Weekend May 2 2020
So far the tech sector has held up the rest of the market, see my Friday newspaper column posted yesterday noting five stocks were 38% of NASD and 20% of S & P. This is typical end of bull market action with investors crowding into a handful of stocks. But the third wave will likely take down these last men standing.
At far right one can see price turned down as the Wave 2 ended Wednesday. Soon there will be no place to hide for ETFs and mutual funds.
Cullen Frost bank will be a good exemplar or canary in our mine for what unfolds. CFR is easily the best managed independent bank in Texas. it consistently makes money and was the only large independent Texas bank to survive the 1980s.
CFR initially lost half its value in one month falling from 95 to 47. It then rebounded half way back a typical bear market bounce. The rebound took the classic A B C pattern. That ended Wednesday and CFR is already down dropping 5% Friday. It is amazing to see how investors flip the switch once an EW pattern completes.
The story of bear versus rebound is volume Volume expands on the bear move down and contracts on the rebounds, typically claimed to be the start of the new bull market by naive observers. This pattern will repeat all the way to the bottom just as it did in 1932.
At bottom notice volume declined from the lat March 23 low. Now once the A B C rebound ended Wednesday volume grew 5x in one day!
On balance volume at top reversed. Book value for CFR is about $6. The next Wave Three should take it well below that level taking out 47.50.
Prudent Bear
Happily my 403 B includes the Prudent Bear fund. This fund advances as the market tanks.
Friday was a 90% down day. Richard Russell of Dow Theory fame noted that such days were usually followed by a sort of relief rally. So we may see that Monday Tuesday. Check to see if your 401K or 403 B allows for this fund. As Wave Two was up strong under alternation Wave Four should be a messy sideways affair. That suggests position can be added now and left on through the decline of Wave Five months from now. The MAs need to come together so we may see some backing and filling here before it takes off but
Wave Three is starting with a bank down near 900 points the first two days.
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