February Tech Unwind- buying the dip

The Tech Unwind and the Rotation out of Stay-at-Home stocks accelerated this week with the NASDAQ declining 4% and dropping below its 50dma; while the S&P 500 absorbed some of the buyers, thus faring better, down only 2.5% and holding at its 50dma.

Because of the underlying economic data, and recent stock market price action, I remain optimistic and see market drawdowns as a buying opportunity.  Thus, on Friday I not only added to some existing holdings, I also bought the following three new stocks:

  • PLTR  Palantir Tech
  • SWI   SolarWinds
  • XM    Qualtrics

 FYI- to the uninformed, SolarWinds has nothing to do with solar panels nor wind turbines.

For a summary of why I remain optimistic and where I see this market headed, please listen to the latest episode of the Wealthsteading Podcast:   https://www.wealthsteading.com/323

Spoiler Alert:   The current media fabricated crisis du jour of rising interest rates requires a willful suspension of disbelief.  (see attached chart)

Also, for those of you that have asked about my COVID Puppy, he’s now all grown up and made a serendipitous cameo appearance in a recent video:   https://youtu.be/ufZX7Tw_9So

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The economy is going to run HOT

There are LOTs of people fearful of a BIG stock market correction.  They’re paranoid for several reasons, one of which is that the Market has run up so much lately. 

I can’t predict the future, but experience (over 35 years of investing) tells me that given current market conditions, a correction would be a buying opportunity, not a reason for panic.

Why?  Because this Market is being driven by Federal Reserve (FED) monetary stimulus and Congressional fiscal stimulus.  Does that cause inflation?  Yes.  Does that cause “asset bubbles”?  Yes. 

Both of those “negatives” are short term “positives” for the stock market and will cause prices to move higher. 

But isn’t that a problem long term?  Especially when the asset bubbles pop?  Sure…but the game is played by trying to get out before the music stops.

When does that happen?  Usually when the stimulus stops or when consumers stop spending.  (SIDEBAR- can’t cover it in this article, but consumers will continue to spend until their credit is cut off.)

So why am I fairly confident that this bubble will keep inflating and the stock market will go higher?  Because the stimulus hasn’t stopped and credit hasn’t dried up.

See the below chart.  It illustrates the S&P 500 recovering after major crisis bottoms- September 11, 2001 Terrorist Attacks; 2008 Financial Crisis; and COVID19.  Note how our current crisis is tracking so well with the 2008 Financial Crisis.

Will there be switchbacks and corrections ahead?  Very likely.  But that’s random noise that’s very difficult to accurately pinpoint.  Given the current circumstances, I think we’re still in the early innings of this recovery.  From a probability perspective, I think it’s much better to just “ride the wave”, as asset prices continue to rise…into the next big crisis.  That’s a problem for another day.

Long term wealth is built by identifying patterns and reacting according. Speaking of long term wealth building…please check out my recent video:  Invest like an Iceman

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Two Dozen More Stocks

I remain optimistic over the next 3-6 months.  Let’s face it, the naysayers have been consistently wrong about Market direction.  Protestors stormed the Capitol, US COVID death toll has exceeded 400k, tomorrow Biden will become the 46th President…and Markets are at or near record highs.  The COVID90 portfolio has done extraordinary.

Since I’m in a great mood, I wanted to honor our new leader with a portfolio of 46 stocks to celebrate his inauguration.  But alas, even with my high level of enthusiasm, I only felt comfortable with 24 stocks that I thought still had some COVID rotation inertia. 

Putting aside irrational exuberance, the EASY MONEY HAS ALREADY BEEN MADE.  But that doesn’t mean there’s an impending correction.  Especially since SOOOOO many investors are still sitting on the sidelines.  I’m constantly hearing that “the market is too high”, from the same crowd that 6 months ago said, “the market is too low, and going lower”.

So scraping the bottom of the COVID recovery barrel, I bought the following:

AKAM Akamai
DNB Dun & Bradstreet
HTLD Heartland Express
LLNW Limelight Networks
LMNX Luminex
LMT Lockheed Martin
MHH Mastech Digital
MRCY Mercury Systems
NEPH Nephros
VZ Verizon

And as a hedge, to round out my otherwise fairly aggressive portfolios, the following Utility stocks were also added:

BKH Black Hills
HE Hawaiian Electric
NI NiSource
NJR New Jersey Res
NWE NorthWestern
OGE OGE Energy
PNW Pinnacle West
POR Portland Gen Electric
SJI South Jersey Ind
SWX Southwest Gas

As always, invest with caution and a healthy dose of sarcasm.

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Biden is GOOD for Oil

In a previous post I discussed how Copper was foreshadowing an improving economy and likely a continuation of the stock market rally.  The same can be said of serval key economic indicators:

  • Housing recovered in June
  • Copper recovered in July
  • 10 Year Treasury Yield bottomed in August
  • Oil broke out in October

Speaking of Oil, it should do well under Mr. Biden, especially if he restricts production by banning Fracking on federal lands.

Oil is already up by more than 20% since the election and I believe it’s headed to at least $53 in the not too distant future.

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Copper price foretells the post-election Stock Market Rally

Many people were pessimistic heading into the 2020 presidential election.  But the price of Copper was foretelling a stock market rally.

Prior to Trump’s surprise win in 2016, the price of Copper was stagnant. (see chart)  Once he won, both Copper and the stock market rallied for the next 12 months.

Prior to this year’s election, Copper was already moving up…foreshadowing a strengthening economy, in spite of the negativity holding back the stock market.  As usual, Copper was correct and the pessimists were wrong.

In November, the small cap Russell2000 index had its best monthly performance EVER.  Today it again set a record high.  The rotation is into Value stocks, which are outperforming the NASDAQ and general market.  I expect this performance to continue into the first quarter of 2021.

For those of you that bought into the COVID90 portfolio…you’re welcome.

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