This Week in Episodic Pivots: October 22, 2023

Markets are tanking... Our cash positions looks good

What an ugly end to the week. After the S&P 500 Index barely brushed the 50-day moving average (MA) on Tuesday, it went straight down the rest of the week.

The index actually closed below the support of the 200-day MA on Friday. Regular readers know I hold the 200-day MA in high regard. And a break below that would be very bad for the market.

But this wasn’t a decisive close lower. And the price caught support 4,220 – that’s the same level the market bounced at a couple weeks ago.

We will give the market until Tuesday to turn around. I’m guessing it finds some support here on Monday and maybe even lead to a rally in the second half of the week.

So we have that to potentially look forward to.

But the market is not healthy in general. If we look at the Russell 2000 small-cap index, we can see the market is trading at 52-week lows.

The Russell 2000 is a better comparison for what we do. We mostly trade small-cap stocks here. And this chart of small-cap stocks is broken and it looks like no support is anywhere to be found.

These downtrends are why we haven’t added many new positions lately. Generally stocks follow the overall market. And it takes some underlying strength to counteract such a massive downtrend.

And because the market looks so terrible, and none of the potential episodic pivots looked good, we won’t be adding any new positions.

I know it can be frustrating doing nothing, but saved money by being in cash during a downturn is just as good as money being made. Many traders go bust because they can’t sit back and do nothing – they have to make trades to feel like they’re working. But fight that urge.

We could be at the early innings of the credit bust… And if so, the markets have a long way to go down. And sitting in cash, earning a 5% yield would be one of the best trades we could make.

This gives us a chance to take a look at our remaining holdings this week.

First, we sold Adecoagro ( $AGRO) and we’re booking a 4% gain in the model portfolio.

And MoneyLion ( $ML) had a volatile week. And it closed below the 50-day MA on Thursday. But due to its early strength on Friday, I held on. But know if we get a close below the 50-day and weakness the following day, we should exit the position.

ESS Tech ( $GWH) closed below our stop at the 50-day MA. And if it shows weakness in the first couple of hours of trading tomorrow, I will sell around noon.

HighPeak Energy ( $HPK) continues performing well. So we will raise the stop the 50-day MA to help protect our gains on this position.

We’ll also do the same with Sea Limited ( $SE). So we have nice trialing stops for all our remaining positions at this point.

And that’s all for this week.

Happy Investing!