In baseball and golf, they call it the yips, where psychological issues cause a temporary loss of muscle memory and concentration. The stock market is in the grips of the yips right now. This isn’t the case of Mike Tyson’s First Rule of Life: “Everyone has a plan until they get hit in the mouth.”  Most sellers have taken hits on the road to this place, but stronger hands have become weaker.

There are also a lot of people that chase High Beta names and are taking big paper losses. It is a reminder for some and a teaching moment for others - stocks can go up and down in giant clips at a time. But this is not the time to panic.

The NASDAQ Composite slid into the close as I suspected it would. It finished right at the low of the session after another day with a wide trading range: High 13,372, Low 12,995, & Close, 12,997. The Composite finished below its 50-day moving average and right at the bottom of the trendline. 

It must hold here, or we could be looking at the 200-day moving average, which is 11,592.

NASDAQ Composite

Weathering Storm: Big Winners Taking Biggest Hits

While most stocks could not weather the storm, it was the high-flyers that took it on the chin once again. Check out how much the average gain has declined for the top twenty winners on the NASDAQ since peaking on February 9^th.

Losing Altitude	NASDAQ Winners	Top 20 Winners
February 9, 2021	+21.3%	+145.0%
March 3, 2021	+20.9%	+99.1%

There is no arguing many of these names were overbought, but I think the vast majority will come back to test prior highs. 

Yesterday, Michaels Companies (MIK) was taken private at $22.50 +22%. Last year, my wife began making masks for local hospitals. She told me about the long lines at the store. I checked out the numbers and told her she should buy the stock. She did and made a ton of money – triple-digit gain.

But when I told her she should take profits, she was a little dubious. The crowds were still huge, even if my data suggested they were plateauing. She gave me that “I told you so” look on yesterday’s news. I share this story because the last three Wall Street rating changes were all negative.

• Jan 2, 2021: Morgan Stanley (MS) downgrades
• Dec 4, 2020: JPMorgan & Chase (JPM) downgrades
• Sep 25, 2020: Wells Fargo (WFC) downgrades

The stock was $1.50 a year ago, and the Street wrote it off, and I’m sure there was also a hefty, short position. Anyone that dared to buy it would have been deemed dumb and uninformed. Once again, the experts were wrong.

As market volatility increases, you are going to be on the wrong side of many positions. There will be a sense of foreboding and frustration. It's easy to panic. The smarter course is to be cool and even be on the lookout for new opportunities.

It doesn’t mean you won’t take hits. I have a couple of open positions that I might have to take a loss on rather than hold and hope, as those funds could be better deployed elsewhere.  However, I think the market is going to have a huge year, but it comes with occasional air pockets.  Resist the urge to fret, and do not get down on yourself. 

Most people tell me they are investors and have a risk tolerance of 5 to 10% loss. But they still load up on High Beta names that can make such moves in a single session. It's fine, and it feels marvelous on the way up. But it doesn’t feel too great on the way down. 

Let's hold off on panic and pity parties and keep our head on a swivel for chances to buy oversold stocks.  

Beyond the Fed

Yesterday, all eyes were on Jerome Powell, but what was everyone looking for?  I’m on the record saying: he needs to make subtle but noticeable changes in his language about accommodation that addresses the market’s fading confidence that the Fed can stop inflation. But some very smart people I know think Powell should simply read from the same hymn sheet, as any changes would invoke a sense of desperation.

I can hear a lot of stock and bond investors screaming – these are desperate times.

These are not desperate times. We have all been spoiled. On that note, I love it when we come down fast rather than a slow drip over a long period. When the market gets to where it needs to be on the downside and even oversold faster, we could avoid making mistakes and focus on making money.

Macro Picture

Do not forget about the macro setup. The piles of cash sitting on the sidelines will result in strong consumer spending and a spike in corporate investments. 

Most of those investments will be in intellectual property, which means a lot of this week’s big losers will see a flood of cash and profits. A big chunk will go into other durable investments. Although, there might be retrofitting of buildings to bring them up to speed for the Fourth Industrial Revolution (4IR) rather than new buildings.

There will be a ton of factories to keep up with the move to electric vehicles (EVs) and increased distribution driven by e-commerce demand. Make no mistake. We are ahead of the world. 

A report in the WSJ states that Asian countries will be way behind the United States and the United Kingdom this year because their lockdowns were too severe. Moreover, we are way ahead on vaccine distribution as well.

GDP Growth Projection	US	UK	China
2Q21	13.0%	20.1%	6.6%
3Q21	7.3%	7.0%	5.4%
4Q21	7.9%	7.9%	5.0%

Texas is getting some heat for opening and ditching mask requirements, but it’s only a matter of time before most states reopen entirely. Several will maintain mask requirements; however, more and more states and cities are seeing the light.

Plus, once they get their stimulus from the next round of government aid, they will be able to drop the woe-is-me act and perhaps salvage those businesses hanging on by their fingertips.

Maybe?

Check out this chart from Barclays on the pick-up in U.S. travel agents. Our travel agent was so thrilled to hear from me last week. I booked a trip to give a speech in Georgia later this month. They took it on the chin, but business is looking up.

This is your investment thesis – in the long run. And why you must remain focused on opportunities even as we deal with near-term turbulence.

Portfolio Approach

We took profits in Consumer Discretionary yesterday  in the Hotline Model Portfolio.

Today’s Session

The markets are in the green this morning and trying to rebound from the recent drubbing. Initial jobless claims were 745,000 beating consensus of 750,000 last week, but still higher than the revised 736,000 from the prior week.  Continuing claims declined and are below 4.3million.  

The silver lining can be seen in the ChallengerGray report, that saw a big decline in job cuts to 34,500 in February from January’s 79,500. 

This was the best read since December 2019.  The retail sector had the highest number of job cuts while aerospace/defense had the least.

 

Let’s see if the markets can hold on to early gains.

Comments

Look forward to your insight everyday. Daniel Scott Fife on 3/4/2021 9:21:56 AM

Nice to have a voice speaking reality to all! Thanks Charles. Lorin K on 3/4/2021 10:38:46 AM

Trying to remain calm & cool in these gyrations. I just don't recall this type of "whipping around" in quite some time. Thanks Charles. Mark Worley on 3/4/2021 11:20:29 AM

I think what is making these gyrations particularly painful are the large amount of traders aggressively selling then buying the dips they helped to create. Keeping emotion out of your trading is really difficult in times like this. Listening to Charles makes it easier, thanks! Bob DesRochers on 3/4/2021 12:13:59 PM

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