This Week in Episodic Pivots: August 6, 2023

We're holding strong in a weak market

I’m happy with how most of our portfolio behaved this week.

While the markets had their worse week since the beginning of March, a majority of our positions finished the week higher. In fact, portfolio company Accel Entertainment ( ACEL 0.00%↑ ) performed an episodic pivot again on Friday. It released great earnings and rose 7.8% on huge volume on Friday.

Conversely, American Axle & Manufacturing ( AXL 0.00%↑ ) crapped the bed after earnings. And it dipped below the 50-day moving average which we were using as our trailing stop. So unless AXL gets above $8.43 in the first half hour of trading Monday, we’ll be selling the position for about a 10% gain.

And in case anyone missed the midweek update, we sold the Beyond Meat ( BYND 0.00%↑ ) position for about a 10% profit.

As for the rest of the portfolio, I don’t want to add anything quite yet. The market has to prove itself this week after the drop.

Now, I’m running on the base case that this is a short-term pullback in the market. The reason the market fell is that long-term Treasury rates rose. That makes bonds more attractive investments and stocks less so.

But rising interest rates should be considered a good thing at this point.

It means the market believes we will avoid a recession. At least that’s the narrative coming from Wall Street.

Last week several firms stopped their recession watch for this year and next. And if there’s no recession, there’s no reason for the Federal Reserve to cut rates. This makes it likely that rates stay higher for longer.

The market is beginning to realize that interest rates will be higher for longer.

This should just be a short-term headwind to stocks. Because the underlying move – no recession – comes from a source of strength. And I believe stocks will go back up as this strong economy continues to show through.

We’ve seen amazingly bullish results in the first two weeks of earnings. Banks are looking great as higher interest rates allow them to make more on the reserves, and charge higher interest rates to people taking out loans. That’s great. Visa and Mastercard both showed resilient consumer spending. That bled into Google and Facebook reporting strong advertising dollars. And we’re seeing many travel stocks continue higher as consumers want to spend some money.

This is all bullish. And I doubt an extended downturn will happen in the face of this positive economic climate.

But what the market needs to prove to us is how deep this pullback will go. I have a couple support levels by looking at the S&P 500 Index chart.

The S&P 500 could find support right now. Often the prior high can act as support after a breakout. This could be one of those instances. But we don’t want to buy in too soon in case the market pulls back further to the 50-day or 200-day MA.

One reason I think this pullback may be over now is that the Technology Index, as measured by $XLK ETF is sitting right on it’s 50-day MA.

The technology index is important because tech has led the recent rally higher. If that breaks down, I believe the market will follow. And one thing that has me worried is that Apple’s earning were a disaster. The consumer cell phone market was weak this past quarter. No one needs to upgrade right now because there are no groundbreaking technologies available to the smartphone right now.

These are all things to keep an eye. If we see tech act strongly tomorrow, we may feel better about adding some more investments to the portfolio.

Let’s continue to hold our current positions and then wait for a better entry to add on some more.

And that’s all for this week.

Happy Investing!