4/3/2020 Bullish longer term (1 year +). Near term thinking we could still easily retest the most recent low. I’m 45% stocks, 55% cash now.

Hi everyone, I hope you enjoyed your week.

Indexes closed slightly lower this week, but the VIX continues to drop rapidly.  Although I think the indexes could still retest the lows made last week, I think very sharp “limit down” moves and extremely large drops (more than 5%) are much less likely now. 

VIX Daily 4_3_2020

Above is the daily chart of the VIX (volatility index). VIX moves up if there is more option buying (both puts and calls), although put purchases have a larger impact on the price than calls. Although the indexes moved down a bit today, the VIX moved down, hinting that the bottom is in, or that at least we are near it. 

More evidence that we are at or near a bottom comes from insider activity. Take a look at the recent insider purchase activity here. Last time it was near this level was when the majority of the stock market bottomed in late 2008 and when the entire market finally bottomed in March of 2009. 

Lastly, bearish sentiment has been unusually high (1 or more deviations above the mean) for the last 3 weeks. Source. We use this as a contrarian indicator – if everyone is bearish, they already sold, and thus the market “has” to go up. 

Because I am long term bullish at these price levels, I bought more shares of Boeing after my put expired in the money today (sold the 140 strike put for 10 dollars). I don’t plan to add any more shares unless we dip below 100. 

In terms of asset allocation, I am now 45% stocks and 55% cash. Thanks for reading and see you next week. 

3 thoughts on “4/3/2020 Bullish longer term (1 year +). Near term thinking we could still easily retest the most recent low. I’m 45% stocks, 55% cash now.

  1. For argument’s sake, 3 out of 4 people are bullish on a 1-3 year timeline. If you were sitting on the sidelines or contemplating putting money to work and you voted yes to being bullish on this time frame, wouldn’t you be buying? Or are you too focused on the incessant barrage of bad news that is clouding your long-term views?

    Liked by 1 person

    1. Hi Timothy,

      Thanks for the comment. I’m not sure that 3 out of 4 people are bullish on the 1-3 year timeline, but let’s assume they are indeed bullish on that timeline. I still think it’s more profitable to average into my positions than to buy a massive position and to sit on it, but I could be wrong. And to answer your question, I have been buying (went from 20% stocks to nearly 50% within the last week). I honestly believe the bad news isn’t as bad as the media makes it, so it shouldn’t be clouding my long term views.

      What are your thoughts on averaging into positions and are you more than 50% stocks right now?

      Thanks,
      Nathan

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  2. Last week I put together a poll thread to get a check on sentiment. As expected, everyone was short-term bearish but long-term bullish. As Helene Meisler has pinned on her Twitter profile: Nothing like price to change sentiment. So far this week we’ve gone limit down twice, limit up once, hit circuit breakers twice, and entered a bear market (and most likely a recession).

    Like

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