Market Update February 28th, 2020

Risk happens fast. We're seeing it this week. Oh, boy have we seen it! . We have a lot to talk about, the impact of the virus, and cant forget, the fastest move to the downside in history. Yes, this time is different‼️

This from the economists, February 22nd‼️ Talking about this bull market with big tech. Boy, that one did not age to well.

Is this a black swan event? Thank you from our friends at Hedgeye for this image. As of right now, yes. This looks like a black swan event affecting all kinds of things. We will get into that a little bit later. I always take pride in being different than Wall Street and big TV, here's something peeling back the curtain, let't take a look at something I have never shown before.

What this shows is commercial net, long position shorts, etc. in the overall market. The biggest short right now is treasuries. So like the bond king and all these people. On the other hand, this has been one of our biggest positions on the bond side. That's how we're different. If you also look at the Russell, Nasdaq, all longs. How about crude oil? Four hundred and ten thousand contracts that are short. That's the big difference. Look, sometimes we were in oil, got out of it quickly. It's not just what you make there sometimes you have to sell to protect, because a lot of these sectors since then have gone into crash territory, which is minus 20 %.

Re-affirming where we are in the cycles because this is going to make a big difference. Last year we go back to 2018 fourth quarter. We're in cycle 4. Growth slowing, inflation Decelerating, Fed was dovish. Markets were deflating. Right, we know that. We actually went into the 3rd cycle In the fourth quarter of 19 and we were projected to be there through this first quarter. Now, that changed pretty quickly.

When you look at things, we are clearly in the 4th cycle and I can show you why in a second. But the big thing is we peaked on inflation. So, again, we utilize this to determine the asset classes we were in, which has helped us this week as we allocate it.

No one's talking about this. Yes, this virus is bad. We're going to get into that. But right now, when you look at the earnings pictures, I'm going back to peak right when I say we peaked in Q3 18. There it is, 24% earnings growth. Twelve one one one one point six nine after four hundred and eighty companies.

JOLTS. Job openings. Continues to go down. This is what we've been talking about. This was a big move this past month. Openings aren't there. What's happening? We will revisit this in a few minutes.

Shifting gears, before we take a look at the big charts, I'm bringing back something I haven't shown since 2018 when we had that pullback.

Risk management. It's very difficult, as we know. Looking at this week, that first 10% can happen fast. In 2018 It happened over five days, and then now we look at what happens with the market and our style. You know, when you're at the bottom, I'm not a bottom feeder. I want to see some confirmations before I start buying into that. Well, the same goes for here. Now, we were positioned well heading into this week. If you've watched my previous videos, you know, we've been in bonds, bond proxies in gold. But this move, 10% was the fastest in history. So don't tell me this time isn't different, the fastest correction in history yesterday was the biggest drop in history and we continue to go down⬇️

I want to talk about something, Yesterday I saw these videos on LinkedIn and Twitter with advisors that their approved broker dealer speeches. Don't worry folks, this is part of the market, we have these, this and that. WE DO..... We have 3, 5, 10% corrections all the time. I agree, But they say that this isn't different, is naive. As far as the virus itself, be informed. I have a link right here to a little snippet I did this week about the difference between the flu, which everyone's trying to compare this to, the Corona virus. Two very different things.

This I why you should like us on Facebook, because I put a lot of good stuff out during the week. 👍👍

We talk about secular bear, secular bulls, As of now, we are still in a long term secular bull market. This is a correction within that secular bull. Until we see otherwise.

Let's start out on a monthly view

Where are we? Big changes this week. Let's go back to some things that have concerned me, and I've constantly talked about. This is relative strength. When we hit all time high here, we had a lot of strength in the market. Each time we hit another high, we had lower highs on relative strength. That is called negative divergence. Not good, when I look at the charts right now, today, meaningful. We have broken below that 12 month. Moving average, you can see your momentum indicator? Hanging in there by a thread. As of today, we look for month end, which is today, and I'll talk about that in a second. So right now, as of this moment, the long term is still positive.

Next up, weekly chart. UGGLY ‼️

I'm just gonna say negative because it's pretty obvious we have broken through all kinds of support, we've had a turnover, a momentum. This has been vicious.

Let's look at the daily chart.

