Prepping for a bottom

[Andrew Stepner]

When we eventually hit bear market bottom and see full capitulation, I want to be ready to jump in on whatever got the most (wrongly) recked.

Back in Winter 2009 I recall that the best performers after the market bottomed were the ones that had basically been annihilated the most. Something like $F Ford or something.

So what is setting up to be annihilated the most now in our current bear market? Crypto? High flyers like $SHOP?  Something else?

Stepner

[Richard M]

something like AMC will rocket.

if there is a similar euphoria names like ROKU will leap.

But I think Ford would rip again. TWLO

but IMO Q2 earnings are going to be really bad for some of these names.  and Apple poses a huge risk to the overall market as it faces tough comps against a record Q3 2021, has the same currency issues that caused MSFT to profit warn, has greater china exposure, and - honestly - after sheltering and Work From Home they (IMO) likely got a huge demand pullforward.  (parents bought iPads in droves for kids, money was free, stock market was up, and home office buildouts happened).

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Richard Mordini

[Andrew Stepner]

To be clear, and to your point, I don't think that they have dropped enough. Essentially I think the bear market needs more time.

However I am trying to plan in advance. Maybe I am premature but market movements seem to be faster these days. The start of covid crash and recovery for instance. So I want to be prepared sometime soon so I don't have to scramble when the market eventually turns. That's the theory anyway.

AMC is interesting. Was their peak artificially high from the wallstbets stuff or is it realistic for it to return to that valuation?

Just browsing/calculating a few names, it is interesting that the max drop ones mostly seem clustered at ~-80% drop from prior 52 week/all time high. AMC down 80%, SHOP -80%, SQ -76%, ROKU -81%, TWLO -77%, LYFT -78%, AFRM -87%, COIN -84%, OPEN -78%, ASAN -86%, TDOC -74%, ZM -70%, RBLX -72%, DKNG -80%, HOOD -89%, SPOT -65%  . I did not expect them to be so clustered at a -80% cap. Or maybe I am just cherrypicking names. Mainly midway through I decided to just put in Ark (ARKK) holding that I knew of.

Also interesting to look at it in terms of ~how long ago was the stock last at the current price. SHOP, SPOT, PD, DKNG, and ZM are each roughly back to their price from Apr/May 2020. Some of the others had no IPO'd by then so can't calculate for them. But the point is not much dispersion on this "metric" either.

Anyway with similar dispersion maxing out around -80% drop, it seems like a highly correlated sell it all move as has been mentioned by commentators. So if anything I'd speculate that the best recovery names might just be those who rebound the best in terms of business performance. I love $OPEN but I may look to diversify into a few others of the above if/when I think there is peak fear.

Stepner

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[Richard M]

Carvana likely would rip super high bc it's tied to "real world" and rates and has huge short interest.

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Richard Mordini

[Andrew Stepner]

That's a really good one. Down -93% from peak so far.

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[Andrew Stepner]

Downtrend

The S&P 500 now seems to be testing the prior 52 week low (within 1.5% today). It has been 3 months since then with a big rally in between. So the reversing momentum seems strong. I would say that testing a lower low is more likely than purely testing the old level. And since it has been 3 months, a lower low based on the trendline could be pretty low. See attached image.

It's not like testing a level like 3200 is guaranteed. But the chart makes it look possible if negative sentiment snowballs further. If something close to 3200 were to happen, there's a good chance that could represent peak pessimism.

Above all, I think sentiment will be the key indicator (i.e. capitulation, despair).

Getting ready to buy

So I'm likely to try to buy a lot if this scenario develops (I've had a large cash position since ~May).

Catalysts that could prove me wrong

Albeit any major upside catalyst could break this scenario. I could see these possibly triggering a rally/marking a bottom: 1) Fed action of some kind, 2) Strong company earnings, or 3) Inflation significantly dropping.

Input

So do you all foresee any major events upcoming that have a good chance of kickstarting a rebound to break my scenario? Am I off anywhere?

Stepner