The big question last week was: “Was That THE Bottom?” The reason that I look for A Bottom and THE Bottom is that after a dramatic panic sell-off and rebound, sometimes a reversal of the rebound, or a retest of the panic low takes place.
Hence, I had a two-factor method of determining if THE Bottom was in was in. One was a follow through day. The other criteria we needed to confirm was the market rising above the pre-panic high.
The difficult factor as it turns out was a follow through. The reason was though futures rose last Thursday after that day’s turnaround and Amazon’s (AMZN) earnings report; Friday’s trading session was an absolute disaster. Last Friday, the Standard & Poor’s 500 (SPX) deteriorated by 1.77%, with growth stocks performing even worse. That certainly was enough for some people to re-panic. In the stock market we borrow a term from horse racing and say that the market “spit the bit.”
What happened was that the US markets got sucked into a vortex caused by the lunar new year holidays in China. While the whole coronavirus epidemic was occurring in China, the Chinese stock markets were closed for the lunar new year, which takes place over several days. With Chinese markets closed for business, what do Chinese institutional investors do? They look for the most liquid markets to sell stocks while their home markets are closed. What market comes first on the sell list? The US markets.
So, on Friday, with Chinese markets closed before a weekend, the whack-a-mole became the US markets which tumbled. On Monday when the Chinese markets reopened, they tanked 9%. US stocks were clearly oversold, providing deep discounts to US investors. Institutions stepped up to scoop up domestic issues. Markets, as defined by the SPX, rose 0.73% on Monday, 1.50% on Tuesday and 1.13% on Wednesday. Wednesday’s closing level for SPX was 3,334.69; which was greater than the pre-panic level of 3,325.54. Overnight futures indicate gains for Thursday as I write this commentary. New market highs are imminent.
The 50-50 rule of putting cash to work was utilized and now client accounts, for the most part are at new high valuations.
By the way, top to bottom, the SPX did correct 3 to 5% as I expected just over two weeks ago.
Let me be clear. While markets have overcome the coronavirus panic, a moderate correction took place and markets are making new highs, this does not mean that the market is immune from future corrections. When and from what level the next correction takes place is unknown. Just don’t get too complacent in the future.
Qualcomm (QCOM) reported a good quarter last evening but provided some uneven guidance as the company begins ramp-up of 5G chip production. Get ready for 5G as I wrote in My Gut Feeling For 2020. Be patient and accumulate 5G stocks now as you will be rewarded in the future. I am for LakeView accounts
I have been getting multiple calls about Tesla (TSLA). I will write more about TSLA next week. However, in no uncertain terms, I would avoid TSLA. It is a disaster waiting to happen. In fact, the disaster may have already begun. If you decide to buy TSLA, it is without my approval and be sure to trade it with a stop.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long QCOM, SPY, SSO & SPXL – although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
© 2020 LakeView Asset Management, LLC. All rights reserved.