Something's happening here and what it is is exactly clear. For what it's worth -- thanks Buffalo Springfield -- let me spell it out.
Right now the market is furiously trying to price in a Blue Wave, a total landslide, and the area that's perceived as most vulnerable, the health care sector, is getting socked with sellers who, at this point, don't even care what price they get.
As usual, the common stock institutions are bailing while the hedge funds are using various ETFs to knock stocks down. Why not? The creators of these pieces of paper, who sell them as a way for individuals to avoid what they call single-stock risk, know that they are perfect for short-sellers to annihilate a group. It's another reason why I detest the come-ons about ETF products. Why not just market them for what they are really worth: a quick way to get short a group.
I only mention it because the waves of selling are so intense that they are overwhelming where the buyers live, so to speak, selling right through prices they would get otherwise. That's machine selling for certain.
And that's where the opportunity comes in. If you go into the mindset of the short-seller here it actually is much more instructive than trying to calculate how to handle a fearful long seller. That's right, the long onlys want to get out while the getting is still good.
What the shorts are betting is that come election day the Democrats will be so powerful that you are going to start hearing about socialist medicine, that the most vociferous Dems will be saying it is time for the government to negotiate price with the drug companies as is done around the rest of the world.
Others will suggest that the managed care companies should make much less money or should actually be dealt with as profiteers, something that UnitedHealth (UNH) actually brought up last year as a possibility.
Are these fears mindless and groundless?
Who the heck knows? The standard bearer, Vice President Biden, was pretty much the only candidate against the so-called single-payer option. He seemed happy with a tweaked status quo that would enlarge Obamacare and have competing insurers all over the place to keep prices down. His running mate was much more harsh and if she were president the shorts would be well-advised to stay short.
But she isn't.
So here's how I think things play out. If we get the Blue Wave then we come in Wednesday and we can expect to see the managed care stocks down about 10% and the drug stocks down about 5-6%. It's harder for them to go lower because of their bountiful yields.
This wholesale selling and shorting will be knee jerk and if you look at where the stocks have come from, a move that can only be described as total panic.
What have I taught for years?
You have to buy panic not sell into it.
I think by Thursday midday the selling will abate. Then you can pick among your favorites. Merck (MRK) reported an excellent quarter. I liked Lilly (LLY) with a stock that was clobbered because of a drug it made that didn't have the needed efficacy against Covid in the hospital.
UnitedHealth reported an incredible quarter and it's now down big. Anything below $290 could be a gift.
Finally, consider DexCom (DXCM) . It's got the best glucose monitor. But if you follow the thinking laid out here, you will believe that Medicare will only pay for the cheaper Abbott (ABT) offering. The decline in the stock of DexCom has been severe, the work of longs trying, and failing, to beat shorts out of the stock.
What a perfect setup.
I know some might say if you can't beat the shorts, join them. I get that.
There's only one problem. You don't get a Blue Wave, or, if Trump pulls off a win, you will have your lungs ripped out. I prefer to keep mine intact.