We Want To Buy On The Way Back Up

JC Parets
March 12, 2020

The market goes through periods of volatility. We've seen it before and we'll see it again. For me, it's all about learning from this experience and coming out of it a better and wiser investor. Notice how you're behaving and acting during this period.

I know the way I'm feeling during this volatility is much different than my emotions and behavior in 2008 and 2011 and 2015 and 2018. I learned. And I will learn from this one as well to prepare me better for the next go around. I encourage you to do the same.

Today I want to talk about how, "Bottom fishing can be hazardous to your wealth". The goal is not to try and catch a falling knife (see here why), but to buy on the way back up.

It's a lie that you have to buy low and sell high. I've found it much more helpful to buy high and sell higher. I'd rather pay more knowing that the trend is up, than trying to be a hero and be the first one in. Notice how we didn't get bearish stocks until late January, after they had already been rolling over for a couple of weeks, instead of the whole way up last year like many others?

So how do we know stocks are on their way back up? I really like the percentage of stocks above their 200 day simple moving average. This is an indicator that gets quoted a lot in bull markets, but for me, it's most helpful at the end of bear markets.

For us, it's not when the percentage of stocks falls below 20% or even 15%, the signal is when we're back above it.

15% is a good number, 20% is more conservative but also makes a lot of sense. Depending on your time horizon and risk tolerance both are acceptable levels in my opinion. But again, we do not want to own stocks if we're below these thresholds. No one said we can't go to zero percent.

From an 'end of the world' scenario, I continue to point to Copper flirting with really critical levels. If we lose Copper, I think that's a big problem:

This is the 61.8% retracement of the entire 2016-2018 rally. This combined with former support along the way has us looking over a cliff.

If we're holding below 2.45 in Copper, then this is completely broken and I would expect the selling pressure in stocks should continue.

Also see what the Intermarket Relationships across asset classes are suggesting for Interest Rates and what that means for stocks.

Let me know what you think!

JC

 

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