The Great Reset
Stocks are down 17% ytd; US Yields are > 4%
Is this a good thing or a bad thing? What stocks are beginning to lead?
I would argue a good thing , why?
Speculation in ‘20 -’21 was getting out of hand… SPACs, where the owner of such a product gets rich, SaaS companies trading at > 30x sales, Cryptos that someone just created 24hrs ago going to the moon, NFTs… cmon lol.
You were also getting zero for holding a chunk of cash at a bank… zero % interest rates.
I think a reset was in order regardless of why / causes.
Let’s turn the focus to stocks. We are concluding the month of October with the DJIA +11% this month. Going back to the first questions of the article, is this a good thing or bad thing to see Dow stocks leading? I would argue that it is not a bad thing to see stocks with earnings that are supposed to be leaders in their respective industry actually leading!
Does this mean we are out of the woods in terms of resetting? Not yet, in my opinion (see DJIA charts below). The Fed is still raising short term interest rates and we are waiting for a signal (not a pivot) for when they are going to conclude and then leave rates at a more normal level historically. Below is a 3m Libor since 1983. Let’s be positive about this - you can now get some return for holding cash in your bank account (provided that you shop around to find out which bank or even better invest in Treasury Bills to get guaranteed yield).
3month Libor rates:
DJIA / DIA - The Dow Jones Industrial Average
Price needs to clear its 200d MA and even better using Volume At Price on a Weekly chart, watching for a sustained break above $355.65 for the end of the bear market in Dow stocks.
What stocks could be potential leaders in this environment where yields are > 4% ???
How about a guy / company that does pretty good at security valuation / selection over the years?
BRK/B Berkshire Hathaway Inc.
Using Volume At Price, we have a technical level to trade against here, $296.65 which is the top of this year’s Value Area which would assure me that that stock is returning to an uptrend.
A couple others I am watching.
UNH UnitedHealth Group
Just returned to new all time highs on Friday. This name is not in a bear market, in fact it is just breaking out!
CVX Chevron
Another stock that is making new all time highs where the majority of stocks are in a downtrend! This is strength.
V Visa
A company that the majority of Americans use to make or collect money from consumers making payments. I am watching to see if price can hold onto its ‘22 Value Area $205.66 (support).
What about Growth? how about a company that has corrected that is holding support
NVDA Nvidia
As long as $115 holds, I like a long here.
One final point with the Great Reset. Prior to this we have been accustomed to FANG (Facebook/Meta, Amazon, Netflix, Google) stocks holding leadership - is it a healthy market where four or five companies are making all the gains and are a huge weight in the indices or is better when there are multiple industries contributing to the overall market? I would argue that the latter is better for stock pickers and an overall better market structure.
In conclusion, patience remains in order as the Fed continues to raise interest rates… but be open to more of a “normal” market structure and if have a longer time frame then just a few months there might be some really good opportunities ahead in both fixed income and in equities.
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