BMYMP - Stocks Shrugged Off Hawkish Talk And Going Higher Be A Wary Buyer

• Be prepared for more volatility, and try to use it to your advantage.
• Since cash is just as important as equities according to the cash management discipline. Bid low.
• If you get filled great, if not you still have your precious cash.
• I am wary now because everyone is sure we are going to have a sell-off. I am motivated to consider other possible outcomes.
• In the end, a big danger is complacency, with a market rallying, we can forget about risk and get overextended. Be vigilant!

It seems like everyone is talking about a coming sell-off with a level of near certainty. When everyone expects something, and I am in line with the crowd, I feel frustrated. The market and sorry for the anthropomorphic allusion, the market always seeks to make as many people appear foolish as possible at any one time. A more sinister conceit is that the market tries to hurt as many people as possible. To lull the crowd into believing that a particular thesis is rock solid, and wham! Am I going too far? Perhaps, and in this case, by advising caution and setting aside cash, how can we get hurt? I am not sure unless we are seduced by the "Siren's Call" to raise our risk only to be dashed on the rocks. The Siren’s seduction I refer to is complacency that we are on a solid rally so why not go “All In”.

The best approach is to take the middle road. From now to the day of the election we have to take care NOT to be "All In". The scenario I am worried about is a sell-off that comes sharply and then begins to rise, "everyone" buys the dip, and the market starts to rise. Then once we are sure that we beat the market, and spend down all our cash, and then the dive starts in earnest. Sorry for sharing this paranoic fever dream I am haunted by, but there it is.

That said, if we adhere to the Cash Management Discipline ((CMD)) and trim as the market starts to rally back, then for us it would be just another volatile 2 to 3 months. My theory about the sell-off is that a general sense of satisfaction grows with news of deflated prices, brought on by less demand. This happy news becomes a nightmare as the crowd starts to realize that this is also how a recession looks as well. As more news of slowing demand comes in, the fear of a sharp recession grows. Add in ever larger job losses and lower economic performance. That is a prescription for another attempt to break 3600.

My job as I see it is to try to see over the next hill and try to help navigate whatever might be coming, whether it's a new opportunity or something to avoid. Right now, we must hold the course. I don't want us to change what we are doing already. Also, there is no evidence that the economy is about to head into a steep recession. This is especially clear to us now that we had a 500K jobs number just this Friday. There is no evidence as yet of any rapid slowdown. Also, what could happen to make loudmouths like me feel the fool is NOT to have any sell-off at all . Maybe we just hold to a tight channel and we view any mere dip as the "Big One" and overreact every dang time.

So we are going to stay with the Cash Management Discipline since it has been working very well in these volatile times. The first notion is that Cash has a value all its own. Meaning right now the goal is to be mindful of your principle and the moment you do go long, try to harvest the cash you laid out from other positions. Hopefully, at this point, you have positions that are nicely green so harvesting cash elsewhere means you are taking profits. If you have a lot of losing positions and only a few profitable ones, take most of the cash from the losing positions provided they aren’t brand new.

We are still in earnings season and we are taking advantage.

We have been analyzing stocks that are reporting and selecting names that we believe are good risks to provide alpha. We have found that in the moments just before and right after the earnings report the stock at times fluctuates wildly. So like the fisherman who sets up several rods with baited hooks, we are doing similar. We put in bids way below the closing price. By that, we mean as low as 5% under the closing bid, or perhaps lower. If we get a bite great! If not, we still have our cash. It takes self-control to put in a bid that is a lowball especially if you really want that stock. I got lucky a few times, and so did others in our community. If I didn’t get filled, I made note of how low the stock fell in the post-market, in my experience once a stock touches a low, very often it will visit that level again. Why do I think this is a worthwhile activity? It works! More to the point, we are in the middle of the dog days of summer, volume is already low during normal trading, and trading in the post-market is even less liquid. Therefore, putting in a bid, if someone needs to sell, perhaps they are panicked by the earnings report your bid can get filled. It happens so why not try to grab a bargain? The other reason is if I am going to risk money right now, knowing that late August has been treacherous in the past, and of course September even more, I want to make sure that I have a margin of safety in a position. If my lowball offer is not filled, great! I have my cash ready for the big one. If the big one doesn’t come, I can always deploy it at better times.

