End of The Month
Ugly day as the market turns over - Sell in May and Go Away they say - certainly true today. Headlines about Trump imposing Tariffs on China may be the catalyst, that old chestnut. Other market themes were bound to pop up - we lost our peripheral vision as we focused on COVID-19. Trade war resurgence could be a mood spoiler as we get out of the COVID-19 cloud. Trump will need something to attract the attention back to him come November. God forbid we start following Trump's Trade Tariff Tweets around on a daily basis again. Please no. Its so intellectually demeaning. Hopefully today has been a beginning of month thing, having locked in a great May (ASX 200 up 26% in 26 days) some institutions take today as the day to take a view on the more medium term outlook and beat the rest of the pack to the selling. Or it may be a Friday thing. Everything a bit headless. Lets take it up again on Monday. Our current settings are wrong for a market falling 3.6% in a day. Slap in the face noted but not reacted to. Lets see if this is a blip or a top first. Collins Class Rule anyone? This is the Heikin-Ashi chart of the ASX 200 that I have published a few times - Heikin-Ashi charts average a couple of days in one candle and ‘smooth’ the noise for you. Overlaid on the chart are Buy and Sell signals (the triangles) using a technical set-up based on standard Heikin-Ashi trading system parameters. Whilst we are making decisions based on our morning meetings this chart has an uncanny knack of doing the same thing as we do. It rather neatly reflects our decisions which tells you that we have a similarly acute sense of market trend changes which involves identifying the major pivot points. This 'sense' of the market trend changes has been crucial to our survival/success in the recent volatility. Whilst the market looks like it will reverse yesterday’s tremendous rally today, the buy signal on this chart appeared this morning and coincides with us getting fully invested again in the last few days. Some good vibes on the virus front with the Gilead treatment being fast-tracked through the FDA and the Bill Gates Foundation predicting a vaccine in nine months. Apple re-opening stores. Florida re-opening on Monday although Japan extended its state of emergency by a month. The Golf Club is expecting to be back in action on 12 May. STRATEGY SUMMARY Please note – these strategy comments relate to the Marcus Today SMAs run by Marcus and Ben and Team not the Marcus Today newsletter portfolios that are run separately (they have to be for compliance purposes) by Chris.
- We are effectively “All in” again (fully invested) on the “Economic Restart” theme and having made our bed have to lie in it today.
- We are seeing the market getting ‘back to normal’ and hope we will be able to focus on stocks not asset allocation for the next decade. But maybe not. This is the VIX volatility index, a gauge of “fear”. Up 9% overnight but the chart, which reflects the panic, followed by returning sanity, is hopefully still on the mend. It takes three times as long to build confidence as it does to lose it which is why markets always fall fast and rise slowly. This index could also be called the “Confidence” index. We need it back to ‘normal’ levels (below 20 – its now 34) before the mood relaxes and the foundations of confidence return and a confident bull market begins.
- We have weighted towards “Recovery stocks” including some fairly high risk bets in beaten up stocks – we are already in the money on most, some flew yesterday, but are aware of the risk we are taking and how sensitive we are to a COVID-19 relapse. That looks low odds, China hasn’t relapsed, but if it happened we would have to exit “like a rat on fire” and we know that and are prepared to do that. But its low odds. As always, we’ll just wake up every morning, and make decisions. A 'Second Wave' relapse is the biggest risk to our set-up at the moment.
- We are Neutral Banks. Happy enough with that. They hit what felt like a significant low two days after the NAB capital raising and at worst we hope they will stop underperforming and at best start to recover. WBC results on Monday will hopefully avoid a big capital raising that sucks money out of the others.
- We are holding a reasonably significant play in the energy sector believing the low to be in the long term and have been happy to catch some of the energy stocks at unimaginable lows. Long term its going to be right assuming we don’t get company specific blow ups (WPL and STO appear to be the safest). The oil price flew last night on chatter about Trump threatening Saudi Arabia with the loss of military protection if they don’t sort the oil price out and on Norway joining in on cuts. But oil stocks fell in the US and UK.
- We have added some REITs to the Income SMA at these lows. Some are now yielding above 6% (rare) and if we can lock those higher yields in here and catch a share price recovery rally as well, which we think will come, then we will have done the right thing.
- In the Income SMA we have also started to focus on capital gains (making money) as the income opportunities dry up with the banks in particular cutting dividends. A dollar is a dollar whether it comes from income and franking or capital. We understand a lower risk profile is required in this portfolio and manage that with hyper-vigilance rather than the traditional income approach which involves buying boring long term stocks and forgetting about them. In the absence of income we have to make money.