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Arrowhead Asset Management Investment Update (2/11/2018)

One week later: Follow up to the early February stock market selling

Since our last Update this past Tuesday, the Dow Jones 30 stock market index saw a second 1000 point selloff on Thursday, followed on Friday by a 500 point intraday decline, but ending the day with a 333 point closing gain (an 800 point positive reversal).  

So now, after Thursday's market rout and Friday’s 330 point higher close, almost all the major US and stock market averages are now down 2%-3% for the one month & nine days of 2018.

Performance wise, what that means for most of our Fidelity retirement and brokerage accounts is that as a result of this intense two week market decline, we have lost all of our 2018 gains - but only about 2-3% of our 2017 gains.

Since most of our Fidelity accounts were up 17% on average in 2017, as of today (February 9) we are still up 15% or so for the last 13 months and nine days. 

Given the huge point declines and intense intraday price swings we have seen in the last two weeks, being up 15% is still a very good investment return for just over one year and one month.

And because of the parabolic and unsustainable upward stock market move we saw in January, it was quite predictable that we would see two ominous short-term moves down in the US and global stock markets. 

Like everything else we hear about these days, it was a very "bigly" experience.   

Now What?

I would like to say unequivocably that this scary but much needed stock market correction is over. Unfortunately, I can't.

But what I can say with some degree of assurance is that on Friday, when the Dow was down 500 points intraday, it "bottom tested" its very important “moving average” price of the last 200 days.

Market technicians, which I now consider myself, view this intraday “price test" of the 200 day moving average on Friday as a very positive historical inflexion point.

Statistically, in the last eight years, the Dow 30 index has sold down to test the price of the 200 day moving average 14 times. Of those 14 times, the stock market established a market bottom 9 of those times - and went on to recover to make new stock markets highs.

Conversely, 4 out of the last 14 times we saw the price of the Dow 30 Index continue to drop below the 200 day moving average price.

Hence, considering the price testing pattern described above, the historical odds of a intermediate term rebound after Friday’s market action puts the odds in our favor by about 2-1 respectively.

Market statistics aside, other than the rich and Trump's Swamp sucking up more and more of the wealth from the US middle class and the poor, the US Wall Street economy is not in the same dire shape that we saw in 2008 or thereafter. 

Even though we are once again slowly creating a stock market bubble (e.g. we see companies like Apple having a higher market capitalization that the GDP of Switzerland), we are probably not done seeing the stock market head higher near term, in my opinion.

However, if I am wrong and the past two weeks was in fact a serious warning shot across the stock market prow, we should still see a rebound from current levels in the next few weeks. If it runs out of steam, we will move our money to safer pastures.   

To reiterate what I wrote in the last Update, it is what the stock markets do during the upcoming (hopefully) rebound from current oversold levels that will tell us whether we continue up or prepare and protect assets against more downside.

Stay positive and be patient. What we are seeing is almost a Wall Street ritual when markets get too exuberant.

Rocky Boschert