Quick Update re: the 5% Canary Sell Signal
If you’re like me, you’re spending too much time doomscrolling about the markets, but also about politics. (What’s worse?) So you know that the S&P 500, after a miserable Monday on which only exceptionally good news could have pushed it over the 200-day moving average, is still in “sell” territory. If one didn’t liquidate yesterday, one would today.
Psychologically, it is hard to sell into weakness after an all-time-high. One must keep in mind that a major element of prudent investing is not to sell at the top, but to sell before major lows destroy wealth.
Personal case in point: 2019 was exceptional for me, as were the first weeks of 2020. When the market started tanking in February, my inner monologue was “nah, I can’t just give up 10% of my portfolio’s value. Historical examples like the Spanish Flu indicate a pandemic doesn’t have to damage stocks too much. And the prices of anti-viral companies don’t indicate anything exceptional going on”.
So I didn’t sell, ignoring some pretty clear warning signs. Until I panicked a few weeks later! With disastrous results…
Of course, the markets could improve in a V-shaped manner at any time. Easy! Trump could cancel the trade war. Hence, Powell would be able to do a Mario Draghi and say “I’ll do whatever it takes to prevent a serious recession”, and open the floodgates. His fear of becoming Arthur Burns V.2. would be gone.
I’m not betting on it!
As a side note to my European subscribers, I am dabbling in European defense industry stocks. Rheinmetall, Leonardo, Dassault, Thales, Renk, Safran for a start. The investment upside is an ongoing and long-term shift in European industrial policy. Away from automotive and social benefits, towards arming Europe and the non-Russo-American world. The investment downside is durable peace in Europe, which sadly, I don’t see coming any time soon. Sorry, but I do not know when I’ll be able to publish something on this topic — it’s not an easy subject, but I’m working on it.
Be careful out there!