I hope you had a good week and that you and your families are safe and sound, in what has been the first week of 'lockdown’ here in the U.K. Remarkably, this period has coincided with a surge in investor confidence which has seen the major US averages post their biggest gains in almost 9 decades, with the Dow Jones Industrial Average recording its best day since 1933. Whilst the toll on human life and healthcare services remains extreme, the market appears to be looking beyond the immediate situation and focusing on the impact of the trillions in the stimulus around the globe bolstering an eventual economic recovery.
This was particularly apparent in the reaction to the Initial Jobless Claims number which came in at 3.28 million new claimants yesterday - quadruple the previous record. Rather than a sell-off, US stocks closed the session +5% higher.
Earlier this week, investment banks including Goldman Sachs claimed that we were already in a recession, which initially sent stocks lower. But by the end of the week, “the Dow” had already entered a new bull market - up more than 20% from the lows - after more than $2 trillion in value was created in three days.
Whilst cynics may point to the fact that equities had already sold off more than 30% in the previous month (thus priming a significant rally from a significantly lower base), I would argue that the speed of the rally was of similar magnitude to the speed of the decline - which at the time, was also unprecedented (save for “Black Monday” in 1987, it was the fastest drawdown on record).
So what can we conclude from this? Well, as I wrote about in this blog post a couple of weeks ago, the velocity of the moves both ways is indicative of participants admitting (as per an interview featured in a Bloomberg news article that week) “we don’t know whats going on.” We, however, have been fully prepared. As I discussed last week, "when the market stops going down on bad news, it is often a signal that the market may be nearing a low.” Therefore, in line with our Checklist Process, I went looking for bargains amidst the fear on Tuesday morning.
Here our Business Cycle Checklist shows that even though it has weakened, we should still position for expansion with correlated long trades in equities.
Members of our Trading Club can access our newly updated Monthly Checklist Report in full with scores for equities, currencies, and commodities, including this one (partially obscured to preserve value for our paid subscribers).
This is one of the stocks that appeared on my radar and featured in this week’s Trading Club video analysis. It has been heavily discounted in the wake of COVID-19 as investors appear to have totally given up on the prospects for this company ever seeing a recovery. We will be looking to feature this as a case study for our Company Analysis Checklist in the coming weeks (until then, I cannot reveal the name again as a courtesy to our paid Trading Club members).
With a host of other opportunities on my radar, I hope you can join me for more ideas in realtime each week at the Trading Club. This along with the other names on my watchlist have collectively gained +13% since I identified them on Tuesday, and look set to rally further should this prove to be a turning point in the broader market. Again, referring to our usual disclaimer, this is only for the educational purpose and not investment advise. You will learn how to generate ideas like these yourself with the help of our 5-Step-Trading® process which Lex presents in our Million Dollar Traders Online Course, and is currently available as part of a special promotion to provide access to our world-renowned financial education at a more affordable price during the current economic disruption.
Time will tell how this all plays out, but what’s clear is that things are becoming far more complicated in markets and it has never been more important to trade with a proven process.
If you would like to join us for our full analysis including new insights each week or learn from the ground up with online tuition from Lex in our MDT online course, then take your financial knowledge to the next level right away!
I will, of course, continue to keep Trading Club members updated in our weekly videos as this evolves, and maybe, just maybe, the low in equities may now be behind us...
Have a safe weekend,
James Helliwell | Chief Investment Strategist