For the better part of two weeks, all sorts of investing strategies have been blown to pieces as a result of coronavirus outbreak related extreme market volatility.
But at some point soon, there will be a market littered with once-in-a-lifetime buying opportunities. Now is the time to begin getting ready for that to happen, even if it seems completely like the wrong thing to do amidst a market experiencing 5%-plus daily swings. It’s also time to keep things simple amid a market that has been badly damaged from a technical perspective.
“When we do get these kinds of moves, you are down 13% in a day in a market that has already crashed for all intents and purposes and could go down even a little bit more, the best thing to do is to go into some high-quality stocks of companies with great balance sheets and lots of cash on hand. Then you line the book as we used to call it — put bids in, don’t try to pick the exact bottom,” said veteran market strategist Matt Maley on Yahoo Finance’s The First Trade.
Maley continued, “If you like Apple, put in 10% of what you want to buy at $240 [a share] and then put another 10% down at $230. Just put them on the book — you can put them in your broker in the machine — so you don’t have to try to react when the market is falling out of bed. You will buy it automatically. Trying to react when the market is crashing is all but impossible.”
The S&P 500 opened more than 8% lower Monday, immediately triggering a 15-minute trading halt, launched when an index falls more than 7% from the prior session’s close. Otherwise known as a “circuit breaker”, it’s intended to prevent further immediate losses. It’s the third time in the past week in which circuit breakers have been triggered.
“Today at the open there are no opportunities, but there will be some — could be in the next 48 hours,” Maley said.
Unnerving to most players in the market is that stocks have persisted to trade markedly weak throughout Monday’s trading session. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all dropped nearly 10% by 2:00 p.m. ET after a feeble rally attempt from the morning lows. Shares of blue-chip companies such as Home Depot, Boeing, McDonald’s and Microsoft experiences double-digit percentage declines.
“We are working on S&P fair value estimates right now. What is interesting is that even under some GFC [Great Financial Crisis] like decline in earnings and extremely modest earnings growth over the next 10 years (2%), fair market value is around these levels. So have to wonder if we have some “natural” support for the market if investors are starting to internalize that. That doesn’t mean we go higher at all. But it should make investors reluctant to dump equities now,” EvercoreISI strategist Dennis DeBusschere said via email. “The above point is moot if we have a depression. i.e., no fiscal response, virus never goes away, hospitals overrun etc.”
Line those books, but not just yet.
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