(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
On the surface, this past week has seen a bull run up towards 4,000. This is not a surprise given all the bullish elements at play. However, under the surface, especially the past couple days, has been violent sector rotation that is more akin to a consolidation period.
The hallmark of these sector rotations is where half the stocks are up a lot and half are down a lot. In fact, it looks like a Christmas sweater alternating between red and green 😉
Check out the returns for the popular stock indices today to see what a uneven day it was for the market.
-0.16% S&P 500
+0.55% Nasdaq 100 (QQQ)
-1.67% Small Caps (IWM)
Gladly the Reitmeister Total Return (RTR) portfolio ended up closer to the S&P 500 return today and not decimated like the Russell 2000. And pulling back to beginning of the year our spread over the market continues to widen:
+5.50% S&P 500
+22.51% for Reitmeister Total Return portfolio
At this stage we are only one percent away from hitting 4,000. No doubt we will get there soon enough as that is just one modest rally away. The more quizzical thing is what happens AFTER we touch that key level.
I suspect the sector rotation action we saw the past couple sessions is a precursor of what is to come for an extended period of time. Meaning the market will be thwarted at it’s first attempt to leap above 4,000. And probably 2nd attempt. Perhaps the 3rd time will be the charm.
Following the resistance at 4,000 I see two possible outcomes.
First, is a tight consolidation just under 4,000. Here we would see the overall market play in a tight range of maybe 3,900 to 4,000. In that space the overall market moves very little. But each group takes its turn in the dog house.
Sector rotation is another term for that. And even a rolling correction is another possibility. That is where each group sees a bigger loss. Like the way Tech took a 10’ish% hair cut only to bounce back with a vengeance (more on that below as we talk about our 3 tech stocks rallying 13 to 19% this past week).
The best way to play this type of market event is to stay mostly long in your favorite stocks that you want for the eventual break above 4,000. And then perhaps look to buy some quality stocks on the dip.
The second scenario is more like the stiffer pullback we saw in February and early March. There we finally broke below the 50 day moving average and flirted with the 100 day at the darkest hour. So let’s check out where those key levels stand now:
3,850 = 50 Day MA
3,718 = 100 Day MA
3,504 = 200 Day MA
In the grand scheme of things a move down to 3,718 is no big deal as just like last time that would be a very buyable dip with quick relief on the way. However, I did throw in the more ominous move to the 200 day moving average at 3,504.
That would mark a pretty harsh 12.5% correction for the overall market which we haven’t seen in a long time. Unfortunately there are new flickering flames coming from the Coronavirus that could burn us if they start to rage higher.
I am referring to the new Coronavirus lockdowns in Italy given more contagious variants is a trend worth watching. On top of that you have concerns about Spring Break happening in March and April that could lead to surge in cases. Meaning that a unwelcome new wave of cases could indeed lead to more economic shutdowns and correlated stock sell off.
This kind of event could be the impetus of the first test of the 200 day moving average since last June. To be clear, I would say the odds on that deep of a move are quite low like 10-15%…but is possible. So we need to continue to watch the Coronavirus situation carefully for as much as we would like to put it in the rear view mirror.
When you appreciate that both of the most likely scenarios (consolidation or small pullback) is a modest negative for stocks in the short run as we hit 4,000, then you understand why I was happy to leave the 8% allocation from our latest stock sale in cash. On top of the 3% allocation that was already on hand, we now have some nice dry powder to buy a new position or two on any forthcoming dip.
Yes, it is possible stocks break above 4,000 on the first effort. Just that with history as our guide that is the unlikely outcome on the initial attempt.
The key to investing has always been, and will always be as follows:
Rinse and repeat ad infinitum
So you see the plan above. Now we are ready to watch and adjust.
This week we only doubled the S&P 500 return. (he say’s sarcastically 😉
That outcome is normally great in any market condition. However, as shared earlier, we have a 4 to 1 lead over Mr. Market on the year. So this past week seems tame by comparison.
Here is what I really want to say about performance.
DON’T GET USED TO IT!
Yes, the goal of the RTR service is to help you outperform. However, it is impossible to do it on a consistent day by day, week by week, month by month scenario.
Given that the market often rotates, then a portfolio that is outperforming as much as RTR is at some point going to get pummeled. That is not an IF statement…that is a WHEN statement.
No one is immune to that. Not Goldman Sachs. Not Warren Buffett. And not good Ol’ Reity.
So yes, I am pleased with our results this year. And most happy to receive emails of improved financial success from our many subscribers. However, just when the applause hits a crescendo is when Mr. Market will want to remind you that he is in charge. And that investing is never that easy.
Long story short, please keep this all in perspective. And when our # comes up for a ripe beating, then we will do our best to adjust the portfolio to get us on the right side of the action soon enough.
Now let’s dig in with some insights on our individual positions:
(the rest of the commentary is reserved for Reitmeister Total Return members).
What To Do Next?
Right now my Reitmeister Total Return portfolio is well positioned for where the market’s headed in 2021. And that is a VERY different playbook than what worked in 2020.
Gladly we have been reading the tea leaves well which is why our portfolio is solidly ahead to start the new year.
If you would like to see the current portfolio of 10 stocks and 3 ETFs, and be alerted to our next timely trades, then consider starting a 30 day trial by clicking the link below.
Wishing you a world of investment success!
…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
SPY shares were trading at $394.12 per share on Wednesday afternoon, down $1.79 (-0.45%). Year-to-date, SPY has gained 5.41%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...
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