Enough Is Enough

Friday, 22 May 2020
Melbourne, Australia
By James Woodburn

In some ways, it’s a lot easier travelling when everything is empty. But wearing a mask for 18 hours sucked. And some of the new measures either won’t work or will make travelling less enjoyable. 

Our good friend and Port Phillip Publishing founder Dan Denning finally made it home on Tuesday.

Although he’s an Aussie citizen, home for him is in Colorado in the US.

He arrived for a short visit in Melbourne at the start of March. A week later, the government shut international borders. They are still shut, but with the right paperwork, he got an exception.

His journey home was illuminating, described in a way only Dan could…

No hotel bars and restaurants. Everyone leaving room service trays outside their rooms. It was like a hallway full of tombstones at the Rydges in Sydney.

No businesses open in the terminals, save a Maccas here or a pharmacy there. The retailers and food joints…when will they get back to work?

If these pictures he posted to his twitter feed (follow him @danielKdenning by the way) are anything to go by, not any time soon:

The Insider

Source: Dan Denning

Dan insists he’s smiling under the mask. I can tell by his eyes he’s not lying.

He continues…

Bathrooms closed off. Hand sanitizers and alcohol dispensers in some stalls. Air dryers in some airports but not in others. Some jetways marked with “social distancing” on the pathway, some not. Most airport lounges and waiting areas have every third seat marked as one you can sit on. 

How can the industry survive on lower volumes like that? It can’t. Two options, travelling becomes ultra-regulated from a bio-medical point of view. You have to allow yourself to be tested, traced, tracked, and self-isolated (voluntarily or not) to cross international borders. It’ll be a condition of service/entry into some countries. Take it or leave it.

Many airlines will go bankrupt or be nationalised. They operate on thin margins and need bums in seats and wings in the air. I wonder if the private jet service might take off…or boutique and re-imagined luxury air travel. If fares go up because volumes are down, you might as well treat it like a luxury service. 

No more $50 trips to Bali. But $5,000 round trip to Tokyo with door-to-door social distancing to protect your health and safety with style?

Maybe.

But consider: you can’t get coffee on a plane at the moment because it’s not “sanitary.” It’s prepared and served in an open container — a danger to the server AND you. Only bevvies in bottles and cans (which is kind of crazy because how many people touch THOSE before they get to your seat).

Just a ton of stuff that will never work if we want to get back to normal. I predict much of it will just go away.

That said, Melbourne and Sydney were ghost towns compared to San Francisco and Denver. Just from 24 hours outside the bubble, it’s clear how severe the economic freeze is in Australia. Maybe it will recover faster because relatively lower rates of infection. Or maybe people are so frickin scared [that] they’ve swallowed the government’s story…hook line and sinker…and will live in a perpetual state of fear or subservience.

I think not though. Enough is enough for many people.

Enough may indeed be enough. It’s getting that way in my home country, the UK. The winter is behind them. The summer’s in front. The sun is shining. The weather is warm.

Check out this picture from a local paper in Essex, where another good friend lives. Be clear: Though restrictions have eased a touch, lockdown is well and truly in place over there. Yet this was her local beach in Southend just yesterday:

The Insider

Source: ITV News

She told me she feels lucky to have a beach on her doorstep. But she’s still staying away. Many people aren’t, as you can see.

If what happened on Bondi Beach a couple of months back is anything to go by, there’ll be a clamp down there, too. And if the local seaside cash registers rang again for a day, they’ll be dead again soon.

Which brings me to the markets…

Investors are ‘crowding the beach’.

The ASX is up 26% from its March lows. In the States, the S&P 500 is up 35%. And then the NASDAQ is just 4% below its all-time high. This is mainly because of the ‘FAANG’ stocks — Facebook, Amazon, Apple, Netflix and Google.

Facebook IS back at its all-time high.

Does that mean we’re all good from here?

No idea.

What it does tell us is that the breadth of this market is extremely small. What I mean by that is, most of the gains are thanks to just a few stocks, which, as Murray Dawes tells me, is usually a bearish sign.

On that, here are a few eerie historical stats:

Dow 1929/30:
First drop: -48%
First bounce: +48%

NASDAQ 2000:
First drop: -41%
First bounce: +41%

S&P 2020:
First drop: -35%
First bounce: +35%

Like I said, eerie!

