Three things I’m thinking about today…
1. Take a bow Murray Dawes….
For weeks now my colleague Murray Dawes was warning of a potential sell off in the share market. It was all made available for free via our Friday podcast, the Closing Bell.
We’re in the middle of the storm now, and there’s no let up in sight.
Markets are panicking. There will be a sea of red today. No stock will be spared.
Darn it, but Warren Buffett has a line for every moment in the market…
“When the tide goes out, you see who has been swimming naked.”
It’s the same story, always.
Now, this is where the rubber hits the road. It’s at moments like these – capitulation – that you can consider going the other way.
Easy said, very hard to do in practice.
I remember this same dynamic in play during the Covid collapse. One mistake I made at the time was to think I needed to ‘go big’ all at once.
The best mindset you can bring now is one most advised, normally, anyway: dollar cost averaging.
Markets go up. Markets go down. They usually drop on great drama.
History says buying in these down moments can lead to fantastic long term returns.
You don’t necessarily have to buy literally today. But my earnest advice is to make a list of stocks you want to own long term and watch them like a hawk.
2. Let’s think it through…
We know tariffs are internationally disagreeable. The odds of recession are rising. But are there any sectors that could benefit from this?
Domestic focused companies should go to the top of your list.
One that springs to my mind are the REITs. Trump’s tariffs are dropping interest rate expectations like a stone.
They will lower the debt costs for the REITs, and therefore lift their earnings.
REITs could also likely be nice and solidly defensive as all this plays out.
Shopping centres like VRX, HDN and SCG could benefit too if boomers put off international travel and treat themselves instead to jewellery, dining out and new shoes. If you’re looking for yield, there’s one idea.
Any others?
The word on the Street is that China will go big on domestic spending to offset the contraction in its export sector.
The AFR has this from a man inside BHP today…
‘BHP chief commercial officer Rag Udd says Chinese steel makers will maintain current production rates for several more years and that iron ore prices should remain above $80 a tonne, bolstered by growing demand in new sectors such as electric vehicles.’
Notably, Mr Udd says investors are still preoccupied with the weakness in Chinese housing when it comes to steel demand, and not the rest of the mighty industrial Chinese economy.
I go along with that. There should be good support for iron ore around US$80 a tonne. It’s still around $100 a tonne now.
Even better, China could go big on the stimulus and set off a renewed resource run.
BHP and Rio look interesting in this context.
3. Don’t swing wildly. Know your stock…
Then there’s the deep knowledge game in play. I don’t know how closely you follow the stock market, but I know how closely I do: every day.
When panic hits, the more knowledge you have about a stock, the better.
For example, I saw a cracking quote on this over the weekend. It said, “In a bull market, all that matters is growth. In a bear market, all that matters is the balance sheet.”
In other words, you can buy with some confidence when you know – immediately – if a company has a huge cash hoard, or huge debts. You know if a stock has a buyback program in place.
It’s those little details that can make all the difference when people are losing their heads.
Cometh the hour, cometh the man. More soon.
Best wishes,
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Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
PS. Of course, shares are risky and you should consult with your advisor at times of high stress like this.
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Murray’s Chart of the Day
— S&P/ASX 200
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| Source: Tradingview |
We have started the week with crash-like conditions.
The S&P 500 fell heavily last week and opened this morning (Sunday evening for the US) down another 5%!
Weekly charts are now getting heavily oversold, and I expect to see a bounce at some point this week. It could even start from the lows hit this morning.
But there is still the possibility of lower prices before a solid recovery takes place.
The S&P 500 and Nasdaq hit the exact midpoint of the rallies both have had over the past couple of years this morning. It is a serious support level that could prove to be the bottom of the current selling pressure for the immediate future.
The S&P/ASX 200 cracked below the important 7,600 level that I have been telling you about and fell in a straight line to this morning’s low of 7,170. That isn’t far above the target of 7,000 that I thought was a high probability if 7,600 didn’t hold.
So it feels like markets are in fast forward at the moment, but they are still respecting key technical levels.
The chart above shows you the weekly S&P/ASX 200 chart as well as the RSI indicator below.
You can see that the weekly RSI has hit levels that proved to be great buying in each of the major selloffs that we have seen over the past 15 years apart from the COVID crash.
So we may still see lower levels but the lower it goes the more excited I get about the opportunities that will be on offer.
Regards,
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Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps
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