Ivanhoff Capital

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One of the major characteristics of bear markets is very high correlations between stocks regardless of their current or expected fundamentals. We saw that last week when in the first half most stocks sold off together and in the second half they rallied – again together. 

During market corrections, some religiously look for stocks that show relative strength. The premise is simple – if a stock tries to break out to a new 52-week high while the general market is selling off, it is likely to be a future momentum leader. We have seen this time and time again. One of the most recent examples is Cloudflare (NET). Between February 20 and March 5th, 2020, NET rallied to new all-time highs. At the same time, SPY dropped 15%. At the time, I wrote that NET is likely to be a future leader. Guess what happened in the next few weeks. The market accelerated lower bringing down everything with it. In a few short weeks, NET went from a new all-time high to new all-time lows. When the market calmed down and started to climb, NET quickly made new all-time highs and it went up 10x from there.

Keep a watch list of growth stocks that hold well and even try to make new highs when the market is in a correction but keep in mind that those growth stocks are not very likely to make big sustained moves until the market starts to climb.

We are in the midst of a bear market bounce. It could last only a few days or a few weeks. Any such climb would be a climb of a wall of worry. After a few months of selling, most market participants are not thinking about buying dips blindly and are not trusting the rallies. It will take a long time for this sentiment to change which means that excessive volatility and frequent reversals are still here to stay for the time being.

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The other day I listened to an NPR story about some guy who bought 6K worth of AMZN stock in his eTrade account in the late 90s. He decided to forget about his account and check on it 20 years later like Warren Buffett teaches – buy strong companies you believe in and forget about them. When the guy checked his account 20 years later, it was empty. He called eTrade. They told him that the state of Delaware seized his account in 2008. States do that when you don’t check your account for a certain period of time (three years in many states). He called Delaware’s unclaimed property department. Turns out they sold his shares in 2008 and were holding the money for him – $8k. The guy was furious. His AMZN shares were supposed to be worth over 100k when he checked. 

The moral of the story. 

1. Check your brokerage accounts once a year.
2. Go to google and type “lost money” +” any state you have ever lived in”. Go to the unclaimed property section of that state and type your name. You might be surprised to find that you have unclaimed money from checks, bank accounts, and brokerage statements. If you find a match with your name and a recognizable address, you can file a claim to get your money back. There are billions of dollars that the States keep as unclaimed property.

The charts in this video are powered by MarketSmith

As widely expected, the Fed raised interest rates by 50bps and started to reduce its balance sheet. The initial enthusiasm last Wednesday was immediately followed by heavy selling the rest of the week. One day up 5%, the next day down 6%.  Excessive volatility which means a lot of choppiness and frequent reversals is a typical price action for a bear market. 

Tech has been dismantled this earnings season. QQQ is trading below its volume-weighted average price since the Covid lows in March 2020. The small-cap growth ETF – IWO, has given back its entire profit for 2021 and 2020. The rips to declining 20 and 50dmas keep getting shorted on a regular basis. We are yet to see the real panic in the tape. So far, the selling has been slow and steady – the kind that can continue a lot longer than most expect. 

There are slim pickings on the long side – oil and gas names are holding the best as crude oil is setting up for another potential breakout and natural gas is at 12-year highs. If the market is really worrying about a global recession, oil and gas will also get eventually hit but until then, they are in an uptrend and uptrends tend to keep going higher until there’s a high-volume breakdown that changes the sentiment/narrative.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.