Anticipation is making me wait was the tagline for Heinz Ketchup commercials; it still might be but don’t watch much TV these days. Remember, the ketchup bottle would be upside down just waiting for the thick red condiment to make its way out?
Last week, we wrote about the potential for the NASDAQ to experience a Golden Cross where the 50-day moving average moves from below to above the 200-day mark. That may still happen as the 50-day is tantalizingly close to overtaking its longer-term counterpart. Much like a new bottle of Heinz Ketchup, investors might have to wait a little longer for the desired outcome.
Silicon Valley Bank and Signature Bank’s collapses sent shockwaves through Wall Street last week, reversing an uptrend and potentially starting a new downtrend. Unfortunately, there aren’t any technical patterns for overleveraged banks shutting their doors.
Stocks rebounded Monday on the hopes the Federal Reserve and President Biden’s promise will contain the fallout from Silicon Valley and Signature banks. The current thinking is the Federal Reserve has its excuse to halt rate hikes, maybe even reverse course, and lower rates to pump up bank’s financial statements.
We have our doubts.
One need not think back that far to remember 2008’s financial crisis. Lehman Brothers blew up and it only got worse from there. In fact, companies like Countrywide were among the first to show signs of stress with poor earnings well in advance of Lehman imploding and then President George W. Bush saying we have to abandon capitalism to save capitalism – ugh.
Only, today is different from 2008 because inflation is high, sticky, and expected to hang around before falling like a freshly opened bottle of ketchup.
The few days are also a great example of why it’s wise not to act in anticipation of something occurring versus waiting for it to actually happen. Our advice looks damn near prophetic from last week’s newsletter.
“Although we can see two positives for stock on the horizon, neither has happened yet. Investors need to exhibit patience before acting in anticipation of a bullish technical event. In more than 30+ years of experience, we’ve seen the market take a detour right before the promise land and whack investors who acted prematurely.”
We hate to be right in this situation because recent history reminds us that a lot of pain could be on the way if Silicon Valley and Signature Bank are not one-off events and instead just the first to fall in an avalanche.
As for what’s next? Nobody has any idea what’s going to happen. From our experience, it’s our opinion that the best course of action is to be patient and see how things shake out in the next few days before making a stand.
If we are about to go all 2008 again, more dominoes will likely fall in the next week. At the very minimum, banks at risk will probably go public with warnings. We should have more information and a better understanding of the field of play when we get back together next week.
All sectors were whacked upside the head last week as Consumer Staples Select Sector SPDR Fund (XLP) was the top performer by losing just 2.23 percent. Industry or sector won’t matter much if more banks go belly up in the days ahead, all of them will get whacked upside the head some more.
Again, patience is the key here. There will be value if there is fallout.
There is no chance we are going to step into the path of potential contagion. It’s not worth the risk of being steamrolled.