It’s anecdotal evidence of course. But it’s worth noting that the Dow and NASDAQ went on to drop 86% and 74% from those initial bear market rallies.

Again, I have no idea if we’re approaching a similar and significant turning point today.

But it does beg some questions…

Can markets keep going up when unemployment is up, and company earnings are way down?

Can markets keep going up when government debt is exponentially up, and interest rates are near negative?

Can markets keep going up when central banks print and print more and more money via bond purchases, while you and I rein in excess spending?

One thing people are buying with this cash though, is stocks.

Check this out from CNBC this morning:

The US government passed the largest piece of stimulus legislation in our nation’s history to allow people to keep paying their bills during the forced economic shutdowns due to the coronavirus. 

Consumers, in turn, used a lot of that money to speculate in the stock market.

Securities trading was among the most common uses for the government stimulus checks in nearly every income bracket, according to software and data aggregation company Envestnet Yodlee. For many consumers, trading was the second or third most common use for the funds, behind only increasing savings and cash withdrawals, the data showed.

What happens when that stimulus stops?

That’s why I thought it would be beneficial to get my co-Insider editor Greg Canavan and Pivot Trader’s Murray Dawes on a video call to help explain what’s going on from their perspectives.

The key question: Is the market approaching a big turning point?

And how do you spot it if and when it does?

Hope you enjoy our conversation and find it useful.

Greg and Murray walk us through exactly what they are watching for in the coming weeks with the help of some charts.

As you’ll see, if the S&P 500 enters a very specific and pivotal range, there could be a huge sell-off.

It’s not there yet, but it’s not far off. This could be an extremely valuable takeaway for you today. Do pay attention. And we’ll be sure to revisit the setup in a few weeks’ time.

Give this week’s video a watch below:


 

