RUSSELL2000 dips below 200dma

For the first time in over a year, the RUSSELL 2000 (Small Cap Index) broke below its 200 day-moving-average.  The insolvency of Evergrande (China’s second largest real estate developer) is being blamed for the calamity, but I don’t think there will be a contagion.  China’s problems are much larger than Evergrande, and I believe the real threat to the US economy will likely be China’s crackdown on foreign owned companies…but for now, that’s in the future.

I think today’s pullback is primarily due to concerns over Federal Reserve monetary policy (fear of tightening) and the US debt ceiling (fear of shutdown or default).

  • This week the FED is holding a FOMC meeting.  Because of the market pullback, I believe they’ll soften their tone on Tapering and their dovish stance will support higher stock prices.
  • The Federal debt ceiling must be extended before Oct 1 to avert a government shutdown or default.  I believe the market pullback will incentivize the Congress to pass a debt ceiling extension, which will support higher stock prices.

Last week I recorded a podcast episode stating that I’m not concerned about a Sep/Oct stock market crash, I remain unconcerned.  You can listen to that episode here:

I think that as the economy continues to reopen, corporate profits will remain strong and stocks will go on to make new highs.  For now, I continue to embrace the phrase “buy the dip”.

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Bought Ford & Silvergate

As we approach autumn, many pundits are speculating about a stock market correction in September or October, citing the season as overly volatile.  I’m not concerned.  Statistics can be manipulated to support any argument.  The way I interpret the data, Sep-Oct is not more prone to downturns, but when they occur, the drawdowns are more drastic.

From a contrarian perspective, the more people that anticipate a market downturn, the less likely the odds that one will actually occur. 

As such, I’m continuing to hold my positions and today I added the following two stocks to my portfolio:

  • Ford (F)
  • Silvergate (SI)

Also, the acquisition of Proofpoint by Thoma Bravo was finalized on 8/31/2021, so PFPT is no longer being held in the portfolio.

Invest with caution and enjoy the harvest season.

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S&P 500 personality hasn’t changed

The S&P 500 personality during the COVID Recovery remains the same:

  1.   Media promotes a scary scenario (Riots, Inflation, Variants, etc)
  2.   Fearful investors sell
  3.   S&P 500 drops to 50 day-moving-average
  4.   Smart Money buys the dip
  5.   S&P 500 rises to record high

This exact scenario played out in full last week, from Monday’s dip to the 50dma to Friday’s record close. 

I can’t predict the exact bottoms and tops…so I just hold core positions and add to them during a pullback.  My core positions are concentrated in smaller companies that are favored by the ReOpening, thus they are risker than the general market and more subject to frightening headlines.  So far the risk has been profitable and I think the big payoff remains with the ReOpening trade.

I find the Oil sector particularly attractive right now.

Last week SolarWinds (SWI) completed its spinoff of N-able (NABL); I’m holding both positions in my portfolio.

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Summertime volatility but AUTOMATION is the Long Term Trend

Today was a bad ending to a bad week.  But don’t despair…

The acquisition of Luminex (LMNX) by DiaSorin was completed 7/15/2021, so LMNX has been removed from my core holdings.  I’ve used those proceeds along with any new money to continue reinvesting in my existing positions. 

Short term the market is choppy, especially for the more volatile Small Cap stocks and the ReOpening Trade.  I’m not concerned. 

Shortages, COVID Variants, FED Policy Flip-flopping…these are all noise & static…that depress the Stock Market, but for the patient and disciplined, it creates a buying opportunity.

The pandemic has hastened the advancement of trends that were already occurring…namely AUTOMATION.  Productivity is enhanced by automation, and productivity is the key factor that drives Long Term profitability. 

Raytheon (RTX) is an example from the COVID90 portfolio.  RTX is down almost 7% from its June high.  The stock price is currently below its exponential short term and 50dma.    Am I worried?  No.  Do I plan to sell?  No.  RTX has excellent long term potential.  The noise & static that are currently dampening the price are short term volatility.  The stock price will eventually find support, I don’t know where, maybe at the 100dma, or perhaps the 200dma.  Rather than panic and sell, I’ll patiently wait, and use the dip as an opportunity to add to my holdings.

Here’s an excerpt from a recent Wall Street Journal article:

“Raytheon Technologies Corp. RTX, the biggest U.S. aerospace supplier by sales, laid off 21,000 employees and contractors in 2020 amid a drastic decline in air travel. Raytheon said in January that efforts to modernize its factories and back-office operations would boost profit margins and reduce the need to bring back all those jobs. The company said that most if not all of the 4,500 contract workers who were let go in 2020 wouldn’t be called back.”

The layoffs are bad news for the furloughed employees, but it’s GREAT news for the future stock price.  RTX will likely have fantastic earnings…in the future. 

The Wall Street Journal article also stated:

“As with past economic shocks, the pandemic-induced recession was a catalyst for employers to invest in automation and implement other changes designed to curb hiring. In industries ranging from hotels to aerospace to restaurants, businesses have reviewed their operations and discovered ways to save on labor costs for the long term.”

That Wall Street Journal article named five companies that are in the COVID90 portfolio, and it could have referenced nearly every company stock that I own.  I believe they’re all poised to make higher profits because of automation, digitization, and technological advancements. 

So I’m not fretting any summertime stock market volatility.  I’m banking on future profits.

FYI- if you haven’t read my book, The Robots are Coming: A Human’s Survival Guide to Profiting in the Age of Automation, maybe it’s time you should.

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