The following post was initially issued to TLS members on April 29, 2020.
Updating a flurry of moves today within our bear market game-plan.
The world received some positive news this morning in terms of the effectiveness of Gilead’s remdesivir in fighting the coronavirus. Additionally, there has been increased chatter about partially opening at least parts of the economy in parts of the country. Throw in an increasingly accomodative (or bailout-addicted) Federal Reserve, and you suddenly have a surplus of good news as it pertains to the investment landscape. So how does that change our outlook? It doesn’t.
The stock market is forward looking, i.e., it discounts or anticipates future news. That’s why stocks have already rallied some 30% off of their lows. Save for the perpetually easy Fed, this “good news” did not exist for the lion share (no pun intended) of that rally. The market simply looked ahead. At this point, analysis would suggest that the market would start discounting less optimistic factors — like economic reality. So please don’t get sucked into chasing this rally like so much of the “herd” we see on social media, etc. On the contrary, the “real good news” is that we get to de-risk and reduce equity exposure into rock star prices.
As you know, this bounce was hardly a surprise to us. We did not know that the market would essentially achieve the “best case” scenario in terms of its rally, but we did anticipate the substantial bounce, as one can plainly see in our commentary at the market lows in late March. We also anticipated that the rally would be merely a “B-wave” retracement of the post-February A-wave crash. The implications of that perspective is that the rally was unlikely to be sustained. And as we mentioned that stocks are now reaching their “best case” bounce scenario, it is time to start maneuvering for the rally’s likely lack of sustainability. As such, we are making plenty of moves today, including:
- Sold rest of our EWT ~37.00
- Sold rest of our HEDJ ~57.30
- Trimmed some XSD ~103.30
- Trimmed some profits ~246.50 on DIA position added yesterday
- Doubled VGK short ~46.70 (via long EPV)
- Added more short on Russell 2000 ~1352
These moves leave us with a small net-short position. There is always a chance the market continues to squeeze a little bit higher. Popular tickers and markets, e.g., the S&P 500, are prone to over and undershooting. That’s why we like to focus on less popular tickers when assessing turning points. We believe that such a turning point is at hand — or very close. It is certainly close enough to start accelerating one’s defensive portfolio measures. If the squeeze continues a bit higher, we will become even more net-short.
If you’re interested in an “all-access” pass to all of our charts, research — and investment moves — please check out our site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.