D&D Note (5.25.2022) ~ The Daily Market Note of the Day is BACK! ~
Hello Investment community! After going dark for a year D&D Investments is bringing back our daily market note of the day.
The market last hit its peak back on January 3rd of this year. Since then we’ve been sliding down and now are in a Bear Market. The NASDAQ is already technically in a Bear Market (meaning down 20% or more from highs) and the S&P 500 keeps flirting with being down 20% during intraday trading but has yet to close technically down 20%. The level on the S&P 500 to hit the 20% retracement is 3837.
The big question on everyones mind is when are we going to actually find the bottom? The answer isn’t as easy as you would think. Usually we need to see a capitulation event where everyone sells and the put/call ratio spike to the 99% and less than 20 stocks in the S&P 500 are trading above their 200 day moving average.
However, that capitulation moment doesn’t have to happen to actually hit a bottom. We broke all traditional trends on the way up post the pandemic lows so there is nothing saying we won’t break all traditional trends at the bottom.
What is D&D looking for? Short answer is stabilization in inflation. That probably won’t occur until at least late June to early July. This is also a midterm election year and we usually see a lot of volatility in June and July.
We are also closely looking when the last strong sector finally gets sold off, that being the Energy Sector. That would then be the capitulation moment and most likely mark a bottom.
The other thing we are looking for is the VIX spiking to 40.
We went to 54% cash back at the March market top of this year. In raising that cash we eliminated our more risky holdings (like price to sales stocks with no or high P/E ratios), and took profits in our winning holdings. Overall trimmed our portfolio down to de-risk and focus on companies that make things, create profits, have reasonable valuations, and return profits to shareholders via dividends or buybacks.
Since then we have deployed 1/3 of our cash tactically when we flirt with the intraday lows around 3850 in the S&P 500. We are strategically looking at any price discovery in the coming weeks for individual stocks but mostly patiently waiting for that bottom to be put in.
Our Current Holdings have been updated on the website as of today.
DOW up 0.6%
S&P 500 up 0.95% (3978.73)
NASDAQ up 1.51%
VIX down –3.67% to 28.37
Oil up 0.544% to $110.93 a barrel.
Gold up 0.255% to $1850.90 an ounce.
~ Dave James / Principal Trader and Market Strategist