Update From R.I.P V-bottoms to Rip Your Head Off #SassyMusings

Ok so my Rest In Peace V-bottom post a couple weekends ago was obviously a horrible title. The message within it was so far* pretty off in that I expected a drop back to the lows or lower lows after a decent size bounce. I certainly did not expect the bounce to take place so quickly (creating a V-shape), but so be it.

The good news (for me at least) is that I was able to adapt and actually do well over the last couple weeks. I definitely could have done better had I just kept the things I got long instead of sell them into strength, but given all the uncertainty and the surprise of this move I am happy with my performance.

So where does that leave us now? Yes we are overbought, but we have seen that before. In fact, with this latest sell off we became more oversold on many measures then we had in years. Perhaps the nature of the intense snap back should have been anticipated (rubber band theory). Regardless, maybe I’m just drinking the Kool-aid, but my bias is that any near term selling will be limited. Whether that takes us to new highs surpassing 2019 before another correction I am neutral on. That kind of leaves us in a weird place because the risk/reward then becomes rather weak for further gains and losses (in the near term).

If you look across different sectors we could just be setting up to play the rotation game again with financials, industrials, and even energy starting to pick up. When I see, write, or read about all the divergences I have been trying to remain open minded (even in the midst of having a bias) by not concluding stocks must fall, but that it is possible 1) the divergences are due to the nature of sector rotation or 2) that they leave room for further upside and the divergences catch up to price.

My take-away is this, the risk/reward for both the upside and downside seems rather limited in the very short term. Having said that, stocks can and have moved quite nicely independent of the indices. As mentioned, I was wrong the last couple of weeks and still made money. If anything I am thankful for all the recent volatility because it makes for so much more short-term opportunity than the slow grind that has been. My suggestion is whatever bias you have don’t let it control your actions. This market can and most likely will fool us all. Furthermore Janet could change all of this come 2:00pm EST today.

There are a ton of set-ups I see in so many sectors so I will leave you with a less watched sector that looks might fine right now: Beverages (i.e. PEP, STZ, TAP, MNST, DPS).

Good luck the rest of the week!

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