Even If Volatility Is Here To Stay, Markets Are Staying Alive

Well now, I get low and I get high

And if I can't get either, I really try

Got the wings of heaven on my shoes

I'm a dancin' man and I just can't lose

You know it's alright, it's okay

I'll live to see another day

We can try to understand

The New York Times' effect on man

‘Stayin’ Alive,’ Bee Gees

Well, the market finally made a stand on Wednesday and signaled to investors that even if volatility is here to stay, the market is staying alive. The economy is still amazing, but not inflationary. There isn’t too much money chasing too few goods unless it’s one of those Glam Glitter dolls.

Buy Signal

The major buy signal yesterday came just as the market was breaking down, and the Dow made a 300-point reversal to the downside. I think I must take some credit for the turn. First, the market suffered its worst week of the year while I was on vacation and then enjoyed its greatest point gain ever since the day I came back and hosted my show on Fox Business - #CPEFFECT

All kidding aside, I was filling in for Stuart Varney yesterday, and I had the pleasure of interviewing Kevin Hassett.  I was a little tough on him, only because the stakes were too high for one of those interviews where we gabbed about the idyllic economy. 

The two big takeaways:

• The economy is poised to grow north of 3% in 2019
• Jay Powell is 100% assured of keeping his job

It’s also an interesting coincidence that the Dow Jones and S&P 500 both hit a 20% decline at intraday lows during the session. 

The rally dovetails with my opinion that this is a semi-replay of Black Monday, October 19, 1987. The market crashed, and then put in two strong sessions:

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• Oct 19 -22.6%
• Oct 20 +5.9%
• Oct 21 +10.2%

Although I don’t think we’ll get a double-digit rally, a strong session would pressure fence-sitters.

Anatomy of a Monster Session 

All S&P sectors rallied big yesterday, and one recurring theme throughout was massive short squeezes.  Investors were bargain-hunting big short targets such as Telsa (TSLA), which has 23% of its float short.

Energy (XLE) led the way with the robust rebound in crude oil. The top performer was Newfield Energy (NFX) +12.5%, and the stock had a 9.6% short position.

Consumer Discretionary (XLY) names were paced by Kohl’s (KSS), which had a 19% short position.

Tech winners included IPG Photonics (IPGP) and Advanced Micro Devices (AMD) with 18% and 16%, respectively, short positions.

S&P 500 Index   +4.96%

• Communication Services (XLC) +5.62%
• Consumer Discretionary (XLY) +5.93%
• Consumer Staples (XLP)+2.79%
• Energy (XLE) +6.17%
• Financials (XLF) +4.53%
• Health Care (XLV) +4.36%
• Industrials (XLI) +4.66%
• Materials (XLB) +4.48%
• Real Estate (XLRE) +3.19%
• Technology (XLK) +5.95%
• Utilities (XLU) +1.40%

Portfolio Approach

I put some cash to work yesterday in Consumer Discretionary space, and I look forward to doing more, but we are not going to force the issue. However, as investors, I think there are mind-boggling opportunities at current levels. Prices are right, but it’s just about mitigating near-term risk.

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Today’s Session

There was a time when buyers and sellers, and the market, allowed for price discovery.  That was then.  Today, there are so many forces in the market nudging it for ulterior reasons beyond making money or managing risk.

Currently, most of these forces are trying to push the market lower.  Even the majority of the financial media wants to see the market crushed, mostly out of hatred for the President.  I know it’s a sad commentary, but I watch, take notes and shake my head out of the efforts to mitigate good news and developments and magnify bad news and developments.

I will say some of this isn’t about the White House, but instead, its capturing eyeballs.  People rush out of a theater on fire then turn around to watch it burn down, and we all slow down to rubber neck crashes on the highway.  But this is our portfolio that’s on fire, and we are watching, hoping it’s saved, and value preserved.

Isn’t It Ironic

During this selloff period, the only thing greater than the holiday spirit is the bargain hunting spirit.  Everyone brags about the deals.  The sweater they got for 50% off and those boots for 70% off, what an amazing deal!

Then these same folks go home and sell positions, great stocks, because they are down 20%.  True some of those stocks are breaking down fundamentally, but many are on sale, and unlike that sweater or those boots, they will fuel personal property.

Just take care to make the right choices here.  Reach out to your rep for extra help or email us at research@wstreet.com.

Today is a perfect test for the market.  Set to open significantly lower, and the talking heads rabidly pointing the folly of buying bear market rallies, while dismissing positive developments on any number of fronts from domestic to trade negotiations.

One stat you will know be heart by end of tomorrow’s session is in the last eight bear markets, there have been 120 rallies of 2.5% or better.  What none of these reports will say is every bear market ended and was followed by a move to new all-time highs.