John’s Commentary – Nov 3 2018

There has been a very big improvement in the health of the market. Price weakness is less generalized throughout the market, but is now concentrated in the larger stocks that had obscured weakness previously.

If one had the courage to buy on October 24th and 25th as urged in these NOTES, the results have been modest to very good. All the cyclical stocks – auto-related [GM, BWA], homebuilders, aerospace [AJRD], semiconductor equipment, semiconductors – especially thanks to Mellanox MLNX [up 33%], and big data/5G – especially due to Redhat RHT [up 47%] – did very well – most up 5 to 20%. Smaller biotechs also did nicely with XBI up 8%.

The Delaware Basin oils have held up despite the recent dive in oil prices. Aside from 1½ to 4½% declines in 3 of 5 oil stocks and small declines in one semi [LITE] and 5G beneficiary ZAYO, the only other price declines were 2 large-cap companies IBM and STZ.

IBM stock performed particularly poorly and is the only company mentioned favorably in these NOTES [outside certain small biotech and cannabis companies] that I would continue to buy entering this new week – for reasons addressed in the last NOTES. Most stocks probably reached their lows on the 24th/25th or before, but it is an open question as to whether the market indices have seen their correction lows. If one had acted on my thoughts expressed on the 23rd to the 29th, one would now be fully re-invested in equities.

Whether or not that is the case, now is not the time to chase this rally. Short-term caution should be used. If you are feeling uncomfortable with a large equity position or if you are an inveterate trader, now might be a good time to lighten or sell select positions. Just to be clear, I am comfortable with all the stocks that I have mentioned favorably [and, conversely, uncomfortable with all those cautioned to avoid, such as APPL, FB, NFLX, BID, TSLA, DNKN, XLU, XLP], but was more comfortable at prices 10 days ago. My caution may well be misplaced, so I do not recommend realizing profits in what should be good positions for long-term investors. However, please do not let FOMO get you more involved in this rally than you already are, unless there are very specific situations – of which there are many – that are just too good to pass up.

As to specific action – assuming a portfolio mirroring my NOTES thoughts – I would sell RHT and use most of the proceeds to add to IBM. I would not sell the other big winner MLNX, but continue to hold for-dear-life for the long-term. Also, MMNFF, up 27%, is still a buy if you can tolerate high volatility.

If the indices test the lows or go to new lows, I expect the damage to be more highly concentrated [think big and popular like AAPL, FB, and XLP & XLU components] and thus less generalized than previously. It also should not last very long and will be a good time to buy or
add to favored stocks if they dip again.

John Stewart
Chief Investment Strategist

By | 2018-12-13T14:22:59+00:00 November 5th, 2018|John's Notes|0 Comments