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My Call For A Significant Sell-Off This Week Is In Jeopardy, So I Found Some Stocks To Go Long

May 07, 2020 9:35 PM ETPINS, SNAP, TWTR, DKNG132 Comments


  • I thought I saw a pattern forming with last week's selling starting last Thursday with the jobless number and strong selling into Friday.
  • Instead, Monday rallied and every day this week including yesterday's dismal ADP numbers, and today's 3 million jobless didn't matter.
  • At this point, I have to reassess, and admit that expectation was wrong. If tomorrow April unemployment causes a sell-off, it will likely not be severe.
  • I still have a slug of cash and I'm holding on to it as my security blanket. I did finally break down and went long on some names that I think will give good returns longer term - Pinterest, Snapchat, and Twitter. I see that DraftKings looks like it might have a short retreat and I would look at loading up on that too.

I hate making excuses. My thesis was that today’s jobless number would restart the selling cycle

Patterns tend to repeat, except when they stop. In the case of the sell-off on Thursday that set up the bigger sell-off last Friday, I was counting on a repeat this week. I did say that if the pattern for the week doesn’t return then it becomes more of a “50/50” proposition. I could cite the huge news that Moderna (MRNA) got the nod from the FDA for phase 2 for the vaccine and it projects going forward that phase 3 will take place this summer. That news alone could be fingered as the cause of a change in the course of trading this week. No doubt, this news item is a game changer, and Dr. Fauci said as much. I'm not inclined to find excuses, wrong is wrong. What happens next? Well, I'm holding off on any new projections until I see that I have a handle on the current trading pattern. Clearly, I don’t. Permit me to share my thinking as of the moment and perhaps we could at least have a basis to analyze the current trading zeitgeist.

If I want to sound bearish I could easily call up a bunch of pieces of anecdotal information and data to buttress a bear’s view

I could cite that Warren Buffett has held back on any big purchases of mega-cap stocks. More to the point his wholesale abandonment of the airlines where he had 10% each of the four major airlines as an example of the wisest of the wise on Wall Street backing away from the stock market. Even the latest jobless number today of an additional +3.1 million people out of work to the prior 30 million has bearish concerns. How

This article was written by

David H. Lerner profile picture

David H. Lerner is an analyst with a decade of experience utilizing his professional background in software consulting and technology to identify market trends and provide long and short trade ideas. David employs a combination of technical analysis and market psychology to capitalize on narratives for outsized returns. He also utilizes “Cash Management Discipline,” a simple trading style to hedge against the volatility of today’s market climate.

He leads the investing group Learn more .

Analyst’s Disclosure: I am/we are long DKNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long PINS, TWTR, SNAP in equities

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (132)

Heroes always have short lives. Market timers have short lives. Your call was right. We are in the middle of a pandemic and young/stupid people feel they are immune. Fortune 500 profits will be crappy for at least a few more quarters and the Mr. Market is excessively optimistic. The market will come in and that will be the time to buy.
Balance sheet guru profile picture
Looks like this puppy was wrong again.
I came back to this article to comment and congratulate you... looks like you were just about a week early. Not sure if this is the "significant" sell-off you were looking for, but I took the chance to lock in some gains last week, and now redeploying that cash and some new funds for some very nice yields. I missed the big dip on March 23, but thanks to your stern warning on 1 May, I was ready this time.
Don’t do drastic moves either way in this market. It certainly doesn’t care about fundamentals so no one knows what will happen.
SPXS or SPXL profile picture
I thought the market would dip this week after the previous weeks gains but it didn't happen and my caution probably cost several k in gains from liquidating and building my cash position. Now I'm sitting on 40% in my settlement fund earning .38% annual dividend. I won't be too hasty to chase the market but I do believe it is going to continue higher in the next week with the euphoria of re opening.
After SnP500 bottomed in October 2002:

- Jobs Reports;


- FOMC Meetings.

Became the favorite of expert traders i've followed from 2003 to 2007 ($200-300/mo/person subscription fees).


Because they were mostly bullish despite parading the 'results' of catastrophic events Dotcom Bust + 9/11 + Iraq-Afghan Wars (from March 2009 to October 2002 timeline).

During bad to very bad Jobs Reports, expect knee-jerk panic selling that could last 15 to 30 minutes but not much before bottoming out on intraday charts. Bottom fish them and hold on for a few days to several days of rallies for tidy profits (easy money).

