Market whispers - We are selling into rips

Markets: Beachman's portfolio tactics based on his read of the markets

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As per WSJ, more than 75% of adults with a brokerage account have less than 15 years of investing experience. Half of them began investing only since the 2020 COVID pandemic. The combination of lockdowns, nothing much else to do and stimulus money encouraged many Gen Z and millennials to buy stocks. Much to their surprise, anything they bought kept going up and higher. Most of these investors have never experienced a true recession or financial meltdown such as the 2007-2009 GFC.

Since 1998, the US Feds got into the habit of rescuing markets every time there was a major swoon. So investors started believing that stocks can never go down…leading to the coining of phrases like B.T.D. or my preferred B.T.F.D. Low interest rates, quantitative easing, cheaper global manufacturing and a strong US consumer served as accelerants to this growing bonfire.

While 2022 was a painful year, markets came back very strongly in 2023 and 2024, reinforcing the belief that US stocks and crypto are the place to be…that they can never stay down for too long.

But this time could be different…

On Friday, the US Atlanta Fed published their latest Q1 GDP forecast of…drum roll please…

-1.5%.

This reading was revised down from the previous estimate of +2.3% growth.

We have not seen a negative print like this since the pandemic. But remember, at that time, everyone was investing and gambling with their stimmi checks.

Things are a lot different now. Many of the geopolitical and financial givens, assumptions, ways of doing business are being challenged in ways that we have not seen since the 1970s or even the 1950s.

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Table of contents

• Overall market conditions

• Beachman recommends

• Beachman’s portfolio stance

• Important dates

• Market signals

• Bottomline

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Overall market conditions

Trend: Lower and broke key support.

Risk level: Very high.

Investor sentiment: Extremely fearful.

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Beachman recommends

Each week, I share a recommendation for an app, a book, a website, a podcast, a publication, a movie…anything that I find interesting and useful from an investing and financial management perspective. I don’t get paid to do this. Beachman’s Newsletter has and always will be an ad-free publication. So here goes…

Lyn Alden

Lyn is one of the first global macro and crypto analysts that I followed. Her opinions made sense to me in a simple, easy to understand manner. No diamond hands, laser eyes stuff from her…just historical financial data used to make her points and develop her forward looking theses on financial matters. She publishes her work here: lynalden.com. P.S. Sometimes her content gets wonkish and long in the tooth and your eyes could glaze over. I prefer to listen to her content, rather than read it.

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Beachman’s portfolio stance

Mostly long.

Trimming some positions and raising cash as part of my Q1-Q2 portfolio tactics.

3 long trades in place (See current trades at Beachman’s Salty Trades).

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Important dates

• Mar 7th - Feb jobs report

• Mar 21st - Quarterly options expiration. About $1.1T (delta notional) in options expiring.

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For short term trade ideas, check out Beachman’s Salty Trades.

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Please check out the must-reads listed on the About page and the Roadmap page.

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Market signals

The SP500 continued to drop last week and decisively broke below its 50dma. It is now only +1.24%YTD and in a strong SELL signal. It could retest the critical 5,800 support level. If it goes lower than that PUT support level, then the 200dma at 5,700 is the next must-hold.

There were more active sellers versus buyers last week. About 60% of stocks in the index hit new 52-week lows. Only about 50% of stocks are above their 50dma and 1/3rd of stocks have lost -20% or more of their value.

Markets are jittery and chose “violence” instead of a recovery. We got a slightly bullish close on Fri afternoon, however markets remain very tentative about future economic conditions and company earnings.

The Nasdaq is in a more precarious situation down -2.4% YTD. It is oversold, yet on the edge of critical 500 and 490 (200dma) support levels. It will not take much to push it over. We should remember that the Nasdaq contains more lower quality revenue and earnings stocks as compared to the SP500.

Small caps slid below their 200dma. They say that nothing good happens below the 200dma, so there could be more pain ahead for these stocks. They are most sensitive to interest rates and market liquidity which have been flagging warning signs for more than 2 months now.

The US$ (DXY) and 10-year LT interest rates are the most important metrics to monitor in order to understand where markets could be heading. Both are still trending lower. Typically this would be bullish for stocks, but not so under today’s macro economic conditions because investors could be seeking safety assets.

Shorter term 1-year and 2-year rates are also dropping, perhaps confirming that markets are nervous about an economic slowdown and the negative impact of new tariffs and layoffs.

Additionally, there is growing discussion about the US government swapping 10-year bonds for 100-year 0% interest bonds with several sovereign bond holders. I am still trying to wrap my head around the effect on interest rates if this happens at scale.

Bitcoin took it on the chin last week and spent some time below its 200dma before recovering slightly. I expect it to drop further and therefore I exited my entire IBIT holding for a nice gain. If the US economy slows down, excess liquidity will be sucked out of crypto markets. e.g. take a look at what happened to Bitcoin in 2022.

What else am I watching?

Many more layoff announcements from both the US government as well as businesses. It is estimated that about 3M federal employees and about 6M federal contractors could be impacted. This has led to a chilling of consumer spending in many parts of the US. Now layer on top the increasing uncertainty among companies as to how tariffs will affect their cost structures, pricing, sales and earnings. We need to stay tuned to any news about deferred business capex and investment plans.

Jobless claims rose higher than expected, but they do not yet fully reflect the negative impact of these recent developments. The Mar jobs report (due Apr 4) is likely to show the first real signs of a rise in unemployment.

We will now track weekly jobless claims data, retail sales numbers, housing trends and any metrics about the health of the US consumer.

International markets have recently risen, largely in part due to a weakening US$, which in turn strengthens other global currencies and their economic buying power. Following the US election in 2016, the US$ ramped higher, only to fall for most of 2017. This phenomenon is now repeating itself post the 2024 US election. So the question is whether investors will rotate out of US markets and into global markets…will this trend pick up significantly?

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Bottomline

A few weeks ago, I wrote to my readers that the shit could hit the fan soon. We are getting close to some of that shit getting splattered across markets and our investment portfolios.

So the question remains as to how to better prepare and position for what could be coming in the markets.

Astute investors in the Beachman community track our investments at a much more informed level, using earnings reports, valuations, technical signals and options driven data.

This helps us better prepare for potential paths ahead and, more importantly, buy the dip and raise cash at more opportune moments. Some of the best money is made buying contrarian positions when everyone hates them.

But first we need to handle the upcoming pain. This is not a time to F.A.F.O. So we are selling into rips and raising cash in our portfolio.

Cheers.