We Are Officially in the “Sell Everything” Stage in this Market. It’s Time to Search for Value.

A Contrarian High Value, High Upside Potential Trade.

Image courtesy of adobestock.com

It’s getting dicey out there, which means it’s time to get a bit contrarian, put on our value seeking goggles and start picking through the rubble. In this issue, I’m adding a new pick which offers high value and high upside potential as conditions improve.

Last week, I suggested we were entering the “sell everything” stage in this market. Unfortunately, I was right, and we are now well into this dynamic. But there is a bright side – bargains are starting to pop up.

Certainly, the selling pressure is now resembling a nearly complete washout which could go on for some time. And that, of course, means that some sort of bounce can happen at any time. The key to the broad market is how things develop once stocks stop falling. But, outside of the major indexes, for investors with a long term time frame who act prudently, this is where the bargains are found.

Market Update

As I noted yesterday, the worst recent development in the stock market is that the New York Stock Exchange Advance Decline line (NYAD) finally broke below its 50-day moving average signaling a potential worsening of the situation, which preceded the mini-crash in stocks that unfolded. Today, everyone is bearish (CNN Greed/Fear Index at 14), the tariff headlines are blaring, everything is so oversold that some sort of bounce is almost certain, at some point, and the NYAD is bouncing back, albeit somewhat feebly.

That said, the break below its 50-day moving average on NYAD is fairly substantial, which means it could take a while before things stabilize. But the longer the uncertainty lasts, the better the eventual bargains.

Meanwhile, the U.S. Ten Year Note yield (TNX) is hovering near its 200-day moving average, stuck between 4 and 4.5%. This type of consolidation, trading range, could be in place for some time as TNX is very oversold. That said, CPI and PPI, released later this week could tip bond yields up or down depending on the readings.

The S&P 500 (SPX) is testing the upper bounds of a critical support range between 5450 and 5550, defined by a moderate sized VBP bar. Note that below 5450, the size of the VBP bars shrinks. That means that the support in those price ranges is tepid and that prices could well fall below them if the selling pressure picks up steam.

Certainly, my shopping list is growing. And the current picks in the ESP portfolio are holding up. Thus, while our primary goal is to raise cash and wait for a better buying opportunity, it’s also a time to start sifting through the rubble and find some value. As a result, this morning, I am adding a long term trade on a stock which is an interesting long term holding selling at a bargain basement price.