A common question: Is this the bottom?

Mar 30, 2020 | Jeremy Goldfarb


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Sorry....it's been a while since I have posted. If you are on my email list however, the communication has been more frequent, and filled with content normally spread over a broader period of time. We are absolutely in uncharted territory, but is it really any different?

 

A common question

I have had mixed reactions from investors to the recent drop in markets....from "what can we buy?!?" to "I need to shore up cash for my business." A common thread throughout this though is a search for the bottom. How can you tell if the bottom of a drawdown is in? What are the signs? When does it occur?

This simple response to this question, is nobody knows. It's impossible to tell, and even those "experts" that get crashes or massive bull market runs right........they are usually lucky, and only right once (they don't advertise all of the times they were wrong -- Nouriel Roubini anyone? )

 

So here are the things to look for.

1- liquidity. Is the credit market frozen? How far have spreads been blown out and can companies and people get access to borrowing. Typically when credit turns back up and things start to loosen up a little that is a good sign

2- technicals. A strange science for sure, and one can argue the benefits of charting at any time, however I do believe in these. Making lower highs, and lower lows is bad. When a bottom comes in though we usually see it tested a few times. If it holds.....then that is good news

3- Fear. When people are panicked......like really panicked, that is when the best investors historically have earned their stripes. As I have said before, swimming against the strongest of currents is reserved for the unique few. It is during times of extended drawdown when we see the strongest of swimmers show up......on the way up.

 

How do things look?

I do not own a crystal ball, nor am I recommending that anyone race to sell or race to buy at this point, or any point for that matter. A strong investment plan is the only thing that is knowable between you and your advisor. Process will protect you from yourself. That said.....how do things look

1- governments and central banks are injecting loads of liquidity into the markets at unprecedented levels. Credit markets show modest signs of improvement

2- SP500 2350 -- certainly something to keep an eye on as an example of material bottom end support. We have pushed through it recently, but it has subsequently held.

3- Remember "buy the dip"? Talk of this has reduced dramatically as fear has crept in more and more. I have even heard some capitulation statements from the professional advisor ranks. Does not mean that overall fear has reached its peak, but it certainly serves some notice.

 

Read. Educate yourself, but most importantly...speak with your advisor.

 

Take care of yourselves and your families. The clouds will clear.