Date: March 23, 2022

2 Years Ago Today – Calling A Bottom

Let’s start off by recognizing that two years ago today was the COVID Crash bottom. I remember writing a post on this blog over the weekend how the downside momentum was waning although price continued lower, a key indication of an impending turn. Then there was the insanity from the paid actor pundits on those trading TV shows. There were guys literally falling over themselves to give the lowest target for the S&P 500. 1500 was shared by many. Some loud financial anchors finally stopped screaming BUY BUY BUY and told investors to stop worrying about the markets and worry about humanity.

I thought stocks would find a bottom over the coming few days. That was certainly one of the better calls in my 32 years, but truth be told, I never thought stocks would literally turn on a dime and rocket without looking back. Except for a one-day decline on April 1, that’s exactly what they did.

I remember looking at the performance of our strategies that weekend and just shaking my head at the equity ones. That carnage was beyond fast and deep. Many months later when I was recalling the COVID Crash, I couldn’t believe how quickly some recovered. It was astonishing. When I meet with prospective clients and talk about my 32 years in the business and how my clients fared throughout the various large declines, I always used to end with a quip that while I may not seen it all, I don’t even want to imagine what I haven’t seen.

When I am asked to “sell myself” or describe how we add value, one of the many things I offer is that I do not react emotionally to markets. I do not go from fear and despondency to euphoria and greed. That’s why we use quantitative models for so much of what we do. It doesn’t guarantee success, but it does remove an important element for failure.

Today, stocks have soared off the the low from Fed week and have regained more than 50% of what they lost this year. That’s usually the easiest part and quickest money to be made. I would look at the horizontal, blue line for an area the stock market may continue to. Or it could put in a short-term peak sooner.

So far as I keep mentioning, what fell the most is rallying the most. No shock at all. That’s both in the indices and sectors. High yield bonds remain a concern as they are lagging and look lifeless. The media’s attention is squarely focused on the indices which are dominated by a few stocks. We need to watch what’s going on beneath the surface.

On Monday we bought FMAR, TQQQ and SQQQ. We sold levered inverse S&P 500, levered inverse Russell 2000, some LABU and levered inverse NDX. On Tuesday we bought the Dow Industrials, XLK and levered Russell 2000. We sold IJT, some SOXL and some levered inverse NDX.


Paul Schatz, President, Heritage Capital