Good Morning,

Ok, inhale slowly – count 1, 2, 3, 4, 5, 6, 7, 8, …. 125, exhale slowly – count 1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10…..4,714.

Now – that’s better right?

The point…long-term investors learn over time – and often through many errors – that most of your return is made by what you don’t do when it hurts.  Yes, I know – a brain-twisting perspective indeed – but true.

What’s happening right now?

The summer prep and many new monsters.

The “sell in May” crowd antics.  The “forget Covid, inflation is going to destroy us” angle.  The “holy smokes, war is breaking out in the Middle East” tirade.  The “are you kidding me, a group of hacker terrorists shut down our East Coast gas pipeline” juggernaut.

Am I going to sound nutty if I wished for just the good ole’ days of national lockdowns because of the pandemic?

Sorry, I mean that in jest – but seriously friends, this is where traders are separated from their stocks – and investors just stay focused on the horizon – even when price action temporarily really stinks up the joint.

Please – always recall that there will be a new monster every – single – time an old monster is seemingly vanquished.

There are lines of them waiting in the wings – stage left.

Count on it as fact.

Just 10 Days Ago…

In a couple morning notes, I noted (as we often do) that if you were concerned that the crowd was getting too bullish, well, all you needed to do was “give us a couple weeks of red ink and I will show you sentiment in the 20’s…”

Bingo – we are 3.5 days into the red ink and those 20’s are racing toward us.  Before we get to a smattering of mind-bending charts and such – recall these two elements:

Humans react to “what’s happening now?”

Markets think “what’s happening next?”

What’s next is vastly more powerful and long-lasting than most currently recognize or understand.

Sentiment “Plummeting”

Sorry – I had to use one of the media’s favorite terms – plummeting.  Indeed, sentiment is going exactly where one wants it to go on pauses, resets and pullbacks.

Here are a few perspectives:

The top part of the image above ended yesterday at a very interesting level.  Note we have fear levels which are higher than last year at this time (lower reads are higher levels of fear, lower confidence).


The interesting part about that is one year ago today, the S&P was getting ready to open a full 44% lower than we are right now – after the price action which has spooked the trading crowd again.


P.S. It would be helpful to burn that last sentience into your psyche as we get ready for the summer haze.


The lower portion of the fear index above shows you a graph with a red line running left to right.  The tip of the arrow is pointing to summer of 2018, when the market was 58% lower than it is now – and yet – the crowd “feels just about the same level of “afraid” – a near perfect setup for the next layer of gains.


The other thing to be aware of in the larger view is simple:  we are entering rarified territory and all previous entries into this zone marked significant recoveries in stock prices, when asking “what’s next.


AII Fresh Out As well…

This all gets more positive once you see the underlying price structure of the overall market and we like to do that with simple readings on overall moving average positioning in the marketplace.

Here are a few charts which will show you where various indices find themselves today – with the most important aspect to register being “how does that compare to previous what’s next scenarios.”:

Since tech has turned to be the most hated sector (again – this is good), note its current internal structure:

Take that graph above to heart – there have been very, very few times when the Tech world (NASDAQ) was being pushed down as much as it is now over the last decade.

And this in the face of record-shattering earnings. 

The point – remember “what’s next” in each of those previous low points was — solidly higher prices.  Keep this in mind – the element that is attacking tech right now is something like this: “There is no way on God’s green Earth tech earnings can be this good….”

The reason one thinks that is because they don’t understand the larger forces unfolding around us.  The Barbell Economy® is on and it is accelerating, even when sloppy at times.

Check the broader S&P 500 as well:

The image above shows you that while the S&P 500 is not pushed as low as the NAS, it is reaching regions of this chart (spanning 20 YEARS) where the “what’s next” became positive in relatively short order over ensuing weeks.

Last for now, here is a much broader view below of my “closing in on 40 years” of watching this pathway.  I have taken the liberty of adding a red dot to the trail of the S&P 500 where one was the most rewarded for owning stocks “going forward”.

Remember – corrections, setbacks, trade ranges and pauses are the market’s tool to set the stage for the forward returns you receive as a reward for being a patient investor. 

With that in mind, here are the marks where one found the best results going forward:

Now, just as a final exercise for the day, I have taken that same chart and added a set of blue dots designed to show the most hated periods for stocks.

The blue will mark those periods where the very last thing on Earth most investors wanted to do at the time was either keep their stocks and/or, worse – buy more of them:

Remember Friends – B.R.E.A.T.H.E.

These gyrations will become more numerous over time.  Tech is why.  Kids are why.  Emotions are why.

Markets pay for patience and discipline.  They pay for fighting the emotional surges that plague so many results over time.  They pay for believing in the future ingenuity of this country and the people in it.  They pay for having faith in your plan and the forces that built our lives together.


Buckle Up

This battle cry – like all previous Armageddons – will pass with time.

In the end, there is no end, really.  Just a continuation of time (your greatest ally) and the trek up this very high mountain ahead.  There will indeed be treacherous spots and perilous moments that will terrify many.  It will be our job to keep one focused on the long-term current driving us all forward.


That said – the tectonic shifts ahead are massive.

We have stated this many times over and at the risk of sounding too darn boring, here we go again:

The leverage of change and the Generation Y technology waves ahead are creating massive changes in margins.

Earnings will be far more leveraged and see many more benefits than currently understood.

The pandemic shutdown had one benefit:  if a company was not killed in the pandemic, we would argue it is now “unkillable”.

The armor created, the tools built, the technologies unleashed, the systems implemented and the capital invested during the shutdown storm has set the stage for a complete remake of all that we “know” – and the Q1 numbers are just a tiny glimpse into that benefit.

The earnings momentum unleashed in 2021 is set to shatter records in every aspect measured.  This will build a platform for the change we anticipate as massive new industries are just ahead. 


Don’t Fret During This Presumed Panic

We have to do a couple things:

Stay patient

Stay calm

Remain focused on the long-term

Enjoy your life


Ignore bad headlines

Let the game unfold


Your head will be spinning at times because our minds will try very hard to make sense of it all – and the data being thrown at us will feel overwhelming.

Near-term, much will not make sense.  In time, it all will.

We must find a way to control our patience and expectations.  As stated before, much is often lost by reactions to short-term issues based on long-term plans and results.

In essence, investors want the lifetime benefit returns history repeatedly proves, but they want them today.

The Bottom Line

New doubts, new fears and new monsters are all forming bricks in the new foundation being built for the next leg up as the spring dawns and the US builds into its “new normal.”

So what now?  Cinch that belt tighter.  And grab your popcorn.

The pace of change is going to be head-spinning – with plenty of gut-wrenching interruptions along the way.  

Get comfortable with this process…as it is set to be with us, forever.

Corrections and setbacks serve a role – they build your value for the next run – and we are unlikely to get very many of them in the years ahead.

Even when pauses, sector churn and internal chop hurt in the near-term, they work to build foundations which then create the gains of the long-term.

We must all remain diligent and prepared to always stand tall against the storms.  Standing apart from the crowd permits one to always be ready to do what most will not.

And remember, problems don’t come to stay – they come to pass. 

You’re missing out!

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