Woody: Hi. Woody here for this week’s Insider. Now, today I’m joined by my fellow editor, Greg Canavan, and our trading professional, Murray Dawes, who is the editor of the excellent VIP trading advisory, Pivot Trader. Welcome guys.
Murray: G’Day. Hey Woods. G’Day Greg.
Greg: Hey Woody. Hey Muz.
Woody: Cool. We had a great editorial meeting at the start of the week, I think that was on a Tuesday, and it really became obvious that we’re going through a really, really fascinating and tricky time right now, so I thought it’d be really good to get Greg and Murray in on a conversation to discuss the state of the markets, and potentially if we’re seeing any turning points, because there’s a lot going on.
Woody: The way I described it in an email to these guys earlier is that unemployment is up, company earnings are down, government debt is up, interest rates are down, central bank bond purchases are up, consumer spending is down. There’s a lot going on. The ASX is struggling. Murray tells me the small-cap sector is flying, and then over in the US, we’re seeing the FAANG stocks, the big stocks that make up the NASDAQ, are up to their all time highs again.
Woody: Murray, you’re our charting guy. How about you start off the conversation? What’s going on in your view?
Murray: Look, I think it’s quite interesting because I was actually chatting to a trader mate of mine this morning. He’s a full time trader, been trading the markets for 30-40 years. I tell you, he’s just as confused as the rest of us, and he’s actually adjusting the way he trades and has traded for years because of this market. He usually trades small-cap stocks and goes very well there. He’s backed off completely because he thinks they run too hard, and he’s not willing to start playing in them at the moment.
Murray: He’s just trading around very short term in large-cap stocks and he’s saying, ‘Look, I’m just as confused about whether this is going to have another leg higher, or we’re ready for the markets to get belted again.’ He thinks they should, but he’s wondering, scratching his head, just like everyone else.
Murray: And I’m in the same boat. I think at the moment, I’m running things more from a market neutral perspective, where my portfolio is long a bunch of stocks that I’ve been buying, picking up in the crash, and I’ve been focused on quality. I’ve picked up things like Newcrest in the middle of the crash around 22.80. That’s up above 30 bucks now. There’s a few things. There’s great opportunities, but gee, you’ve got to be careful because we really don’t know what’s coming next.
Murray: I’m short the index and I’m long gold stocks and a few internet retail stocks and that sort of thing, but all up, the portfolio, whatever happens, if it does take off like blazers to the upside which would amaze me, we’ll survive, and if it does turn back down, we’ll survive as well. My attitude at the moment is to tread quite carefully. I can tell you as my chart from where I think things are going to go, quickly, I’ll just-
Woody: All right. How about we get to those in just a second, Muz?
Murray: Yeah, yeah, sure.
Woody: First, I’ll just bring in Greg because one thing that we discussed today is it is a stock picker’s market right now, so what are you looking at, Greg? I know you’re whole modus operandi is that you don’t know. You know that you don’t know what’s coming, so yeah, why don’t you put in your two cents, too?
Greg: Yeah, sure. I guess the way I’ve been looking at things and as I’ve been writing about in The Insider for the past couple of weeks is really this is just a liquidity-fuelled rally. We’ve seen central banks all around the world, governments all around the world put loads of money into their economies, loads of money into the financial markets, and that is just pushing up asset prices.
Greg: In Australia, I think we haven’t seen the type of moves you’ve seen in the US markets, purely because our market is overweight the banks. I think there’s about a 30% weighting to the big banks in the Aussie market. The main indices haven’t moved as high as they have in the US which is very tech dependent, but I think as a general comment you can say that liquidity has lifted all boats back up again.
Greg: If you look at it purely from fundamental perspective, the US market, the one that I have been looking at, the S&P 500, we’ve now got a PE ratio of higher than what it was before all this COVID-19 happened. Markets have been pushed back up on liquidity and I guess the question is, and the question that everyone’s asking is, how long does this rally keep going before you see the profit taking come in, before you start to see maybe a few tentative moves from central banks to start pulling back on a little bit of that liquidity?
Greg: Something I wrote in The Insider, in the past 10 weeks, the Federal Reserve has injected $2.7 trillion into the financial system. That’s not just money that inflates stock prices by 2.7 trillion. That is liquidity that moves through the market and as quick as traders are moving and buying and selling, that constantly pushes up share prices. As you said earlier, you’re seeing these Facebooks and Netflixes, these type of stocks that have done very well, Amazon, all-time highs.
Greg: That is just liquidity going into these sectors because there is liquidity there. They’re going to go into these supposed safe stocks, healthcare. Healthcare is another very popular sector now that money is flooding into, because of obviously what we’ve seen in the past couple of months and healthcare is now very popular again. We’ll get to some charts in a minute I know, but I guess the question for me is I’m certainly not shorting the market at this point. I think you’ve got to respect the fact that there is liquidity pushing prices up, and we’ve seen post-2008, with activist central banking, you can’t really fight that until you see some proper signals of when you should start to take those positions.
