Fear to Cheer! Correction Over?
The Issachar Fund (LIONX & LIOTX) is 100% in Cash on Sunday, March 7, 2021, with $64mil in AUM @ $12.30/shr. Sell stops were triggered last week, so I followed my discipline and exited positions. Many indexes traded below their respective 50-day moving averages on above-average volume by Thursday as fear of rising rates dominated the tape. Friday’s better-than-expected jobs report, and the expectation of two trillion dollars of deficit spending seemed to mark a bottom and cheer the markets higher into the close. It is hard to keep the stock market down for long when trillions of newly created dollars could be eagerly looking for a new home. It appears to me that big institutional money has been flowing out of the “COVID stay at home” stocks to the “reopen” cyclical stocks like the energy, machinery, mining, retail, and financial sectors. My watch list is full of “reopen” stocks, and I believe many are extended in price, so I plan to wait for alternative buy points. I try to remain open-minded and flexible staying in sync with the market, not getting stuck in the bull or bear camp because the market does not care what I think. My goal is to capture most of the gains in a bull market and avoid the life-changing losses in a bear market. The charts tell me to be patient and let the market prove itself by slowly pulling me in like April 2020 and pushing me out during the COVID Crash last year and the Christmas Crash of 2018. (There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.)
The Fed decreased its balance sheet last week by $32 billion! I am a little concerned that the Fed could not stop the 50% rise in 20-year Treasury yields this year. The Fed has expanded its balance sheet by over $194 billion this year, biding up bond prices, but sellers have dominated and forced 20-year bond prices lower by over -11%. I believe the market is trying to digest this $2 trillion spending bill by demanding higher yields on government-issued bonds and deciding which stocks will benefit from the excess spending. I plan to buy stocks that will do well as the economy reopens from the COVID lockdowns. $2 trillion of newly created dollars has the potential to lift a lot of boats in the stock market sea. This could be a great buying opportunity!
Bottom Line: Issachar is in cash, but that could change quickly if the bottom on Friday holds and institutions continue buying. When institutional money moves in and out of the market, they show their hand by leaving big volume footprints. I believe the big boys have been selling last year’s winners and buying cyclical stocks based on a robust economic recovery expectation. Once the COVID “fear” runs out of steam and Americans get back to “normal,” I expect the economy could zoom higher as $2 trillion finds a happy home. I believe the correction could be over, and a new breed of stocks could lead us higher. The Bible tells us that fear is not from God, so fear not!
There is no fear in love. But perfect love drives out fear, because fear has to do with punishment. The one who fears is not made perfect in love. John 4:18
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