Yesterday in my post “What do you do when the market is insane and you’re not?” I argued that one of the dangers in a very volatile market with strong–and temporarily profitable–short-term trends is that we’ll give in to the pressure to do something–and do something that will cost us money since we’ll be late to the trend because we’ve tried so hard to sit and wait.
Better I suggested to do something small that fits in with our larger view of the long-term trends in the market.
So I promised a post today on the topic of “It’s so hard to do nothing, so let’s do something.” (Some examples in this post refer to the options I use in my Volatility Portfolio on my subsription JubakAM.com site.)
And here it is. I’m going to start with 5 smart, short-term moves that I think you can and might well should pursue now while we wait for the post-reopening rally, and/or the disappointment sell off, and/or the second coronavirus wave and bear market bottom to emerge in June though September. My suggestions aim to be something you can execute in the short-term to take advantage of very volatile short-term conditions to set up longer term positions at good prices.
Buy gold on any retreat in gold on either selling that is a result of traders using gold as a source of funds to cover other investments (which I think was the case today when gold fell 1.29% even though stocks as a whole were tumbling by 2.20% on the Standard & Poor’s 500.) The 50-day moving average today, when gold closed at $1734 an ounce, is around $1630 an ounce. I think adding at that price or even better $1600 on any dip would be building a position that’s likely to show a good profit as economies get even more uncertain and as central banks pump even more cash into the global financial system. I’d use the SPDR Gold Shares ETF (GLD) if you want to own the metal itself in a liquid ETF or, if you want more leverage, the shares of a gold mining company (my pick would be Barrick Gold (GOLD) or mining shares in an ETF using either the VanEck Vectors Gold Miners ETF (GDX) or the somewhat more volatile VanEck Junior Gold Miners ETF (GDXJ). Remember those two enemies of higher gold prices, inflation and rising interest rates, are likely to be absent for a while.
Dollar cost average into one or two stocks that you absolutely want to own for the long term. I’m talking best in show stocks. (In most other instances I’d wait for a bottom, but these stocks don’t look to fall much even a bad sell off.) My choices here would be Twilio (TWLO) and Palo Alto Networks (PANW). These are the best ways, to my mind, to invest in the evolution of the network away from a PC-centric world where everyone signs in through a PC to one where the input could be coming from a PC, a tablet, a smart phone or whatever. The implications for platforms and security are immense–and the work-at-home world of the coronavirus shutdown has made those implications very clear to company IT leaders in just about every industry.
Buy one or two long positions–shares or call options–on companies that look likely–on the performance of the last week–to gain in the re-opening of the economy rally. Hey, even though I think that rally is likely to fade in June, I think we could have a month from an actual re-opening announcement in mid-May (or earlier) in my guess. And I’m not one to spit in the eye of gains of 10% or 15% in a month. And we’ve had a good dry run over the last week or so that points to some good horses to ride. My picks here would be Starbucks (SBUX), Restaurant Brands International (QSR) and Shake Shake (SHAK). All three climbed hard on hopes that re-opening the economy would mean a surge in business (I don’t think it’s quite that simple, but in the short-term go with the sentiment even if the hard evidence points in another direction.) Going long here doesn’t mean taking off the long-term Puts I have on Starbucks for September. And it doesn’t mean that I wouldn’t add Puts on Shake Shake and/or Restaurant Brands if the re-opening rally got very wild to the upside. I’m just looking to ride short-term sentiment higher here, if I can. (I’m already long shares of Restaurant Brands in my Jubak Picks Portfolio.)
Short an oil stock or two, even after this horrible plunge because as bad as March and April (so far) have been, May is going to be even worse. Bloodbath comes to mind. That’s because the recent OPEC+ production cuts don’t go into effect until May and the history of these cuts is that OPEC+ members rev up production in the weeks before the new quotas go into effect. Right now there’s so much oil in the world that you could probably sell storage to an oil producer if you had a backyard rain barrel to spare. There is literally no place to put new oil with demand so far down because of the coronavirus recession. My suggestion here is not to try to go short oil itself. The price has just been so crushed that vehicle such as the U.S. Oil Fund (USO) just doesn’t have enough downside left to its price. (It loses at $4.43 on April 15, own another 4.94%. The 52-week range is $4.03 to $13.86.) Instead look for one of the oil stocks that have held up the best and where investors haven’t yet given up. I still own one of these myself in Pioneer Natural Resources (PXD). Another to consider is Concho Resources (CXO). A Put Option in either of these would be my choice. And remember that you can own a short-term Put and a long -term bet on the shares themselves at the same time. They are bets on market moves over very different time periods.
Pick up long-dated Treasuries on any pull back in Treasury prices in a re-opening rally. I think that there’s a good likelihood that the 10-year U.S. Treasury is going to 0% before all this is done. Another wave of coronavirus infections in the fall would push the Federal Reserve to launch even more helicopters to dump cash on the financial markets and on global economies. The yield on the 10-year Treasury was 0.65% today. That’s not attractive as a yield but it does indicate there are capital gains to be made here if you can buy on the right price–say a yield of 0.80% and then ride the yield back down (bond prices climb while yields fall.)
That’s five.
