05-05-2020: Happy Cinco de Mayo

If you're not a Tex-Mex foodie, you're just missing out. I'm a big Tex-Mex foodie and I'm still missing out... COVID-19 has my Mexican food cravings totally NOT satiated. I'm getting so desperate for Mexican food that the frozen enchilada dinner in the freezer is beginning to look really good. Oh, how I long for those awesome chicken fajitas and green chili dip from Chuy's...


Enough of the food stuff talk... Let's get into the meat of the market (pardon the pun)!


All the strategies are holding 100% cash with the exception of Tactical Growth. Our only holding (COSTCO), in Tactical Growth, turned in a nice gain today of a little over 1%. The market boomed higher for most of the day and gave up some gains at the end to close the day at gain of about 0.6% on the DJIA.


Our on-going test of the "Delta-Neutral" (the strategy name of our investment algorithm for high-volatility, anti-whipsaw markets) had a great day, giving us a total portfolio gain of about 0.8%. Per the algo's rules, we started the day 100% invested with 50% in a 2x bull ETF and 50% in a 2x Bear ETF. The Bear ETF stopped out early and we closed the Bull ETF after about a 1.3% gain for the day. We put the same 50/50 traded on again at the closing bell this afternoon. This means, the strategy will be flat at the open in the morning, regardless of whether the market is up/down or flat; this is because we will have a 50% double-long trade on and a 50% double-short trade on at the market open. Then, we will let the market take whichever side it wants. This strategy absolutely does not care which way the market goes tomorrow. If it moves up, the short 2x ETF will stop out quickly and the long 2x ETF will double the move higher in the market. If the market moves down tomorrow, the long 2x ETF will stop out quickly and the 2x short ETF will move up twice as fast as the market moves down. The Delta-Neutral strategy is totally agnostic about the direction of the market. It is designed to capture the 'trend-of-the-day'. So far, the test results are 'mostly' positive as we fine tune the algorithms. I am not ready to put it to work with client capital... not yet, anyway. Right now, I'm just testing it with my money.


Now, with two whole days in a row of a positive market, are you ready to jump onto the V-Shaped Recovery bandwagon? No? Well... I don't blame you. Neither am I, but you and I both know the market is never wrong. If this week continues to be positive, I am willing to begin nibbling back into the bullish side of the market, but if the market ends flat or is not showing any serious signs of a trend one way or the other, we will continue to sit on cash and get what income we can from it.


According to a CNBC article: This comeback rally for stocks won’t last, if history is any indication. Data compiled by investor Howard Marks shows that, during the two previous bear markets, the first big comeback rallies have been followed by sharp declines until a bottom was ultimately reached. “The first and second declines were followed by substantial rallies . . . which then gave way to even bigger declines,” Marks, co-founder of Oaktree Capital, wrote in a memo.


Mr. Marks could be right (and I would not be surprised if he is), but he is just guessing and we have never (never in history) had a global pandemic that resulted in a near total shutdown of the world's economies. No one knows how we (and the stock market) are going to come out of this. I continue to be ready to jump on the next major down-trend with inverse ETFs. The 200-day moving average of the Total Market Index is in a bear-trending slope and has not changed that downward slope in almost two months.


But, there is absolutely no way to know how impactful (or not) trillions upon trillions of Quantitative Easing dollars (or whatever the government wants to call it) will be on arresting the potential economic catastrophe and/or providing the requisite stimuli to get the economy growing again.


For another point of view Goldman Sachs says the economy has ‘probably bottomed now’ ahead of a second-half surge... wow, now THAT is a glass half-full point of view.


I prefer to take what the market gives us. When we get longer term trends than a few days, we'll take it; if not, perhaps my Delta-Neutral algorithms will prove to be a great way to weather this frenetic, whipsaw market.

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