Game Planning 101

Join Chris Perras for the 1/15/2021 edition of Stock Talk!

Chris Perras: Good morning. I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group here in Houston, Texas. Welcome to our January 15th, weekly Stock Talk Podcast: Keeping you connected to your money. Halfway through January, most markets remain strongly bid, and many stocks are moving up exponentially as FOMO, which listeners know by now is fear of missing out, has kicked in for many investors post the November election.

Over the past six months, we have previewed this time period, and just this kind of market move as a likely outcome for early 2021, with this in mind, this podcast is entitled Game Planning 101: Plan your trades, trade your plan.

Before I get to our weekly podcast topic, I’m going to apologize to any listeners who might have taken issue with some of the content or wording in my last week’s podcast, which was entitled America’s Strong, bent not broken. Same as the markets. Much as we have tried to do the past nine months, my comments were meant to deemphasize the significance of politics, and who is running the show in Washington DC on our overall economy and the financial markets.

The keyword there is “overall market”. Last week’s podcast was merely meant to highlight just that fact as most financial markets shook off when does Wednesday afternoons events at our capital within hours, and subsequently. the overall markets have continued their march higher. Here we sit, near market weekly new all-time highs in mid-January, which we’ve talked about for the past few podcasts is a very normal bull market.

In fact, this week’s inter-week trading pattern from Monday through now has mimicked the same pattern six out of the last seven weeks post-election. What’s that pattern? That pattern is down Mondays and Tuesdays, which I imagine is many skittish investors spending the weekend reflecting on the prior week’s news events, and deciding they wanted to sell some equities.

What they do is, they get on the phone on Sunday night and they send their orders to Fidelity or Charles Schwab or their RIA, and they decided to sell some stocks on Monday. Since many investors own mutual funds and ETFs, their portfolio managers look at their Monday flows, and they sell positions based on the volume that is traded in the market throughout that day.

These sellers are price agnostic. Here, this is very much the same pattern of investor behavior I saw when I was managing a large mutual fund over at AIM. That’s selling usually abated by Tuesday afternoon, and then the buying pressure of the other retail flows shows up and it takes over, and the markets rally into Friday’s close, as all the selling supply has dried up.

In weeks like this week which contained a Friday payday-like today. This dynamic tends to be particularly strong with a Friday close. Listeners, recall on paydays like today, many corporate workers automatically contribute to their 401(k) plans through automatic investment programs. Their contributions electronically get automatically routed to Vanguard, BlackRock, and others to invest.

If those allocations are allocated to index funds, target-date funds, or many ETFs, those companies turn around and immediately buy stocks and bonds with your allocation, regardless of prices. Remember listeners, index funds are price-agnostic to the price of their individual holdings. What’s the plan here? What is our investment team seeing, thinking, and planning to do if this price action continues?

Well, what are we seeing? We’re seeing full-on FOMO, fear of missing out in January, while the indexes such as the S&P 500 have not yet gone exponential on price, many small-cap stocks and even some large semiconductor capital equipment stocks have. If you want to see what I mean, what an exponential move looks like, pull up a daily chart for the last say seven months of the old IPO lemonade, that ticker symbol is LMND.

It came public at $29 a share in July. It traded up and down for about five months between 90 and 46 into the very late October, and post-election that stock has exploded, from about $46 a share higher, hitting $188 earlier this week, it’s quadrupled in 10 weeks. That’s an exponential move and that’s pure price speculation. It’s momentum buying.

The indicator that signaled us to be more cautious and to take profits in late August and early September of last year, and then it signaled again to accelerate our buying in late October pre-election is staying consistent. It continues to say, be increasingly cautious and go slower in initiating new capital into higher risk, more volatile stocks, right into month end of January and the first few days of February.

People ask me why those dates? Honestly, I can’t tell you. I don’t have the exact answer to why those dates. I’ve spent hours trying to think why. I spent days trying to look at calendars and figure it out. I’ve scattered the calendar for the federal reserve meetings and other events planned out near that time, and the one thing I come back to is this, vaccine news.

The last two times we’ve had positive weekend vaccine news, the markets have gapped up strongly that following Monday and Tuesday. Just this past Wednesday, J&J, which is a large holding for many of our clients who own single stocks here at Oak Harvest, pre-released safety data on their vaccine shot, and the stock rose over 2% and after hours to a new all time high.

The reason the J&J vaccine is so important to the world and the stock markets in the short term is that it, one, their vaccine lasts three months in a standard refrigerator. First being, having to use a special freezer for the Pfizer vaccine and a refrigerator for the Moderna vaccine. Number two, it requires only one shot for effectiveness, and number three J&J has stated they have the manufacturing capability to produce close to 1 billion doses by the end of the year, if their vaccine works.

However, earlier in the week, the company did not release long-term data, and that full data won’t be available until what time? Month end. In the past, on Monday, November 23rd, it was AstraZeneca’s turn to put their trial results up on stage. While the initial results were not as positive in efficacy as Pfizer, who issued their results the weekend of November 9th and Moderna, the weekend of November 16th, they did show that a tweak in the trial would achieve 90% efficiency.

We had vaccine Mondays, the markets love that news and they all gapped higher short-term on Monday. Remember, listeners, we are looking at this as merely a tool we use to help us tactically allocate some of your money movements and investments. This indicator helps guide us to when there is a high likelihood of a better overall investment entry in the weeks and months ahead.

Those are the periods when we see volatility that is spiked up over three to four weeks, as people who are late selling and are really panicking, that’s when volatility is normally peaking. That’s when the team at Oak Harvest likes to accelerate our investment program for clients. All of the data continues to line up, where the team has been messaging since our Second Half Outlook 2020 was published mid-last year.

It continues to line up with our thoughts for our First Half Outlook 2021. That message was, the fourth quarter 2020 through early 2021 should show accelerating stock returns with the market making and sustaining materially new all-time highs, and with January showing a move upward to a short-term peak near month-end or early February.

Now, we first wrote that almost eight months ago. Fast forward from end of January, early February, fast forward about four weeks from there, and we should be looking at more attractive valuations. The market should pull back correct into that time period. Fast forward another four weeks, and we should be looking at the clouds clearing for whatever reason for the rest of the year and volatility peaking and plummeting over the rest of the year to levels fewer predicting.

While low volatility markets feel great to investors, your returns when volatility is very low, are almost always lower relative to allocating additional capital when markets are volatile and the outlook is more uncertain. In a nutshell, that’s our plan, unless or indicators change. We’re in a bull market, one that is trending at new all-time highs, but on the verge of getting a little too frothy short term, should it continue for a little while longer, taking us too far too fast by our indicators, we will be tactically selling some winning positions down, harvesting some losses for taxes and waiting for better valuations and opportunities in the next few months ahead.

We released our First Half 2021 Outlook a few weeks ago by way of a podcast and it’s posted on our website at oakharvestfg.com. Go to our website, check it out. Oak Harvest, we are comprehensive long-term financial planners. What this means is that, as our client, you and your financial advisor should have a financial plan that is independent of the volatility of the stock markets.

Give us a call here in Houston at 281-822-1350. We are here to help you on your financial journey in retirement through customized retirement planning. Many blessings, stay safe. May God bless you and your families, and God bless America. We are stronger together than divided. I’m Chris Perras, have a great weekend.

Speaker: The proceeding content expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, statistics and sources are not guaranteed. Content ideas and strategies discussed may not be right for your personal situation, and should not be considered as personalized investment, tax, or legal advice, or an offer or solicitation to buy or sell securities. Investing involves the risk of loss, and past performance does not guarantee future results.