My shopping list has expanded this week

First, I want to make note of a space that I haven’t taken part in but I think has more upside to go, and that is the Biotech space. I have no real edge in this space, I can satisfy my interest by investing in large pharma companies, that have proven that they can acquire the smaller fish. So names like AbbVie ( ABBV ), Bristol Myers ( BMY ), and Pfizer ( PFE ) have proven that they can pick winning acquisition targets. As far as the small fish themselves I have been less successful. Right now, I only own ABBV, but both BMY and PFE are appealing. The only way to safely get into the smaller names that I know of is the XBI. XBI is a biotech ETF that is equal weight. So if a biotech stock that is part of XBI is taken over it can affect the price of the ETF. Check out the 6-month chart.

It looks like I missed the boat on this one. I would tend to agree. However, since nearly everyone now expects a big dive in the markets it might make a lot of sense to pick up shares. Just last week there were 3 biotech takeovers that were fairly substantial. I think the news that Medicare is going to negotiate prices may slam the healthcare space. I can’t imagine that these biotechs will be put out of business, perhaps they will be more willing to be bought out. Anyway, I am not in XBI yet, but I am being patient.

My Trades

Many of the names I bought this week are stocks that I have owned for a while. Or perhaps familiar names in general. The way all stocks have been pressured this year one needed to beat the bushes for lesser-known names to get very good returns right now.

That said, I have decided to widen my shopping list to include chip stocks now that the Chips Act has come through, I think attention paid to chips will create alpha. I bought Taiwan Semiconductor ( TSM ) the day before Nancy Pelosi visited the country, and then as she left Taiwan safely I bought more. Before ON Semi ( ON ) reported last week, I broke my rule of not getting long stocks going into earnings and bought some shares in it. They smashed earnings on Tuesday. So that was encouraging. I also wanted to find chip-making equipment, I am sure that I mentioned Axcelis ( ACLS ), they have been selling their equipment very well. A newer name is Nova ( NVMI ) a process control and measurement equipment provider for chip manufacturing. They had earnings on Thursday, and I bought some on Friday. The earnings report was good, and the product is necessary for chip manufacturing. I will change my tactics and look for better-known chip-related names. It’s not a chip stock but I added to an adjacent technology-related maker and that is MP Materials ( MP ). MP is a rare earth miner that is building a vertically integrated manufacturing company. It is mining, refining, and processing those rare earth metals into permanent high-power magnets. These magnets are used for high-performance electric motors for EVs, also wind turbines, and military applications. General Motors ( GM ) signed on as an inaugural customer for the products. MP has been prioritized by the US government to lessen dependence on China.

I mentioned biotech, the only small biotech that I have I added to this week and that was bluebird bio ( BLUE ) they have a number of drug candidates that are very appealing. Raymond James upgraded this week and raised the price target to $8, last week it was trading above $4.

I continue to favor cloud software providers like Workday ( WDAY ), CrowdStrike ( CRWD ), UiPath ( PATH ), and Upstart ( UPST ). WDAY and CRWD were stocks that I made lowball offers during some selling last week. PATH made an interesting AI acquisition, and they announced a partnership with Box ( BOX ). I think that partnership is a great move for both of them. I already had PATH this news was a prod to add some more. I restarted a position in UPST, since there is no recession, and most consumers aren’t tapped out. Furthermore, they haven’t had significant financial news coming from the initiative in car finance, they also started a car refinance business. I will be interested to see the earnings report tomorrow. I still believe in their AI-based credit assessment for personal loans and now car loans. Unlike many new tech companies, they are making profits. I believe they moved a lot of the loans off their books, so that reason for selling the company is less of an issue. I have a much smaller position now, so I am adding shares. I also built up my Confluent ( CFLT ) position. CFLT had a great earnings report and it gave me the confidence to get deeper into that name. Finally, I also added to my HashiCorp ( HCP ).

That is a much wider array of positions than I had before. I still have positions in the “Tech Titans” that I have mentioned a number of times before. Most of those names haven’t advanced all that much recently. My thought is that I will bide my time and add funds back in as they retreat. I do see them retreating, and when they hit my buy points, I will acquire them.

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