Greg: The market’s rallying quite hard. I’m standing aside and waiting to see the signs of a decent pullback. As I said, my basic premise is we saw a bottom of the market in March, and I think we’re seeing the big reaction rally now, and at some point in the next couple of months, I think you’re going to see the selling come back through again. And then that’s going to create fear as to are we going to see new lows? And then we’ll get into those questions down the track, but at the moment it’s how long will this rally go?
Woody: So, Muz, why don’t you bring up a chart now and show us what you’re looking at so that we can see…I guess it’s easier to see it in a picture, isn’t it? What would be really handy for our readers, if we can maybe give them a bit of a takeaway to see what they should be looking out for?
Murray: Yep. I’ll make it as simple as possible for people who may not have-
Woody: That’s simple, Muz.
Murray: …seen my videos. I’ll try to make it not have people scratching their heads. Look, this is a monthly chart so every candle you see there is a month’s trading. So, there’s a month’s trading, there’s a month’s trading there. And you can see from these all time highs, we have what I call the sell pivot on the monthly basis, so that black diamond there is programmed to find the sell pivots.
Murray: That’s basically when we get a monthly close below the low of that highest price candle. My whole theory is based on markets constantly shake people out, and it’s amazing that markets can confuse the bulls and the bears. The way it does it is that you have large waves, and when you have this big crash that we’ve had, going from the high all the way to the low, there’s been a lot of people getting short on the way down, making money, feeling that they were going to make absolutely heaps.
Murray: And what does the market do? It turns around and has a big short squeeze that goes nearly all the way back to the high, taking out all of those traders, and getting people bullish again, before it’s ready to turn back down. The way I look at markets is that I look at for one, the sell pivot candle, which is this one here. Again, I don’t want to make it confusing. There is just one key area that I look at which is that 75-87% retracement of that sell pivot candle.
Murray: That’s where I just so often see reversals. What I’m really looking for is as prices rally up into this selling pressure; I’m looking for a reversal back down. That might be on a weekly sell pivot from here. That’s all I really need to wait for and this is why I’m not keen on getting long the market in a massive way. I am watching this like a hawk, waiting for the area where I expect prices to turn down, and at least have a move back to the midpoint.
Murray: This is what my strategy looks for, is saying, ‘Right, I reckon there’s definitely going to be a good chance of a move, at least back to that midpoint, and I’ll have plenty of time to take some money and see what happens.’ But this is big picture stuff. It’s pretty interesting to be looking at these massive waves and if I just look at that whole wave and just focus on the one sell zone of that, this spot up here, if prices do get up there, I mean, that is just for me, one of the best trades that I’ve seen in years and years, right?
Murray: This is why it’s not quite there yet and as Greg said, this rally can go on for another few weeks, another month, whatever, but according to my strategy, where waves so often retrace nearly all the way, getting everyone taken out, getting everyone bullish again, in case of a down wave, and then turn back down, I mean, this is setting up beautifully. Really, like Greg said, I’m watching this, I’m waiting and I think it can go higher but if it gets up above 3,000 to 3,200, I’m going to be absolutely getting ready to put on some big short trades basically.
Woody: Yeah, sorry, Muz.
Murray: No, no. You go on.
Woody: I was going to say, what about you, Greg? What are your thoughts on that?
Greg: I think like Murray said, markets do what you least expect nearly all the time. And when the market started bouncing and it had a pretty good rally, most people were like, ‘OK, it’s had a good rally, now it’s going to sell-off again.’ There was all the talk about are we going to retest the lows? Are we going to make new lows? And then you get to a situation where the rally keeps going, and then people are getting a little less confident of their calls about the market, testing the lows and maybe going onto even greater lows.
Greg: The market keeps getting a little bit stronger and a little bit higher, and then it brings more people into the line of thinking that, ‘OK, maybe things aren’t so bad, and maybe now it’s time to buy.’ It’s at that point where the majority of people decide to I guess throw away their previously bearish views and start to become tentatively bullish again, that the market will then turn around and punish those people as well.
Greg: It is a really tricky situation in that you’ve got to almost be a disinterested bystander, just trying to watch the psychology of how all this plays out. There’s a really good comment, or a good saying that markets make opinions, and we’re seeing that happen right now. We’re seeing that happen right now. The market is making an opinion, or forming a consensus opinion and we’re starting to see people shift from very, very, very bearish as they were in the last month or so, to now becoming increasingly bullish. You’re seeing that especially in US tech.
