ReOpening Trade has better UPSIDE potential

I hope you’ve been buying the dips.  Despite the negative Media narratives about inflation, FED policy & COVID Variants…this week the S&P 500, DOW & NASDAQ all closed at record highs.

I continue to believe that the ReOpening Trade stocks (like the COVID90 portfolio & other cyclical sectors) still offer the best potential.  While the S&P 500 may have a 5% upside through the end of the year, the ReOpening Trade could move up 10-15%, or more.

The ReOpening stocks peaked in mid-March (see chart).  They’ve been consolidating for over three months.  Their 50dma has flattened, and I believe this resilience will be rewarded with a breakout to a new record high.

…but that’s just my opinion.

If you’d like to meet in person:

  • Oklahoma City area Wealthsteading Meetup:  
    • July 27,  6:00pm
    • Edmond Railyard, 23 W 1st St, Edmond, OK 73003

Let me know if you’re planning to attend so that I can notify you with specifics and any changes. Also, please let me know if you’d like to schedule a private meeting while I’m in the OKC area.

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FED policy shift PANIC…buying opportunity?

Hopefully you’re enjoying the start of the summer and not paying attention to the latest Media drama that’s spinning a false narrative about a hawkish shift in the Federal Reserve’s interest rate policy.

This week’s scheduled FED FOMC meeting was touted as a lynchpin event for managing inflationary pressures.  Legendary commodity trader Paul Tudor Jones said, “I think this FED meeting could be the most important meeting of Jay Powell’s career and certainly the most important FED meeting of the past four or five years.” 

Nothing material actually happened, but that didn’t stop the Media from reporting a “hawkish shift” in policy.

On June 10, 2020, in response to some initial lifting of COVID19 lockdowns, the FED said they would hold rates at near zero, and stated, “We’re not thinking about raising rates, we’re not even thinking about thinking about raising rates”.  Their policy was to remain flexible and supportive of a full economic recovery.  It was suggested that rates won’t rise until some point in the distant future, perhaps not until 2024…IF NEED BE.

Now that the economy is reopening and moving towards a recovery, the FED has REITERATED that they’re NOT yet ready to raise rates until sometime in the distant future, perhaps not until late 2023, certainly not until at least sometime in 2022. 

For political reasons, I think it’s highly unlikely that the FED would raise rates prior to the November 2022 midterm elections.

The FED summed up their FOMC meeting by saying, “You can think about this meeting that we had as the ‘talking about talking about tapering,’ if you like.”

The Bond Market doesn’t appear worried, because the 10 Year Treasury yield has dropped to 1.46%; however, the Stock Market is in full panic mode, with VIX volatility spiking above 20.

I see this as a buying opportunity, and yet again a confirmation of the 2021 schizophrenic personality of the S&P 500.   Nearly every month this year has seen a selloff of the S&P 500 down to its 50dma, followed by a rally to a new record high.  I think it’s likely this pattern will continue.

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ReOpening Stocks are on the move…AGAIN

The ReOpening trade peaked in mid-March and has been consolidating with lackluster performance, until recently.  Over the past two trading sessions, it looks like momentum might have returned.

Note the below chart, which uses the Small Cap RUSSELL 2000 Index as a proxy for ReOpening stocks.  The Small Caps are starting to outperform the S&P 500.  After a brief pause, I think the green shoots of a post-COVID recovery are starting to sprout.

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PLURALSIGHT acquired by Vista

This week COVID90 portfolio stock PLURALSIGHT (PS) was officially acquired and taken private by Vista Equity Partners.  The sale price was $22.50/share.  This is the first of the COVID90 stocks I’ve parted with, and if given the choice, I wouldn’t have sold. I think PS could easily have gone to $30.

As to my overall market outlook.  Many of you keep asking why I’m not selling to take profits.  So, at the risk of being redundantly redundant.  I want to reiterate, what I’ve already iterated.  I currently have NO plans to sell my core positions.  The market and economic indicators that I track are all projecting continued growth.  That’s not to say there won’t be a 5-10% correction tomorrow.  The S&P 500 has been dipping that amount on a monthly basis all year.  I regard those pullbacks as BUYING opportunities, not times to panic.

History is rhyming with the economic aftermath of the 1918 Spanish Flu…we’re experiencing the Roaring Twenties.  Hopefully this time without Prohibition.

Will inflation be a problem?  It will be for people that don’t invest in appreciating assets.  Ancient Wuhan proverb says, “Don’t be one of those people.”

Wealthsteading Podcast Episode 324 still hasn’t been recorded, but here’s an eight minute video were I highlight 4 stocks that epitomize the continuation of the ReOpening rally:

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Sold Utility Stocks

Today I sold the 12 Utility stocks that were purchased as a hedge on January 19, ahead of the Inauguration.  The hedge worked.  The “bottom of the barrel” COVID recovery stocks have since stagnated or consolidated while the Utilities have delivered a double digit return.

In the wake of the 4th COVID wave, I think the Reopening trade should rebound.  So I’ll plow the proceeds from my Utility stocks into core holdings that have pulled back over the previous few weeks.

If you’re looking for a buy point to take advantage of the Reopening, but don’t want to own individual stocks or if you’re stuck in a limited choice 401k, then I’d suggest shopping for a Small Cap fund (RUSSELL 2000 index).  IWM is an exchange traded fund in that category.  IWM appears to be rebounding from a brief correction.  It’s sitting exactly on the intersection of its 50dma & short term exponential moving average, possibly setting up for a breakout to a new high.

As always, invest with  C A U T I O N  !

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