New Quarterback
Posted on Sunday, November 22nd, 2020
Last week we left you with a cliffhanger. Is he or isn’t’ he Covid positive?? Much to our relief it was just allergies but no sooner than those test results came back we had another visitor to quarantine. Our daughter came home because she was contact traced and told to isolate. Good grief! After several days in the basement she got her test results back and she is also negative. 2020 is getting old.
One of Reilly’s Rules is that whenever everyone thinks something is going to happen something else will. Investors expected all hell to break loose if there was a close and contested election. Well, he we are and nothing of the sort has happened. Currently, investors have gone “all in” on an extended rally in markets as we enter the most generous seasonal period of the year and a vaccine is now on the horizon. But if that is what everyone expects… we expect perhaps we will see something else first. The rocket boost of the vaccine news has failed to generate the liftoff the S&P bulls sought. That usually means the bears take control for a bit. Our options gurus’ research this weekend is saying that the next few weeks could be very volatile as we go into year end and we agree. We are still bullish longer term and suspect that small caps will lead the next rally but perhaps it is time for the bears take control for a bit. Buckle up.
We have mentioned bitcoin for the last several weeks and that has been a big winner. We could see the pressure building in that asset and the bulls were on the cusp of a big win. It’s funny. Most people try to think of the narrative first and why things might happen. The required skill set in investing is in finding assets to buy BEFORE the narrative becomes apparent. In fact, the narrative, which plays well on television as entertainment, only ever really becomes apparent after the market move. The crux of the matter is that we are long the assets that are going up and short the ones going down and not the why.
The S&P 500 fell right back into our trading range that we have been writing about for weeks. We have been of the thought that the market could be range bound for months and we are still stuck. The difference last week was that the small cap sector of the market judged as by the Russell 2000 has broken out and held its gains. Our questions last week were twofold. Are we still stuck in a range for stock prices as judged by the S&P 500? It appears we still are. Is the best place to be techs or small cap/value? It appears that small cap stocks are leading the rotation out of tech and out of large caps. The rotation out of large caps may hold back the broader market and averages such as the S&P 500 so the real action may be when we look under the hood. The bulls still have the ball they may just be using a different Quarterback.
Stay safe.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.