Monday, March 23rd after close
Let me start by saying I don’t know when the stock market will bottom. It is just too early to call an end to the disruption. But, the indiscriminate panic selling will eventually stop and create opportunities to buy quality stocks at prices we haven’t seen in years. This could end up being a once in a lifetime event, in more ways than one.
Patient, long term investors should be looking to get ahead of the recovery. While it is too early to digest the future fundamental impact this unforeseen crisis will have on our economy and individual companies we can look to long term, price support levels that many stocks are now revisiting. We will recover, individual stocks will bottom and the broader market will reverse higher.
Broader Market Review
Both the Dow and S&P 500 have broken multiple important price levels during the decline including the more important, long term ascending support from the bottom in 2009. This is considered a very bearish event and historically leads to a continuation of the decline, however, panic selling can lead to overshooting these key price zones.
Nasdaq has not broken this important ascending level. Neither has the technology sector ETF (XLK) or semiconductor ETF (SMH). In fact, they are a long way above these important rising price levels. Each of these technology heavy proxies are trading just above their respective ascending support levels from the lows in 2016. They are literally hanging on a ledge this support is still providing. It is critically important these levels hold.
If they do hold we can make a case for the end of the decline and the beginning of the bottoming process. The Dow, S&P 500, Nasdaq, technology sector and semiconductor index are each positioned at these critical levels that are logical places to bottom and any failure here would signal further declines.
This presents us with long term asymmetrical risk/reward opportunities. When price defaults to these long term levels you can bet big buyers are paying attention and beginning to incrementally step in. There is a clear defined risk under such critical support and unlimited reward above. Low risk/high reward entries are always associated with price trading down into these important inflective price levels.
SPDR Dow Jones Industrial Average ETF (DIA)
SPDR’s S&P 500 Series ETF (SPY)
Invesco QQQTrust Ser 1 (QQQ)
SPDR’s Select Sector Technology ETF (XLK)
VanEck Vectors Semiconductor ETF (SMH)
Individual Stock Review
While the broader market will lead the breadth of individual stocks higher it is supportive to see individual quality stocks also trying to bottom at their own long term support channels. We want to see individual stocks bought and bottom here to begin the process of establishing a floor. There are a significant number of individual stocks positioned at these critical levels and these values are very compelling.
Boeing Co (BA)
One year ago, when BA was trading around $375 I said it was about to decline and cascade to the mid $200’s. No one believed me then and no one believed me six weeks ago when it was trading at $350. Of course, I had no idea it would get down below $100. Astonishing. It now looks grossly oversold right down into 18 year support and with a potential Boeing Bailout this looks like as good a time to buy as you can get.
Starbucks Corporation (SBUX)
Price has defaulted down to near five year consolidation lows just under primary support from the low in 2009. This is looking so compelling at these levels they should start selling their shares at the drive-up window with a double latte caramel pumpkin spice grande mocha pumpernickel swirl.
Bank of America Corp (BAC)
Financials have been literally crushed and with interest rates near zero they might need more time to recover but I can’t help but consider some quality companies at these levels. BAC is now trading at half what it was four weeks ago. It has been slammed down into a price level that has decades of historic significance with multiple convergence of support. This is a price level that is difficult to ignore.
I monitor and cover close to 1,000 companies and there are many more that are beginning to look compelling. The market environment is still unstable with extreme volatility so we continue to be in a state of high risk. It’s at these high risk extreme levels that bottoms typically occur and price reverses higher. Price action can be highly reflective so the eventual recovery is likely to occur fast and furious just like the decline.
I’m working on being prepared to take advantage of the reversal higher as I believe it will happen abruptly, just like they always do. I will keep monitoring the broader market, sectors and individual stocks to look for bottoming clues that have worked for me over many decades.
There are many stocks that have performed quite well over the past month considering the events that have unfolded. Over the coming days I will cover these companies in addition to the incredible opportunities that appear to be unfolding. I have always said “hope” is not an investment strategy but I think I’m changing my mind.
Stay safe and healthy. We will recover.
Don