I remember during the 2008/2009 market meltdown staring at the (XLF) ETF, you know the one with all the major financials in it. At the time, I traded mainly ETFs, implementing an arbitrage approach between sector ETFs and their leveraged counterparts. I sat with a pen and paper, which is something I still do, and started writing out scenarios of what would happen if XLF went to ZERO. Imagine trying to map out the upside of an inverse leveraged ETF when its counterpart goes to zero.
After modeling some really large numbers, I realized I also needed to model the leveraged ETF at zero. Why? Because it would fully encompass the idea of a total collapse of the system.
The market bottomed a few days later.
No one knows when the bottom will occur. We'll see lots of WAGs (Wild *ss Guesses) and eventually one of them will be correct. That person will revel in that glorious call for another decade, give or take nine years, and it won't matter if it was their first WAG or their fiftieth WAG that ultimately proves correct because people will only remember "the one." But that also means you can't blindly follow every bottom WAG or you might find yourself long into an open like Monday morning.
As we head into the early afternoon, we're well off the lows. It's sad that a 5% to 7% down day feels like a win right now. We were down twice those levels earlier, and most indices are trading above last Thursday's lows, so that's a small positive takeaway.
My focus has been staying with the quick intraday trades for the vast majority of what I am doing currently. However, if you are seeking positions to build or trade, then I favor the idea of staying with names that haven't violated their low last week. For many names that would be a low on Thursday of last week, but for some it was Friday. If today marks a new low, then a stop is less clear. If that low was last week, then there is your stop level. I believe that will provide the most favorable risk versus return in this market.
Gap risk is still huge, so carrying overnight, even with stops, is a challenge. While I tend to trade options, the options market is basically untradeable on these huge gap down and huge gap up days. The spreads are too wide, the liquidity and volume is non-existent, and the premiums are juiced (expensive historically).
I still don't think it is a terrible time to begin accumulating shares in quality companies for the long-term. Names like Disney (DIS) , Apple (AAPL) , Target (TGT) , Home Depot (HD) , and Exxon Mobil (XOM) come to mind. An income name like Energy Transfer (ET) offers some energy bounce upside with an attractive yield. Smaller cloud names could make a comeback if interest rates stay at zero as people may begin to chase growth again when the market stabilizes. I'm liking Alteryx (AYX) , Citrix (CTXS) , Fastly (FSLY) , and Five9 (FIVN) . On the gaming side, Huya (HUYA) and Bilibili (BILI) continue to appear to be cheap. Retail, outside of Target (TGT) and Walmart (WMT) , I might tab RH (RH) as an aggressive name, but it has some big pockets behind it now that could continue to scoop up shares with the stock trading around $100. And I continue to like Slack (WORK) even after a slightly disappointing earnings report. These are names I'm nibbling on or considering here.
(Disney, Apple and Home Depot are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
