The following post was originally issued to TLS members on the morning of January 24, 2022.
The avalanche of selling continues…
Heavy selling continues this Monday AM. Selloffs rarely bottom on Fridays which means Mondays often see at least a lower low than the previous Friday. This is why, although we were dipping our toes into some growth funds on Friday, we did add back some further short exposure (in the Dow) late in the day as noted in Friday’s tactical post. Given some of the sentiment readings combined with some approaching support levels — the Russell 2000 just tagged its 23.6% Fibonacci Retracement from its 2009 low! — we are approaching a short-term Bullish signal. Thus, we did cover some further short exposure this AM already — and bought a name for a potential mean-reversion bounce, i.e.:
- We covered (sold) 1/3 of our inverse (short) oil & gas fund, DUG, near ~38.30
- We covered (sold) 1/3 of our inverse (short) Dow fund, DXD, near ~46.57
- We covered (sold) 1/3 of our inverse (short) Europe fund, EPV, near ~12.40
- We covered (sold) 1/3 of our inverse (short) small-cap fund, TZA, near ~40.00
- We bought a small speculative position in the Ark Innovation fund, ARKK, near ~67.99
- *UPDATE: We sold 1/5 of our Ark Innovation fund, ARKK, near ~71.70*
- *UPDATE: We sold the rest of our homebuilder fund, ITB, near ~71.40*
- *UPDATE: We covered the rest of our inverse (short) Dow fund, DXD, near ~46.00*
- *UPDATE: We covered the rest of our inverse (short) small-cap fund, TZA, near ~35.06*
*UPDATE: OK, the market is approaching near-term capitulatory levels. Yes, our purchases on Friday were early and the break of key support in large-cap indices the past 2 days has opened the door for a trip down to subsequent support levels. That was the reason for our additional Dow purchase late Friday. However, we are now approaching those subsequent levels which may contribute to a near-term low. Thus, from a time standpoint and day-of-the-week standpoint, it would be typical to see the market bottom over the next 24 hours. This is particularly true given extreme sentiment readings we are seeing. Therefore, we are on watch for the following levels: S&P 500 ~4200, Russell 2000 ~1890 and Value Line Geometric ~605 (already there). Those levels may be a magnet for the eventual low and may need to be tagged first. As such, we are adding the following trading short on the S&P 500 (SPXS) into the current bounce off the lows and looking for a retreat to ~4200. At the point, we will shift to Short-Term Bullish and shift our S&P short to a long (SPXL) for a trade.*
- *UPDATE: We have added a hedge in the inverse (short) S&P 500 fund, SPXS, near ~21.99*
That’s all for now. Check back on this post throughout the day for further portfolio moves. And as always, stay tuned to our DSS posts for further developments — they provide the most current updates to our investment portfolio and outlook.
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. 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.