Market Analysis

over 800The markets continue their choppy trading in the midst of growing chaos overseas giving them an appearance of resiliency. But under the surface, there are warning signs that we had not anticipated that are pointing to the possibility of a sharp, capitulative low that would end this 2-year trading range. So, the 6-12 month period of boring trading we referred to recently, that would build momentum for the launch of the new bull phase, will likely be shorter and more volatile.  This development in no way changes our long-term bullish position, it simply raises the possibility of a delay in entering that next phase of a long-term bull rally.  We mentioned in our most recent commentary how overall participation with bullish trading was starting to improve and that is a requirement to have a lasting rally. This action has cooled off considerably in the past weeks and is happening precisely at a time it should not.  As is usually the case, we let the “market of stocks” and not the stock market overall guide our decision making, which has caused us to mostly sit on our hands in the last few weeks for new buying, but not with selling, so we let go of a few positions that had fallen out of trend.  This is part of our active management style by keeping the strongest performing stocks and culling out the weaker ones that go into a long-term decline.  

Unfortunately assessing the “true condition” of the market and making forecasts based on it is not unlike that art craze of the late 1990’s, the “Magic Eye” where one must stare at the object for an extended period of time and also back away from it to see the hidden picture. One must utilize every type of analysis to gain the full picture and sometimes it just cannot be seen until time elapses and more data is gathered.  One of the measurements of market fear, that is almost always a part of determining whether a true low has been reached, is the Volatility Index (VIX).  Back in November 2021 through October 2022, the VIX kept peaking around 30. In contrast it reached over 75 at the pandemic low in March 2020 and almost 90 in October 2008 during the financial crisis.  But a common fault among portfolio managers is to wait until everything looks “perfect” to take action.  Most of our research partners eventually agreed we had reached a low, so we decided to invest accordingly.  We have had a profitable 2023 so far but the narrowness of the rally, in terms of the number of stocks participating in the rally, has fallen off a cliff, just when it should be doing the opposite.  As a result of these events, we are turning short-term defensive and will not immediately reinvest proceeds from stocks that fall out of their uptrends or support levels and we will consider employing a hedge instrument that is designed to help mitigate losses.  Our goal is to protect what we have earned this year by holding cash and Treasuries to deploy when the bottom appears.

Gary and Dianne

This report is provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance.

Any security mentioned in this report may not be suitable for all investors. No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment. Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances. Past performance of any investment mentioned is not a guarantee of future performance. Statements regarding the investment concerns and merits of any company and fair market value computations are strictly the opinion of Marin Group. Employees of Marin Group and Marin Group clients may have positions and effect transactions in the securities of the issuers mentioned herein.