Bargain Hunting


The US stock market has been more intersting to me of late than the currency market. October is historically a tough month to say the least for equity markets and this one has proved to be just that. The Dow, SP, and Nasdaq (take your pick of their derivations) are all trading lower by 8%-12% from their recent (past 20 days ) and yearly highs. FANG names have fared even worse with names like NFLX -27%, AMZN -18% and NVDA -33% from highs seen this year. However, even CAT is -35% from recent highs.

I have read commentary from a few technicians pointing out that by many market metrics after these recent sell-offs we are in "no man's land" and I do indeed agree with that. Strangely I feel the bond market and FX markets were portending this equity correcion since August but these are the times we live in and markets have a life of their own.

I believe the only true defensive play is to hold cash and I am the type to happily miss some upside in good times in order to keep a higher percentage allocated to good ole' cash.

Despite not expecting any V-shaped recovery I put some new longs on in AMZN, GOOGL, NFLX, NVDA, SQ + TWTR (the Jack Dorsey basket), MU, AMD, ROKU, IBM and CELG.

As far as other attractive ETFs, for me I like XLK over QQQ. With XLK (State Street Technology Sector Spider) you AVOID Facebook (FB) which is currently roughly $148 and I think it's going to $125. The XLK gives you a much higher weighting in MSFT which is currently trading at $108 after a good Qtr and I ALSO think it is going to $125 ! XLK gives you higher PYPL weighting than QQQ. XLK is also cheaper - to own its 67 components will cost you a 13bps mgmt fee versus paying 20bps for the QQQ which also ladens you with biotechs and pharmas which I would rather own on a selective and individual basis (REGN, GILD).

I would caution that the above items have all been implemented amidst a larger cash and bond strategy for a long-term portfolio. Speaking of bonds I also think this is great time to pick up short duration bonds that yield above 3% without going out too far.

In FX I think the Dollar is a bit over extended and longs in EUR, GBP and NZD while I think given concern of China's domestic slowdown and concern wtih commodities and trade you can short AUD on rallies.

Good luck and be careful in "No Man's Land".