A Comment -- General Comments From an Expert (A Commentary)

He looks at RSI to give him an idea of how a stock's performing relative to its peers and to the overall market. Can also use it to compare it to whatever index it's a member of.

When you get into market corrections, is not necessarily upward momentum, but what goes down less. Those stocks that go down less have more underlying support, people are still willing to step in and defend them.

It is interesting, in that real estate has picked up but telcos haven't really gone anywhere. Utilities have been kind of in the middle, but not doing as well as real estate.

For stocks that are really weak, he looks for an opportunity to rotate into something stronger and showing better RSI. Rather than wait around and hope something bounces. If the stock comes back around, then he'll be there when it does. When you invest based on relative strength, you don't stick around for the long term.

The red zone tells him that these are the stocks where capital is leaving and to avoid. More often than not, we've seen several times in this earnings season alone where red zone stocks have put in poor earnings and then plunged afterwards. Think Ford, INTC, and others.

August can be choppy, September is historically weak. Then you look to October for some relief (sometimes in election years it can be later). But often mid-October, around the time earnings season starts.

Daily prices are not worth paying much attention to

We know investors — not traders — who check their stock prices hourly or even more often. Our company often gets questions along the lines of, “Why is this stock down two per cent today?” Nine times out of 10, we don’t know the answer. If there is no news, broker activity or macro event, then there is usually no defined reason for a stock to move, either up or down.

With no news, it might mean something, but you and I have no way of knowing if it does, and any speculation is just that — a guess. We like trends, certainly, but one day is not a trend. The time that investors spend looking at meaningless daily price movements could likely be better spent doing some research.

Now, if you intend to sell a stock, then yes, daily moves are more important. But if you are a long-term investor, constant price checks are a waste of time, most of the time.
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He would buy both cryptos and gold, because the US budget is so out of control.

The Mag 7 has recently seen a 20-25% decline and you should take some money off the table. Also, take losses on stocks that haven't executed and move on. This is regular portfolio management. It's too early to call a major correction or buying opportunity; wait for direction. Have cash reserves so you can play weakness. Ex-the top 10 S&P names, it's been a recessionary environment; look at telcos, pipelines and staples trading at elevated yields, while valuations for tech have been highly stretched. Did the market get ahead of itself, and how long can that last? He's long talked about a bifurcated market. He isn't ready to go full-in to this market, but being cautious.

Fears of a Recession:

What to do? First, do not panic. Panic selling is never the right move. Many investors will sell today out of fear: fear of losing embedded profits or fear of further losses. This may be a 'normal' but harsh correction, or it may be the start of something more. We do not know. No one does. But the fear-mongers will no doubt get lots of media attention. Bottom line: Companies are still quite profitable and interest rates are sure to come down now. Companies are still hiring, just not at the same fast rate. Valuations, even in the AI sector, are not that high when looking at growth and historical comparisons. 

A recession is possible, but that is practically always the case in the economy. Most recessions are short. If one occurs we would expect it to be shallow as well, as investors have been already preparing for one for two years at least. 

One twist in all this is the US election, which may cause more volatility as we head to November. 

The plan: if as an investor you are not prepared to hold until the first quarter of 2025, we would ensure your cash levels are where you want them to be and you are well-diversified. Now is not the time to be a hero. If you have a longer time frame, doing nothing is probably the best strategy. It almost always is. If you have cash, we would be fine deploying some of it this week. We would keep some powder dry as the type of volatility we will see this week can last a while. Gold may be a good hiding place for those so inclined. But, bottom line, the world is not ending, it will just feel like it. Businesses, consumers and the market will carry on just fine, in our view. The correction may be harsh, but the steeper it is the shorter it should be as well. 
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A difficult day. But if you look at the companies reporting up to the end of last week, almost 80% beat on EPS, and close to 60% beat on revenue expectations. Forward guidance, however, was really down for the second half of the year. Saw that especially in consumer discretionary and staples.

If you look at DEO, SBUX, CMG and Ford, they all guided down for the year. An example of weakness in the consumer; people are trading down, looking for value, and not buying discretionary items as much as they were.

In the last 2 days, we've finally seen weakness in the labour markets. Up to Monday or Tuesday, everyone was expecting a soft landing with the Fed. Now, all of a sudden, the market's reversed the whole September cut and maybe we'll see that almost 2 or 3 cuts are baked in by the Fed by the end of the year.

Gen AI space, which is almost a Mag 7, had a great runup in the first quarter, and then flatlined through the second. Numbers reported were actually quite good in terms of the evolution of what we're going to see in data centre buildouts and MSFT benefiting from Copilot.

But the macro data is causing a real downturn.

Trying to time the market is a flawed strategy. Look at your own time horizon and tolerance for risk. He cautions against making market decisions based only on what's on TV when you turn it on.

Any stock can fall 50% — overnight:

This manta is great for us when we have a winning position and we let greed sink into our thinking. Suppose we have a three per cent stock position and it triples. Yippee, good for us. But if our other stocks don’t do well, we now have a nine per cent position in our winning stock.

Sure, we like to let winners run, but we remind ourselves that any equity can go down, sometimes by a lot. We don’t care if it is a bank, a giant conservative company, a tech company changing the world, or whatever — it can go down.

If we are lucky or smart enough to own a big winner, we ask ourselves how we would feel if our entire portfolio fell 4.5 per cent overnight (a 50 per cent decline of a nine per cent position). Generally, we would cry. This brings us back to the prudent management of position sizes. In such a scenario, we might take the nine per cent position and trim it to seven per cent. If we really like it and it does well, it is going to go back to nine per cent anyway.
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