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Never waste a good crisis

By Colin Twiggs
October 12, 2018 5:00 p.m. EDT (8:00 a.m. AEST)

First, please read the Disclaimer.


There will be no newsletter this weekend because of other commitments but here is a quick update on this week's events.

Crisis = Danger + Opportunity

Tech stocks fell sharply, after the Nasdaq 100 broke support at 7400 at the beginning of the week. The sell-off spread to other markets across the globe, many signaling a primary down-trend. But there has been no broad downgrade in earnings and the current sell-off appears to be an overreaction to rising long-term Treasury yields which signaled the start of a bond bear market.

As I discussed several weeks ago, real bond yields, after adjusting for inflation, remain near record lows and pose no immediate threat to high stock valuations.

The Nasdaq 100 found support at its LT trendline, indicating the up-trend is intact. Trend Index holding above zero signals likewise. Selling pressure appears secondary.

Nasdaq 100/QQQ

The S&P 500 likewise respected its rising LT trendline. Volatility remains below 1.0%.

S&P 500

Australia

The ASX 200 penetrated its long-term trendline and is likely to test primary support at 5750. But the decline in Money Flow suggests a secondary sell-off.

ASX 200

Banks are the Achilles heel of the local index, breaking primary support at 7300. Follow-through below 7000 would confirm a long-term target of 6600.

ASX 300 Banks

My advice to subscribers is: Don't waste a good crisis. This is a time to accumulate quality stocks that have experienced a strong sell-off. Stocks that tick all the boxes:

  • Long-term, secular growth in demand
  • Dominant market position
  • Ability to defend market share against competitors
  • Rapid growth in revenues
  • Rising margins
  • Strong cash flows

This includes many of the stocks that I marked "Hold" a week ago. I will update the list tomorrow.

Forgive me, but this George Soros quote is right on the button.

Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected. ~ George Soros

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Disclaimer

Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.

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