I’ve been emphatic since starting this substack early 2023 that markets would run without need for hedging, a very unpopular idea at the time, and now just a month later Russell Small-Caps have rallied as much as 12% and the Nasdaq as much as 17%.
This action looks, feels and smells in every way statistically consistent with a bear market bounce, plus there’s no end of hyper-bullish articles and newsletters promoting all kinds of arguments for epic upside still to come. Contrarian indicators.
Invariably those cheerleaders cite statistics and technical esoterica that were also in evidence, yet proven dead wrong, every prior major bear market in history. A “golden cross” above the 200-day moving average is one such popular bullish talking point.
However, is this actually a major bear market? I don’t know, nor do they. It’s not even clear if a bear market has even truly begun (ref: link above).
The important thing is that stale data, forward “value” estimates and suppositions populating spreadsheets, or biased talking points and cherry-picked indicators with poor hit rates, won’t save anyone’s portfolio from a mauling.
Spreadsheets seldom move markets. Psychology always moves markets.
At recent events focused on retail investors it’s tough to coax a cogent actionable idea out of anyone, while virtually everyone’s quite confident a major draw-down looms.
In confirmation, there’s this headline today:
Record Number Of Americans Expect Stocks To Tumble Over Next Six Months
That’s very bullish of course, and in stark contrast to some of the points above, so what’s to be done? Is it possible the chronically wrong cohort are now correct?
Mom used to say there’s a first time for everything.
“You shouldn’t own common stocks if a 50% decrease in their value in a short period of time would cause you acute distress.” – Warren Buffett
Easier said than done, Mr. Buffett! The share price of Berkshire Hathaway has fallen 50% multiple times. ...
I’ve written before of using market proxies in my timing tools. Arguably the most “value stock” ever is Berkshire. There hasn’t been a first time in its long storied history during which technical measures I utilize were flashing a warning - like now - that this iconic widely-owned and beloved stock, and markets overall, didn’t begin a drop to far lower levels at some point over the following year.
Past patterns suggest things won’t get really bad until rate inversions reverse, after which there’s a recession as central banks chase real rates lower. That typically coincides with stocks crashing, hitting bottom around the same time a recession is eventually retroactively “officially” declared as real rates recover.
With most sitting on market sidelines afraid in expectation of this, it may be different this time, and before central bank rates drop we may need a shorter Fed head.
My “Seven Sentries” (again ref: link above) now show readings for the intermediate term suggesting it’s prudent to gear down from “party-on!” to “whoa”.
“Paranoia pays.” - Dr. Hunter S. Thompson
For me that means trimming positions as markets rally, and selling overbought trash.
Already having reduced FNGU resulting in a cost base of less than zero, I’m now shorting the most ridiculously hyper-valued and problematic among its 10 holdings.
“Tesla explodes in Flames…” reads a recent San Fransisco Chronicle headline.
So too will we again eventually see such headlines about Tesla’s stock, though at much lower share prices than the $100 level at which people were making similar jokes just weeks ago.
Shorting Tesla long term is the definition of “value investing”, and one can do so easily via TSLQ which closed today at $46.59
TSLA - Tesla closed today at $196.84, up nearly 100% from its bounce off key psychological round number support at $100 ($101.81 to be precise) five weeks back.
TSLQ (Tesla bear ETF) info is here. I’ve got a quarter position so far.
If Tesla bearishness somehow surprises you, start here for enlightening entertainment:
Common Sense Skeptic YouTube channel
No one worth taking seriously suggests there are legit upside catalysts or value in Tesla anywhere near today’s price, and I expect it’ll be 80% lower in due time.
Could Tesla triple on a gamma squeeze? Sure, but no worries. It’d be a gift to shorts.
For now I’m just hedging a bit. Odds are in my favor at least some of January’s madness unwinds sooner than later, particularly in names most popular with momo chasers, and I typically close this type of swing short for a 10-15% short-term profit.
No stop on TSLQ.
Comments by Kingswell on recent reports from FNGU components AAPL, GOOG and AMZN:
Each of the three disappointed the market in its own way — with Apple and Alphabet missing expectations on both the top and bottom lines and Amazon issuing worrying guidance for the quarter ahead. It all combined to cast a bit of a pall over Wall Street’s hot start to the new year.
Here are the highlights (and lowlights) of each company’s report…