Woody: What are the key metrics you’re looking at? You said you had a chart to share with people.
Greg: Yeah. Let’s see if I can bring this one up. Right, the reason I really like the Aussie dollar versus the US dollar index. It’s a really good barometer of global risk. When the Aussie dollar’s under pressure obviously, that’s global capital getting out of all risk markets. It’s a reflection of money going back into the US dollar, so you can see there it plummeted lower, reached a low there on Thursday the 19th of March, and it’s been heading higher ever since.
Greg: I guess the interesting thing about this is that it’s continued to push higher over the past couple of months. It’s now starting to head up towards a reasonably important level around the…as you can see there, 67 cents. I think if the Aussie dollar gets up around that level, I think you might start seeing a fair bit of resistance. If you see a turn, turn back down there, that might be one of the early indicators that the global risk appetite is starting to change. That’s one of the charts I’m really keeping an eye on, in terms of when this rally might have ran out of puff. Looks like it could have a little bit more to it in the short term, but yeah, really interested to see whether that turns around. Don’t know whether you’ve got any thoughts on that, the way you look at things, Muz, but that’s [crosstalk 00:13:32]-
Murray: Yeah, I love the Aussie dollar for that, and also the Aussie yen. I keep a pretty close eye on as far as watching the carry trade and that sort of thing. It’s a similar outlook on using the currencies to give you an idea of capital flows and that sort of thing.
Woody: That’s what Greg looks at. He’s looking at the Aussie to find that potential turning point. You’re looking at that sell pivot in the S&P 500, which was the chart that you showed earlier. How do you relate that to the Aussie market, Muz?
Murray: Yeah look, obviously we toe the line along with the US markets. I always analyse the US market initially and then follow-on to look at ours, because so often we will track it. But we have really been underperforming, as we’ve been saying. If we focus on the Aussie market up close, you can see, and I can show you quite quickly, just to get a sense, that as far as the retracement from the lows goes, we’re still below the midpoint.
Murray: There’s your midpoint, 57.50. We’re currently at 56.65. This is as Greg was saying, the banks being so weak. But if I was to bring up the small ordinaries, just to make the point clear of what we were talking about, here’s the small ordinaries. And I’ll just clean that up for you. If we look at the reaction, you can see that that’s now well above that point of control and is rallying quite strongly.
Murray: So, the small-cap stocks that have been underperforming for years, in this current rally, I mean they’ve been absolutely bashed, but I’d say a lot of that’s retail. Punters are really in there and you’ll see the numbers on Robin Hood, which is a big retail punter outfit in the US, their volumes have gone through the roof, and you’ll know that ASIC have come out recently and said to warn to the retail punters, because they’ve been flying back into the CommSec accounts, and the activity levels from the retail guys has been going through the roof, I think from people thinking that this is the big opportunity to get in.
Murray: The major part of my strategy is to, as I’ve said, wait for these huge sell-offs, but then wait for the squeeze once it goes too far. It’s going to meet the selling pressure. This is where the selling pressure is, as far as I’m concerned, 75-87% retracement. That’s where the really big selling pressure will be, and we may not get there. But from the small-cap perspective, the higher this goes now, the riskier it is. If I look at the potential downside, and even if it is to revisit those lows and that’s it, that’s still a massive fall that can come.
Murray: If you’re buying here, and there’s massive resistance up here, I mean, what’s your risk/reward on starting to buy the market now in these small-caps? I think it’s starting to get a bit long in the tooth, as Greg was saying. And you’re really taking your life in your own hands, if you’re chasing the market higher. And as I said about the trader friend of mine who has traded small-caps for 30-40 years, he’s backed off completely from trading small-caps and is now only focused on the large-cap stocks.
Murray: If I look at the overall index, and I’ll look at the XJO and I look at the weekly, from my point of view, it is OK. It’s rallying, and we’ve got a bit of a trend to the upside, but the downside pressure is so huge and if you think about it, this is I guess just a simple way for people who aren’t technical analysts, everyone who’s bought, let’s go all the way back here to what, 2015? Pretty much every buyer in the last five years is out of the money.
Murray: If this market starts to turn back down from here, how many people do you think are going to start hitting the sell button, going, ‘Oh, no. We’ve missed it.’ There is a huge amount of weight above the market. I guess that’s the main point to make. Our market is a lot weaker than US markets. Really, the higher this goes, the further it goes into selling pressure. I’m just waiting for the signs of a sell pivot, which is if it turns back down and has a weekly close, below the low of let’s say this week’s trading, which is the new high in the move, this market can turn down rapidly.
