For all the market volatility and hysteria with the Kinahora virus, January has been a good month for the equity markets. I call it the Kinahora virus for a good reason. Kinahora in Yiddish means “not to cast the evil eye.” The Coronavirus certainly tried to cast the evil eye on society and the markets.
There are two types of bottoms that we need to authenticate.
First is whether an interim bottom occurred yesterday? The answer is, by standards that professionals look for, which I will next explain is: YES. After a multi-day panic decline, an intraday rally following a significant decline from the get-go is the definition of a bottom. From low to high, the Standard & Poor’s 500 (SPX) traded in a 43 point range, closing the session up 0.31%.
Yet, is it THE bottom? That is a bit tougher to tell. For this to be THE bottom, we have to fulfill some other criteria. First, we need follow through to Thursday’s session. As Amazon (AMZN) reported a blowout quarter last night, futures rallied after hours. However, it’s not where we open today but where we close. Another criteria in order to prove THE bottom is the market rising above the level from which the panic began. For SPX that is 3,325.54. That index closed yesterday at 3,283.66. I believe that the likely end to the impeachment trial in the Senate in the next few days will be a tailwind for the market. Any continuation of the trial will just postpone the acquittal effect.
So, what do we do? Given the strength of earnings – Apple (AAPL), Microsoft (MSFT) and AMZN are prime examples, I am inclined to say that the market is on its way to new highs. The next week is a historically positive period for the market, so we have history on our side as well. I believe that the likely end to the impeachment trial in the Senate in the next few days will be a tailwind for the market. Any continuation of the trial will just postpone the acquittal effect. What I plan to do is employ the 50-50 rule.
The 50-50 rule can be used in two ways. Should you have a nice unrealized profit in a stock and are not sure whether to sell it or hold it, just sell half; of course factoring other criteria such as tax implications and price target. You can always sell the other half, or after a slight decline buy back the half that you sold. On the buy-side, when you are not certain if a bottom is in place, put half your cash to work. I plan on putting half our cash to work. I will also take some profits in some stock(s); not using the 50-50 rule but the Gillette Rule ( shave off a little ) and add to Service Now (NOW), another stock we own that had a fabulous earnings report. However, I will not do so at the market open or the first hour of trading. I want to see how things size up first.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL, MSFT, NOW, SPY, SPXL, QQQ, QLD & TQQQ – 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.