Blackout

Posted on Sunday, March 31st, 2019

A very dull week so you can chalk one more up for the bulls. The longer the bulls can hold this higher ground the more likely this range resolves itself higher. Last week we mentioned that many investing professionals did not buy into the rally and expected a retest of the December lows. When most of Wall Street expects something to happen something else usually does. While investing professionals have dry powder waiting for the retest that may be exactly why those lows don’t get retested. The bulls have taken everything thrown at them including slowing global growth, earnings warnings from bell weathers such as FedEx and BMW, an inverted yield curve and no advancement on the China – US trade war, yet the bulls continue to hold their ground. The window of opportunity for the bears is predicated on the calendar. We are in the corporate buyback blackout period and that period will be closing as corporations report earnings. If the bears were going to push their case that time is now. The window is closing.

The market seems to be hanging its hat on the idea that when the yield curve inverts the market heads higher for 9-18 months before the recession hits. Since 1966, the average gain one year after inversion is 8%. The sample size is too small to be significant but that isn’t stopping the bulls. The thing to watch out for is when the curve begins to steepen – when the Fed cuts rates. The last three times the Federal Reserve cut rates the US was in recession within 3 months (h/t ZH). The average drawdown in a recession is something like 35%.  We may run higher first as the temptation for gains or FOMO is too strong. It looks like everyone thinks they will just get out before everyone else. Those exits close quickly once the selling starts especially in the less liquid ETF’s.  Here is a link for further research.

 

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

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

 

 

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

 

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.