Portfolio Update: Picking the Best Stocks
Positioning My Portfolio for the Coming Multi-Year Rally
Last week was a good week for the NASDAQ and many are calling for a “bear market rally”. In my opinion, this makes a lot of sense, a bear market rally. Mostly because of how hard we have been getting hit with non-stop selling. It’s been brutal and at some point, we had to move up. To put this into perspective, we can take a look at the weekly chart on the NASDAQ.
When we look at the RSI, we can see that over the past 22 years, there has only been 8 times this has happened. Above, I marked the areas where the RSI (relative strength index) reached over sold areas this extreme. It’s notable that 5 out of the 8 times marked a major bottom and, at minimum, marked an area for a significant rally. I think it’s reasonable to assume that we will see a rally next week, at least for a few days.
For software investors, the latest market price action has never been this bad. In fact, the Fed raising rates and tightening monetary policy created a larger draw down in the SKYY ETF (software ETF) than a once in a 100 year pandemic in Corona Virus. This was relatively understandable given the over exuberant, bubble like euphoria we experienced in 2020 and in 2021. Below, you can see exactly how far the valuation got away from the mean for software and many growth stocks.
We are now trading at a 7 year low when it comes to growth stock valuations. Because of this, this leads me the purpose behind todays Newsletter. I am under the impression that growth stocks have over shot to the downside and sentiment toward these particular stocks is straight in the dumpster. As a natural contrarian, I prefer to add down here and believe there’s enormous opportunity. With funds underweight technology and with the largest amount of cash on the sidelines since 9/11, with the right time horizon and discipline, one cannot help but imagine about what comes next.
My Portfolio, Positioning and Watch-List
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