- The S&P 500 has skyrocketed by 40% in roughly 5 weeks.
- There is no shame in taking profits after extraordinary gains in this market.
- Volatility should continue to provides significant opportunities for active managers.
- Despite "some" uncertainties surrounding stocks, there are some remarkable bright spots in the market as well.
- This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Get started today »
The S&P 500/SPX (SP500) has appreciated by about 40% since its mid-March bottom.
Why does this market continue to climb higher? After all, this is with the U.S. unemployment rate approaching 20% and with riots raging across the country. Furthermore, 40% rallies in a 5-week period is not a typical phenomenon.
Will the SPX continue to go higher?
I think so, but "only" to around the 3,150 level. It's likely only a matter of time before stock prices become more reflective of the real economy. Continued coronavius disruptions should contribute to an unpredictable and unstable economic environment going forward. Furthermore, technical factors suggest that the SPX will get quite overbought if it reaches my higher-end target of 3,150.
We can already see the RSI well above 60. Elevating the market to 3,150 should put the RSI firmly in the critically overbought category (70-75).
Therefore, it seems quite plausible that we will see choppy, volatile price action for some time in the SPX as well as in most equities in general. In fact, the SPX could potentially retest the mid-March lows, or roughly around the 2,400-2,500 level, before a W-shaped bottom is put in later this summer.
No Shame in Taking Profits
There is no shame in taking profits in any market, but especially in this one. In this uncertain atmosphere, it is better to lock in solid gains rather than watch them decline or even disappear completely (in a worst-case scenario). Furthermore, there is always the option to buy back into a stock at a lower level. Therefore, after abnormally sharp profits in several sectors, we recently decided to realize some profits and do some re-balancing in our portfolio.
Banks - This group was enormously oversold and was selling at a remarkably cheap valuation relative to its future earnings potential.
Financial ETF (XLF)
We got out of this trade approximately 8 days after this sector had bottomed.
In just 8 days, some of these banks returned 20-30%. Now, we can probably use a pullback, but banks are essentially showered with limitless capital. Thus, they will very likely benefit from the perpetual money printing environment over the long term.
Source: Albright Investment Group
We still like banks longer term, but there could be sideways or downward price action in the short to intermediate term.
We also exited General Electric (GE) and Boeing (BA) after picking up shares near the recent bottom. I think that stocks like GE and BA have potential to grow long term, but it will likely require quite some time to turn these companies around.
More Bright Spots
Our gold/silver/miner (GSM) segment had remained one of our favorite and heavily weighted sectors for over a year now. GSMs remain steady at about 20% of portfolio holdings, and this sector has surged by around 43% so far this quarter. With the Fed's policy to continuously expand its balance sheet and the fiat monetary base, GSMs as well as Bitcoin and certain other digital assets should do quite well going forward.
GSM Portfolio Q2 2020
It's Not All About Bitcoin, You Know...
Notable Leaders in the Digital Asset Segment
ADA/Cardano surged by about 40% inside of one week. This was a good time to realize profits after this extraordinary move. There will be an opportunity to buy back in on a notable pullback, in my view. We see more upside potential in this name after a moderate pullback of around 20% occurs.
ETH was up by 30% in about a week. It may be time for a slight pullback or a consolidation period, but the overall uptrend looks very constructive for Ethereum.
Link is another name we recently took profits in after a 30% move in just one week. We can see that it is not all about Bitcoin, as the gold standard of cryptocurrencies appreciated by only around 10% in this same time frame.
Our portfolio strategy remains cautious regarding stocks in the medium term. However, we are bullish on GSMs in the short, intermediate and long term. Also, while Bitcoin (BTC-USD) and other digital assets are likely to remain relatively volatile, they could appreciate significantly in the intermediate and long term. Our portfolio holdings include about 20% GSMs and roughly 20% in non-GSM stocks and bond ETFs.
We also have a considerable Bitcoin and digital asset position split up around 20 digital asset projects. After some recent profit-taking, we have accumulated a substantial cash position as well, which we plan to deploy towards equities at lower levels sometime this summer.
Our Q2 portfolio results over the first 2 months of this quarter
Disclosure: QTD our diversified portfolio is up by roughly 30%, and our YTD return is approximately 32%.
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This article was written by
Victor Dergunov is an independent investor and author with 20 years experience. He preaches diversification and shares investment ideas across all market sectors. Victor aims to help readers build portfolios that perform well in all economic conditions.He runs the investing group The Financial Prophet where he covers all market sectors and shares strategies for well-diversified investing. Features include: the All-Weather portfolio, trade alerts, technical analysis, daily reports with his latest updates, covered call strategies, and direct access in chat. Learn more.
Analyst’s Disclosure: I am/we are long DIVERSIFIED PORTFOLIO. 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/we are long assets mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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