FOMC meetings = same-old same-old after markets bottomed from catastrophic bear markets. Even during the times Bernanke was raising the FFR by 25 BPS from 2004 to 2007 to 'cool down' the housing-sector ATM economy; markets would knee-jerk down for minutes, then rallied for days on ends - until supplanted by more 'important' events of course specially black-swans, like when an airplane crashed into a commercial building causing somewhat big panic selling that lasted more than an hour before CNBC was able to tell viewers it was only a very small (personal) plane and that nobody got hurt except the (dead) pilot, forgettable at best afterwards.

bengalesq profile picture
I feel your confusion. Same boat. Thoughts on August 2020 SPY Puts? Re: Q2 earnings.
bengalesq profile picture
Don't buy them in May - wait til 7/14. Oops - too late.
Duncan20903 profile picture
Previous to the lock down I had taken to calling it the "What? Me worry?" market. Now I'm calling it the Wile E. Coyote market because Mr. Market is 100 yards past the edge of the clifff and we'd better hope he doesn't look down.
Allivest Capital Management, LLC profile picture
There will be a short term correction but doubt we ever revisit March low again. I am 95% long and 5% hedge short.
Thanks David! The continued incorrect readings on the market just prove why sometimes you have to stay long and ignore the bad press. I also was looking for the market to pull back this week, but it apparently has a mind of its own. I am going to start taking 25% positions and building larger positions in the best of the best. At the same time will continue to hold SPY PUTS as a hedge. No worries, keep after it. This is a marathon, not a sprint!
AnthonyGiordano profile picture
Hi David. It was a good article in terms of your perspective and also grounding me when I get to euphoric, but I wouldn’t and didn’t take the advice of just one author. It’s was your prediction and you admitted during the write up as well as in your follow up, that this prediction can go wrong. I’ve sold some shares of over-held stocks and mutual funds on this rip upwards that I should’ve in February but was to greedy and did not listen to my gut at that time. I’m looking to have a truly diversified portfolio including that cash I’ve raised on selling this rally. Holding onto that cash and now nibbling only here and there on things I think are buys in this pandemic-induced market. I’ve also been reinvesting dividends on all my holdings. Here are some things I’m nibbling on, GVD, DLR-J only when it’s below par, BTZ, RFI, SCHO, SLQD, PPL, VPU, BMY, SNY, DUK, SCHD, FNV, KMI, VCIT, VNOM, VIHAX, Good luck to us all.
Right now there is no other market in the world that people trust more than the US. Is this the right call? Do you trust the China or any of the Asian markets? Would you park your money in the social democratic stagnate economy of Europe? How about the various emerging markets run buy few that starve their people who will ultimately overthrow the regime and install a like type of regime? Then you look at the bond market paying dividends below the real inflation rate.

So in the end the 10% of the economy will suffer for years (food services, hotels, airlines, cruise lines....) and will evolve eventually and or a vaccine comes out or the virus disappears. What is more positive is how the remaining 90% will learn they can do more with less employees. No need for soo many layers of management. Ultimately businesses will be leaner and more profitable. So for that reason the market will not drop again to the previous lows. Pull backs yes but not to the lows of March.
One thing that I haven't seen anyone mention in all of the pieces about the disconnect between Wall St and the real economy is the idea of how the virus-shock is going affect the cost of labor.
Prior to the virus, weren't they finally beginning to inch up with a hint of wage inflation? Gotta figure that's gone now.

Maybe I've listened to one too many Bernie speeches, but when we see a report showing 20+ million unemployed and the stock market respond with a 3% one-day gain, maybe we're making it a lot more complicated than it is.
It is not complicated. The unemployed do not move the stock market. The Fed moves it. If consumer spending becomes an issue the Fed prints more money. The big companies and rich get most of it. Just look at what farmers got. The rich were given the money and the ones that really needed it didn't. So the big companies get rescued and you know the rest of the story. Now there is lots of liquidity and the market will continue to go up. Employment will come back. A day of reckoning will come but we do not know when. I think that it may not be too far away. But it could take some time. Enjoy each day to the fullest and do not let the stock market consume you.

Great advice. I like your username as well. It is best to keep a bright outlook when all is not well in the world.
I think the day of reckoning would be around presidential election Nov 3, 2020. Prepare for a significant correction if Biden in elected in November.
When all the bears on SA turn bullish, then the market will roll over for sure. It is a fools game to time the market. Even the professionals have a tough time doing it.
lorddarley profile picture
You don't fight the Fed. It will take months (if ever) for the market to retrace. Certainly fooled me. People who don't need cash for food have to own something else, so it's either gold or stocks, and the latter seems to be the best call in a fiat world. Bitcoin also shining, but you can't put too much money in that because the market is rigged.
@David H. Lerner I've never been wrong so I can't say I understand how you feel (sarcasm), but you being wrong didn't take away from my enjoyment of your previous articles on the coming bear. Macro trends might be easier to spot -- the timing that they arrive is never easy to predict.
keep trying, Mr. Lerner, some time you would be right
this market is nuts
Booban profile picture
I think Buffet also missed the bottom and is getting FOMO too.
Just do the opposite of what this author writes and u will be a huge success. I really. enjoy his conviction in his work, 😂. So short all his long positions and get back to me in 14 days. That will be ur free trial. Stay safe and enjoy the profits.
Lee the Investor profile picture
No one should blindly follow an expert. Read what they say, think about it, look at some over viewpoints and don't be afraid to do something different if you gut says otherwise. This market is not performing like the experts expect it to and some of them are getting burnt and some are getting rich
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