Going to plant a weeping willow
On the banks green edge it will grow, grow, grow
Sing a lullaby beside the water
Lovers come and go, the river roll, roll, roll
- The Grateful Dead, Brokedown Palace
I remain of the view that investors should continue to be concerned with return of capital rather than return on capital.
I have quoted The Grateful Dead's seminal song, Brokedown Palace, to describe the breakdown in the market averages.
The carnage in the hedge fund community is expanding as I know of many funds that are down 20% or more.
Many stocks have imploded.
Nevertheless, investing is about looking forward and not looking backward so I continue to be on the prowl for a long trading opportunity -- especially from a deepening oversold condition.
Though I want to emphasize that I am in no rush to get longer, some factors are beginning to align to make for a possible tradable rally:
1. The market is oversold. The S&P Oscillator closed at -3.72% Monday.
2. Investor sentiment has soured. The various polls indicate a substantial rise in bears... and a decline in bulls.
3. Though still high, the talking heads are starting to "talk less confidently" coincident with the decimation of their portfolios. Not only has high growth and former darlings faltered (Snowflake (SNOW) , Square (SQ) , PayPal (PYPL) , SoFi Technologies (SOFI) , Ark Innovation ETF (ARKK) , Salesforce (CRM) , Roku (ROKU) , Roblox (RBLX) , Carvana (CVNA) , Robinhood (HOOD) , etc.) but popular stocks like FactSet Research Systems (FDS) , Ford (F) , and banks are hitting 52 week lows.
4. The rise in interest rates may be nearing completion -- for the time being! -- as yields on the 10-Year and long bond have incorporated numerous Fed hikes. iShares 20+ Year Treasury Bond ETF (TLT) looks like it might break $119 this morning! (I have been critical of "there is no alternative." How dumb does the notion of "TINA" seem now after many investors have suffered large losses?)
5. The VIX is starting to rise. A gap towards the high 20s would make me more positive.
What would I like to see, to get more optimistic over the near term?
One of the things is the nature of guests on financial TV. For now the usual cast of bullish characters are still being paraded to espouse their perma-bullish pablum. To get more bullish I would like to see bears making appearances!
Another thing I would like to see is for strategists -- like Brian Belski and my pal Thomas Lee -- to take the knife to their economic and corporate profits estimates, which is likely to come sooner than later. The same applies to the generally optimistic and consensus view of the consumer, which we believe to be wrong footed.
So, when it becomes clear that mortgage activity and cash outs slow to a crawl, personal savings rates are falling dramatically and that inflation is taking a huge bite to incomes, I will be more ready to add to my long exposure.
I will be patient but not bearishly dogmatic as those variables change.
Fare thee well.
(This commentary originally appeared on Real Money Pro on April 19. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)