Murray: So, for me, I’m quite excited by the way the US market looks, because the higher it goes now, the more excited I get, because it’s actually getting up into the key sell zone area that is the crux of my whole system. This is like something that I only see once every 5-10 years, something like this. I want it to keep rallying, but I think it’s going to be an amazing opportunity to capture the next leg lower, which I think is going to come. And it’s all going to hinge on the second wave of infection, which may be coming.
Murray: I think that is a real risk as economies open up, that that could be a factor. If that comes, I mean, that is really bad. You think about the risks that are coming in the next few months, I mean a second wave of infection hitting us now, and then having to close down the economies again, just imagine the absolute mayhem that would create. I just think everything to me is looking like it can keep rallying, yes, but I’m very wary the higher it goes now.
Greg: Muz, just a question on the small ords index that you showed a little bit earlier. Devil’s advocate. Isn’t it often a bullish sign when the small-caps outperform? And therefore I would look at…because I’ve been keeping a close eye on this as well, and I certainly agree in the short term, it’s the snap bounce back has been so rapid that I’d be certainly weary of a decent correction coming through, but this is the sort of stuff that gives me a little bit of confidence that we’ve seen a solid low in March, given that the small-caps are now outperforming for the first time.
Greg: I’ve got a chart, and I can show you guys in a bit as well, just on the relative performance to the…actually, while we’re doing that, I’ll just bring it up.
Murray: Yeah, bring the chart up now.
Greg: We’ve got it here. This is the XSL. I’m just going to show this chart relative to the broader index, the broader ASX 200. As you can see there, it’s at its highest level of outperformance since late 2018. To me, that’s just an indication that there’s genuine recovery hopes coming back in the market.
Greg: Often when there’s a nervous market, capital will go into the large-cap stocks, but in this instance, you’ve seen money coming back into the small-caps. There’s an argument to say that the large-caps in Australia are certainly dominated by the banks and they’ve obviously had some major troubles by the economic shutdown, and that could be a reason for this outperformance, but yeah, question for you, Muz, what do you make of that outperformance of the small-caps relative to the big stocks?
Murray: Look, I probably would agree with that. In the fact that there is a lot of great companies out there doing some pretty interesting things. I mean, I’m definitely keeping an eye on quite a few and starting to pick up a few. For instance, I bought an internet retail stock recently that is actually outperforming during this COVID time.
Murray: That shift in retail is starting to happen and some of those tech stocks are actually seeing a big uptick in their sales, and they became quite cheap. Just in the crash, everyone sold everything. There is some of those really quality stocks have bounced back really strong. If you look at your ProMedicas, and as you were saying, in healthcare, tech, et cetera, and Dubber is another one.
Murray: There’s a whole heap that have really bounced back strong. There were people waiting on the sidelines ready to jump into these things. There definitely is a whole bunch of stocks in the index that are like that, and I think are really good stocks. But I think just in the short term, it’s just run a bit hard and I think you will be able to pick those stocks up at cheaper levels.
Murray: I agree with Greg that maybe we don’t revisit March lows even. Maybe all we do is a slight false break of those lows, but I just think we are going to see another wave down, and the higher this goes, for me as a trader, I just look at the risk/reward, and I say if the S&P does squeeze up into the sell zone for me, my whole trade is I don’t think it’s going to make a new all-time high before it has another wave down.
Murray: For me, the risk/reward becomes very good to do a trade the higher it goes here. Because I don’t need to risk that much to find out if we’re going to see a sell-off. And we’ve been squeezing really hard, after the biggest, sharpest crash in history. For my strategy, which is to look for those sell zones and major waves, I mean, I can’t ignore that. If I get he signals up in that area, it’s just a good risk/reward trade.
Murray: Whether it’s right or not doesn’t matter to me. What matters is it’s asking really good risk/reward trades and trying to take profit quickly and then create that free option and then see what happens. I mean, that’s all I can. I don’t know the future anymore than anyone else.
Woody: Yep. Hey Greg, you’re kind of getting together a watchlist of stocks. If you say that it looks like there’s relatively bullish trends in, what levels are you looking at in order to hit the button on those?
Greg: I guess there’s not levels so much. It’s just really trying to work out from a fundamental perspective, are you buying decent value? I had my eye on a few retailers and even those, they’ve just rallied well beyond where I thought they could get in the short term, given that there are lots of earning risks. Then, when that sort of stuff happens, you try to rationalise what you might have missed out on.
Greg: I think one thing that a lot of people probably haven’t worked out is the government has come to the party so much in this economic disruption. We all know that the government is now supporting a huge amount of people that have lost their jobs. In many, many cases, a lot of people, especially in the casual workspace, people are getting paid more now to sit on the sidelines and wait for their job to return than what they were when they were working in a part time fashion.