Here we are, this is live. Holy moly, we're 3.3% already. So let's talk about what's going on here right now. We have broken the 200 day. We have broken the 50 day. Momentum is just crushed. I mean, that is just terrible looking. Looking down at the bottom, this is relative strength. I haven't seen numbers like this, normally, when you're below 30 on relative strength, you're considered oversold. But this puppy keeps selling off. Shifting gears to something else I would like to focus on today. Volatility I always talk about this being part of our process. There's a couple of things very consistent with this story. You can see your volatility index. look at last year. We're we're below it. 15 when we get to 15 in that range, That's kind of a caution signal. Now we are at 45 today. Thirty one! Meaning this market is NOT investible. Do not put money in to play until we get below that number. So, that doesn't mean I'm not going to be selling today. I'll talk about that in my game plan. But you have to be careful right now. We have not seen this type of volatility before. So it's a time to be very careful. We haven't talked about this because I'm not in these sectors. S&P haven't been in big caps, haven't been in emerging markets. But I'm showing you now to tell you how quick things are moving this week. I changed this this morning.

Here's your S&P.

We're going back to 2018. We've given back that much of return. Take a look at the smalls, I could keep going. Mid-caps, etc... across the board. This market is just getting hammered. This market is too expensive. Looking at the top, that's where we were at all time highs. Now I want to come up a little bit, as of last week, from January 1st, 2019, we've made 35% in a market. All the while, earnings has grown at 1.92... crazy. This is what I've been talking about, how overbought this market is. I'm not sure when this is going to end. We're going to talk more about that in a second. Last but not least..

Here's where we are right now.

I did this a couple weeks ago when we were at our highs. Each of these red is 20 PE, which is considered overvalued. Fifteen is considered fair value, long term average and 10 green is undervalued. So at the tops, our first move is going to be here to twenty five feet. That would be a 18 and change type move. We're not quite there. Long term average. Fifteen on P E, right, price earnings would take us down to two thousand. That would be a 40 percent correction. Not saying it's going to happen, but that shows you how over valued we have been.

Last chart

Basically, you look for up-down percentages. You have what's called a 90 percent day. That's a change in the trend. When you look at that, you might have one day here, one day there. We've had three days in a row unprecedented across S&P miss and small. I mean, this thing is just it's like a rolling herd of bulls. It's not stopping!

Next stop, Bonds!

Huge move. I've been saying this for how long? The bond market's been screaming something for the last two months. No one's listening. We are at all time lows on the 30 year treasury. All time lows on the 10 year Treasury. All time‼️ Again, unprecedented, and because of this volatility, what happens is our risk ranges change. Right now, our risk range on the 10 year is, say, one point one five low. Not saying we're going to hit it. And that number changes every day based on the volume and volatility. The other big thing is yield spreads 10 year, minus three month we are negative. Those are signs for recession. Not going to get into that because I don't see it quite yet.

One question I've been getting all week. Got it this morning in the gym. What can I do? Well, first off, it's not what can I do? It's what you should have done. If you've watched our videos, we have been consistent. Those cycle 4 assets. Now, again, when you're above thirty one, it's a bloodbath. Everything is selling. They didn't start selling until yesterday, but those moves I made were done a while ago. We started buying gold and treasuries in 2018. Those are the things that help hedge when have this type of sell off. Now what do we do?

The dollar was strengthening because we're in cycle 4, we are seeing that change with what's happening. But in cycle 4, what happens is commodities index is crashing. Despite what you saw earlier, Four hundred thousand contracts. Wall Street is still on this!

Let's talk about the process here.

Gold looks wonderful, we got back in gold some time ago, and what happens is my position will go from 2 to 12%, Max. Not going to give away all of it, but during this time. This is cycle three, Gold went sideways. That's a time when I'll take some profits. Move to the sideline and then I add more, as it goes up. In fact, I added more again just on Tuesday of this week. Because we hit an all time high. We pulled back, and to me, that was an opportunity to add to that position. That's what we're trying to do right now on assets that are doing well.

One more sector, health care. As you see, health care has been destroyed this week.

Health care generally does well in cycle 4. But we had a combination of obviously the sell pressure and also the presidential election. I'm not going to get into the politics of that, but that has affected things. Now we happened to trim this position last week. But it's a good sector. It does well. But then you add in other factors, and you have to be careful. So to wrap all this up. As of today, long term is positive. We'll see. Short term, mid term, are both negative. What are we doing? Well, I've done a lot already. When the first 10 percent move, now you look to that next move. This is where we have to be careful. When things are moving so quickly, you have to be careful. But I'll start trimming some equities, raising some cash today. At some point, I'm going to look at the ins and outs and what I think the right time is and probably add some hedges as we go forward if the market continues to fall. As always, thanks for Reading!

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