As most of you will now know, this was a particularly rough week for equity markets around the world.
Trade war fears, Facebook and the Mueller investigation seemed to be the kindling that ignited a bit of a fire. I won't get into opinions on free/fair trade, Facebook or the Mueller investigation but when it comes to an overbought (US Equity) market, it doesn't really matter what the end result is that you think might come to fruition...it is shoot (sell) now and ask questions later.
So here is how the 3 Major US Indices ended the week:
And in Canada, the TSX faired marginally better at -> -3.1% (in C$ terms).
European Indices ranged from -2.5% to -5.0% (in EUR terms).
Asian Indices were much the same in the -3.5% to -4.3% (in US$ terms).
And two snapshots on the Dow. One is the short-term YTD showing the technical breakdown we witnessed this week:
And the following longer-term chart that shows Retracement Targets (from an Italian mathematician, Sr Fibonacci) from the Nov 2016 lows when Trump took office until the late Jan 2018 highs when the market got wobbly. These retracement targets help us a lot with entry/ exit points so we do look at them. Note the upper-green line at 23,280 was pretty much the stopping point for the early Feb 2018 rout (this represents a 38.2% retracement of the entire Trump rally...a temporary stopping point was seen). This was precisely the level we did some buying in early Feb and this was the reason why. But as you saw in chart 1 above, we broke down again this week. Sure we stopped at that same retracement level today but it is highly likely that over the next couple of weeks, the market will re-energize itself (move higher) before another move lower and a test of that 50% retracement level which is shown by the blue line at 22,250. We will wait for that level (1,000pts lower than today's close) before buying any US stocks. This level of 22,250 would represent about a -16% drop from the all-time highs set in late Jan 2018.
And you may ask how we "remain calm" during periods like this? (Those who know me will probably tell you that I am seldom "calm"...but you pay me to be in a perpetual state of "non-calmness" so that you yourself can remain calm). Well, first of all, we are sitting on >20% cash (and newer clients are closer to 40-50% cash), which is obviously very defensive and protective. Two, we took some profits just days later on what we bought in early Feb 2018 at the most recent lows. Three, we own a healthy weight in government bonds (and investment grade corporate bonds) which act as a nice cushion during rough periods in the equity market as money pours into bonds ("flight to quality" it is called). And finally, we own some non-correlated assets based on proprietary regression analysis on risk-adjusted returns. Disciplined Investing.
At High Rock, we focus on managing risk, first and foremost, and returns are the result of well-managed risk. This requires a heck-of-a-lot more experience, knowledge, skill and focus than a typical buy and hold type strategy where your Advisor, after weeks like this, says, "don't worry, it will bounce back". Really? If they knew that, then they wouldn't be working for a living. We are Tactical in everything we do.
Note - Past performance is no guarantee of future performance.
Source - Bloomberg