Greg: I think people probably underestimated the short-term hit to earnings that a lot of these companies would take, because it wasn’t so much unemployment as under employment, while people were waiting for their jobs to come back. For me now, the concern might be what happens with these companies’ revenues and earnings when the government turns off the tap in September and all that short-term support that they’re offering the labour market finishes in September?
Greg: For me, I’m not looking for levels so much as looking for when do I see a genuine turn in the trend? At the moment, you’re seeing a big fall down, bounce back up, but the actual overall trend is still coming down for many of these stocks. Like Murray said, you’re looking for risk/reward, you’re looking for high probability trades rather than just trying to follow short-term momentum.
Greg: If you’re a trader and you just want to see how far this goes up and you can keep a little stop-loss while you’re trading up, that’s fine, but I’m trying to take positions in stocks that I think will do well for the next one or two, three, four years. Right now, I think the risk/reward on those decisions is not in favour of the buyer, because I think your going to see this bounce back up, but then you’re going to see another leg down, not another new lows, but you’re going to see a retracement of a lot of these short-term gains, and that’s when I’m going to get interested in starting to take a position.
Greg: Because that’s when I might get more confidence. If you see a share prices make higher lows, and then that will give me confidence that the trend might be in the process of turning, and that’s when I think to myself, like Muz said, risk/reward, probability is more on our side and that’s where you can take a position with a bit more confidence.
Murray: If I can jump in there, and I’ve got pretty much a very similar view to Greg on how this plays out, and maybe it takes six months or a year, whatever, but it’s a very similar view that this is going to run out of time. It’s going to turn back down and we don’t know how far it’s going to go down, but this next leg down can be a great opportunity for long-term investment.
Murray: My view is to actually ratchet up the quality scale, so I’ve been trading a lot of mid-cap, small-cap stocks that I think have a great future. But if we have another big leg down, I’ll be looking at the Wesfarmers of the world and the companies, the oligopolies in Australia. There’s a few sectors in Australia where there’s three or four companies that own everything, the whole market, like the banks and the retailers and all your Woolies of the world, et cetera.
Murray: I mean, those businesses are going to be around in 20-30 years, and they’re going to keep dishing out big dividends and if you can pick them up at 20-30 year lows, like a Woodside, I mean Woodside turns down again and goes to $15 or you’re buying it at 20-30 year lows, and the assets that they own are multigenerational, I mean, that’s when you start setting yourself up for retirement, by buying those sort of companies that you know are going to be around, you’re getting them cheap.
Murray: And in 10 years, what dividend return will be getting from those companies? And capital growth. For me, that’s what’s exciting, is if we get a chance to jump into the top 50 stocks at a really cheap level. I think that will be quite exciting, if it does happen.
Greg: Well, perhaps that’s the next stage of this conversation in a couple of months if we do see that downturn play out, we can talk about the type of stocks and the sectors that we might be looking at to take those positions in.
Woody: Yeah, I think that’s good. It’s probably a good place to end this conversation, too. Just one thing for both of you. In a very short, snappy, 30 seconds, what’s the key thing I guess for a takeaway for people listening, what’s the key thing they need to be looking out for then? Whether that be the next week or the next couple of weeks. Murray, do you want to go first?
Murray: Yeah. I’m watching it like a hawk for it to turn back down. I want to see a spike higher, and if the US market does blast off in the next few weeks and rally 200 points, don’t buy it. If it does turn back down, it’s an exciting opportunity for short-term traders to capture the next leg down.
Woody: There you go. Greg?
Greg: Yeah. For me, that Aussie dollar is just always a good indicator, so I’ll be seeing whether that can break through its resistance, or whether it turns back down. And then on the back of that, there’s a couple of indicators that I’ll be looking at as well. But if that does turn down, that should be matched by other risk assets in the market turning down, and if at the same time you still see a strong US dollar, you still see bond yields holding at these really, really low levels where they are, it just indicates that the risk off trade is fading and it’s time to step aside.
Woody: Cool. All right. Cheers, guys. We’ll wrap it up there. Like I say, if you’ve got any thoughts or comments on this conversation, just shoot me, Greg, an email at letters@portphillipinsider.com.au. We’ve had some awesome emails and we’ll aim to keep answering them as we go. It’s been quite a cool little thing to read, hasn’t it, Greg? Over these past few weeks.
Greg: Yeah, definitely. Absolutely. Enjoy reading it, so more than happy to yeah, keep the letters coming, guys.
Woody: Cheers, thank you.
Greg: Thank you.
Murray: Thanks guys.

