Wealth Watch: Special Update

March 02, 2020

The markets had a five-day selloff with mass hysteria taking hold. There is mounting hysteria around COVID-19, and a consensus that “nothing is safe,”. The HCM BuyLine® did NOT Trigger a new sell signal, it has weakened, but still no sell signal. Again, we are hired to trade a mathematical system, not an emotional one.

In the past month, and particularly in the past week, divergences between asset markets suggest that the S&P 500 might see a catch-up trade that leads to a “V-shaped bounce.”  We believe there is a 60%-plus probability that stocks are bottoming this week.  And notably, the VIX touched 47, a level seen only at major turning points in 2010, 2011, 2015 and 2018.

Also, consider that the China stock market bottomed 3 weeks ago (fell 14%) and had a V-shaped rally of +14% and rallied to within 2% of 3-month highs. Think about this: China’s infections are still growing, and the economy has been at a virtual standstill. Yet, their equity market has staged a V-shaped rally. I’ll go over this in more detail in Wednesday’s edition of the Wealth Watch.

Our holdings have held up very well. Yes, we have had a pullback, no doubt about it, but in our three mutual funds we were hitting stops on Monday and Tuesday. No, we were not making emotional decisions, our funds are math based and as stops were being hit, the strongest asset classes were very short-term bonds and cash. Depending on the fund, we are approximately 27%- 62% in cash and bonds. And yes, we are ready to buy when a new signal presents itself.

I’ll go in more detail Wednesday, but for today what is our take? The market will be very sloppy, and its anybody’s guess as to which way it will go in the short-term. We will be monitoring the HCM BuyLine®, if there is change in the overall trend, we will be making adjustments accordingly. I would not be short this market, any good news and we could see a 2000-point rally on the DJIA in matter of days.  

Until Wednesday, here is a good book that every investor should read: Charles Mackay “Extraordinary Popular Delusions and the Madness of Crowds.”   

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Until Wednesday, stay away from the news, they are paid to get people to buy their product, and in recent times that my not include the facts and/or the truth. 

 

Wealth Watch

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