This was one of the worst weeks in quite a while in the market. For the week: the Dow dropped -2.7%, the S&P 500 lost -2.3% and the Nasdaq was -1.2% lower. Our Tactical Growth strategy, on the other hand, gained about +2.2% for the week.
By now, you know that I am in the camp that believes the economy is in much worse shape than the stock market is indicating. <yawn> I know... that's just about everyone's opinion... "So what?", you may be asking.
I am glad you asked... We are in an economic cycle never before seen in history and we have a monetary response from the government unlike anything (by orders of magnitude) we have ever seen before. And, on top of that, we are experiencing a global viral pandemic the likes of which has not been seen in over 100 years.
Drawing analogies of prior recessions or depressions or economic down-turns to the current economic situation is all but impossible. I speak with many clients each week and everyone is trying to make sense of the whipsaws, the obviously emotional swings in the market, the lack of properly evaluating company quarterly reports, and on and on. The bottom-line is this... No one can make sense of this market because no one knows where this is all headed. To try to make sense of it is simply an exercise in futility.
With the above as a caveat, it will not surprise me to see a "Hard-Bottom W" formation, which will have intra-day swings in the market and no particular longer-term trend up or down; albeit, a drift to the downside is more likely than a drift to the upside. We will (guessing here) likely see "W" after "W" after "W" chart patterns, where there will be steep, short swings in the market up, then down and then back up again. I suspect this will continue until the economy begins to show signs of a comeback or we discover the economy is in far worse shape than anyone has predicted.
But, the reason that I believe we are in a Hard-Bottom W formation is the unlimited amount of free money being poured into the economy. Another phrase for a "Hard-Bottom" is there is a "Floor" in this market, which is being propped up by the massive amount of free money spewing out of Washington. The House is about to pass a $3T free-money bill; not to restart the economy, but just to keep it on life-support. Depending on how much pork and special interest projects you like to support, this bill is the next installment in helping the economy stay alive and, while it's at it, secure votes.
With unlimited money pouring into the economy from various governmental sources, I just don't see (yet) how this market can sell off 10% to 20% or more. While I can see significant economic justification for a huge sell-off, I just don't see it happening as long as Uncle Sugar is standing by with more and more and more sugar.
This is one of the reasons why I have been buying this week. I bought more today in Tactical Growth, but as I have mentioned in previous blogs, I am buying stocks from a subset of the universe of stocks. The stocks in this subset, which is less than 0.1% of all the publicly-traded stocks, have strong fundamentals, but more importantly, they have a "Low-TIP" score. A Low-TIP score means they have far fewer TIPs (Trend Inflection Points) in the past 3 years than 99.99% of their peers. These Low-TIP stocks have a tendency to stay on trend with a 200-day moving average that is steadily moving from lower left to upper right. These are solid, steady performers that I am accumulating in the Tactical Growth portfolio. My other strategies that rely on major market trends are sitting on cash until the market moves out of the W-pattern and moves into a well-defined bull or bear trend.
Have a safe and COVID-19-free weekend!