Meanwhile, another important event got underway this week…

Vern Gowdie’s priority list opens to the public — first video instalment lands tomorrow

A few weeks back, we opened the doors to a very special project we’ve been developing with Vern Gowdie.

Initially, we only made it available to his subscribers of The Gowdie Letter. We’re now opening it up to all subscribers who choose to be a part of it.

It’s called The Gowdie Advisory. And it’s a very different VIP service to anything we’ve ever launched before.

You see, this isn’t about stock tips or short-term trades.

This is about something much more longer term. It’s about giving members answers and solutions when it comes to your overall wealth. Not just your stocks and superannuation. Your home and rental properties…your spending and saving patterns…the cash you have in the bank…other assets like gold, cars, cryptos, fine art…your business equity…your estate and family wealth.

What we know from the many emails and questions Vern has received over the last few months is that people are looking for some straight answers.

The mainstream financial media doesn’t seem to be giving you them.

So, we decided to do something about it with a rather unorthodox project. It’s territory we’ve never ventured into before. And it won’t be for everyone. I’ll make that very clear. But the priority list to learn more information about this is 100% free to sign up to (and easy to unsubscribe from as well if you realise it’s not for you).

One of the most valuable aspects of this project for me is that Vern is enlisting the help of some powerful friends and contacts who are experts in tax law, SMSFs and superannuation, estate planning, insurances, and mortgage broking.

Vern’s own daughters have also agreed to appear to talk about the challenges and opportunities confronting the millennial generation, too. So this really is a venture not only for you, but your family too.

Your children and grandchildren may find it beneficial to chat with someone who understands the issues the younger generation is dealing with.

Anyway, the priority list is now open and the first formal video from Vern introducing this project starts TOMORROW.

So, I’d suggest checking it out if you’re interested as it’s totally free to do so.

By the way, if you’re an Alliance member, of course you get this new service as part of your membership. But feel free to sign up to the priority list if you’d like to access the resources that we’re making available.

One of them is a recorded call with family wealth expert, financial publishing magnate, and professional mischief-maker…our very own, Bill Bonner.

This call alone is worth signing up for. And you can do that, right here.

Finally, a great suggestion in the mailbag…

A question was sent by Exponential Stock Investor subscriber, Bob:

Good afternoon,

During April you provided members with a timely report on HOLD or SELL calls on the shares in your portfolio. And on the 22nd April you encouraged communication from members.

Accordingly, I would like to see a review by you of all the stocks on your current recommended list in terms of a timeline for success.

I would imagine, I, at 77 years, would be typical of a significant portion of your membership being over 70.

My experience, over many years with speculative stocks, is they seem to take years — many in excess of 10 years — to achieve financial success for investors. Accordingly, when I consider investing in EXPONENTIAL STOCK recommendations an important aspect is “time to fruition”.

It would be helpful to me — and presumably other members — if you were able to provide your best estimate of “years to fruition” for each company on your recommended list.

My suggestion would be to rank your recommended companies in the following time period;

0 to 1 years,
1 to 2 years,
2 to 3 years,
3 to 5 years,
5 years and above

Whilst I understand there are many, many variables, and accordingly your rankings would understandably be heavily qualified, I also think it would provide valuable information to your Exponential Stock Investor membership and assist them in ranking potential investments.

Yours sincerely,

Bob

This is a really good idea, especially for the more speculative services.

And as this particular question was directed at Exponential Stock Investor, I fired it over to editor, Ryan Dinse.

For everyone’s benefit, here’s Ryan’s reply:

Hi Bob,

That’s a very good suggestion and something I will consider implementing.

As you say, it would be a “best guess” estimate but it could certainly help frame the investing decision for each potential investor.

It also complements an idea I was already considering and that was the idea that there are two kinds of exponential opportunity.

First, there’s the companies that have the potential to explode on just one key breakthrough.

Small biotechs, mining explorers and some tech stocks are sometimes like that.

An example would be our recent success with Archer Materials which is up over 170% in less than a few months.

Of course, those kinds of stocks come with higher risks too. An example of a stock that hasn’t yet made that “key” breakthrough after two years on the buy list is Brainchip Ltd which is down 70% since I first picked it. Though I still have high hopes for it!

The other kind of exponential is a stock that might look a bit boring at first but is growing steadily at 20%+ per annum on strong underlying trend.

When you remember Warren Buffett’s average annual return is around 20%, you understand why picking these slow burners can actually yield great long-term results.

We try to pick a bit of both in Exponential Stock Investor.

Any, in conclusion, thanks a lot for that great suggestion, Bob, it’s something I will carefully consider implementing in the future.

Kind Regards,

Ryan Dinse

Have a great weekend.

Cheers,
Woody