers now! ;-)
Bonus Idea: I bought Bitcoin today for the first time ever in my personal account. I accomplished that through the ProShares Bitcoin Strategy ETF (BITO).
I have no idea what it is worth (nor does anybody else for that matter, as the valuation is based on what the next person is willing to pay for it).
Nor do I know how timely it will be...or if it will ever rise at all. That’s why it’s not in RTR. However, I am confident blockchain and digital currencies are here to stay with Bitcoin being the pick of the litter. So, I am willing to make a speculative move on BITO thanks to the recent nearly 50% dip.
Note that the amount I put in this trade is small enough to think of like a lottery ticket. Meaning if I lost all the money, I would not lose any sleep. But if it does continue to gain traction over time, then I will be glad to have snapped up shares on this dip. Just figured I would share with you in case you were interested in making a similar move of your own.
Closing Comments
We have gone through this initial “pain” phase of 2022 in solid fashion. Now hopefully soon comes the well-deserved “gain”.
Learn more about Steve Reitmeister at StockNews.com.
