Mar 23 2020 - Today I Took Advantage Of The Spike In Amazon, Roku And Slack To Get To Cash

My trades were all up significantly and I closed them out, with a profit. Yet I feel uneasy about it.

I dislike allowing politics to rule my trading activity. It's almost always a losing proposition. However, getting to cash this week was part of my trading plan.

Many of the tech names were up strongly, and the VIX was down again, and other indicators are telling me that we are closer to the bottom than the top.

if you hold equities, continue to trim positions gradually. At this point, you should have enough cash on hand to take advantage of Thursday.

If we are close to a bottom, the shares you already hold are likely already attractively priced even as they are under water. In a month's time, they may well bear ripe profits. Again, this note is not a call for you to sell all.

My thesis on the market hasn’t changed

Yes the VIX fell again today, and yes the market indexes were down “only” 3%, and the tech names performed much better relatively than the rest of the market. That all lines up with my thesis that I put forward just yesterday. Market participants are starting to discount the worst-case scenario. If the market is valuing one group, the growth names writ large, but really the tech-enabled services, information, and data technology names went higher. It means a picture is coming into focus. Also, the VIX is falling, and the expectations for further panic selling has lessened. So what changed? I should have stayed in, right?

The politics got to me, to be frank

I don’t like to let politics get in the way of my trading decisions, so perhaps I will regret getting to cash. The fact I made a few simoleons as my holdings all were up fairly significantly did not give me comfort, even as the overall market did less well. Last week I was happy in the faith that the progress of the fiscal bill was making its way through the Senate in a bipartisan manner. That the legislative branch would produce an effective bill that will prevent a terrible recession. A recession brought on my government edict, because of a health emergency.

Yet now, despite attestations to the contrary, little bipartisan progress has transpired. This bill should have been done and dusted a week ago. It's true that I expected that Monday reports of an agreed-to bill would likely not be announced. However, I expected it to be about details and just the creaking parliamentary traditions of the Senate. I began to be concerned by yesterday’s news that Nancy Pelosi was going to turn in her own bill, and that in fact, the effort in the Senate was no longer bipartisan. The fact that two separate votes for cloture in the Senate failed today really stung. Yet even while Chuck Schumer was claiming comity later today was contrary to the facts. I don’t want to summarize the news for you. Doubtless, everyone who cares about how the future of our economy has been paying attention. I'm only trying to transmit what has changed for me. Look, the making of law is often compared to sausage making, and I might have been bamboozled into making a hasty retreat. Perhaps tomorrow all will be well. It just doesn’t smell that way to me now.

I have to make the allowance that Congress is behaving irrationally

That's the long and the short of it. I don’t care right now whether it's the fault of the Republicans or the Democrats. I will tell you one thing, if they don’t get ‘er done by Wednesday there will be hell to pay. Maybe Schumer and Pelosi don’t care that we may register 1 million unemployed on Thursday because they think it will be pinned on Trump. Maybe it’s the Senate Majority Leaders Mitch McConnell’s fault. I don’t know, but, I'm hearing all kinds of demands that have nothing to do with saving jobs because some think they have ole’ Mitch over a barrel. Still, if this drags on it doesn’t matter who is at fault, I say a pox on both their houses. To my eye, it now appears that the legislative branch is too busy squabbling to take care of business. That means there's a strong likelihood that there will be no agreement going into Thursday and that might be the final convulsion to the bottom in the market.

Maybe Roku (ROKU), Amazon (AMZN), and Slack (WORK), continue to hold up along with other names that acted so well today like Shopify (SHOP). Look at the game stocks - Electronic Arts (EA), Activision Blizzard (ATVI), and Take-Two Interactive (TTWO). They jumped 8% to 10% on news that eGame usage went up 75%. There are plenty such names to choose from, all doing well in the face of sharp overall downward pressure. Still, I choose to get flat today and go totally to cash in my trading account. I did not sell any of my long-term names, and finally, to be honest, I did not maximize my profits on any of the names I that I traded for cash. If I would have chosen to hold to the close I’d be up a lot more right now.

Even so, I did stick to the plan I laid out in my previous piece

In Sunday’s piece, I told you to take the opportunity to trim positions and do it a bit more aggressively than I normally suggest. Since I express my trading primarily in options the flexibility of trimming is not evident. So I sold out, still, I feel like I got cowed out of my trades. That wasn’t a rational decision, but one laden with emotion. That is the one thing I work very hard to limit. Yet, sometimes you gotta listen to your gut. Also, if the mental picture that I maintain of where the market should be moving to, more to the point, that the Senate would advance the stimulus package, is highly questionable right now. That means we’ll have a very good chance that we greet Thursday without even a codpiece to cover our vulnerability. I did say on Sunday that you should build cash to be ready for Thursday, and so I'm moving according to plan. If the market does sell convulsively I will put that cash back to work either Thursday at the close or Friday at the close.

If you are holding equities, don’t sell everything

Please don’t sell every share. That's not my message. If you already have been aggressively trimming, I hope that you have some percentage of your trading account in cash. Look, we are closer to the bottom right now than the top. You may just have some stocks that are really decently priced. Even in out of favor sectors, in two or three months or even two or three weeks, you may well regret dumping shares, Now is the time to dollar cost average into new positions, not selling. I just think there's some odds of a nasty dump on Thursday and I want to buy that. You should too.

The stock market is a discounting mechanism

So why don’t I want everyone to get into cash along with me? Well, here's the bottom line thing that’s bugging me. The market may already have discounted that terrible unemployment number. What if the market takes it in stride? Think that is nuts? It happens all the time. Look the indexes are crammed down right now, down 40% almost on the S&P and down 33% on the Nasdaq at today’s low, in just one month’s time. You know the truism “the stock market is a discounting mechanism.” It’s been discounting a furious and historic rate. Let me tell you if the market yawns over that 1 million person unemployment toll or maybe the number is “only” 750,000. If that happens Katie, bar the door! Who is Katie anyway? Anyway, if the market brushes off that piece of news the stock market will gore the bear. We will see a face-ripping short squeeze snap-back like you haven’t seen in a very long time. I told you that the easy money as a bear has been made. I bet there are a bunch of short sellers who are licking their chops over the prospect of the job news being dire. It just seems like such easy money! That isn’t how the market works, my friends. If everyone knows that something is easy money, it's no longer easy money.

My Trades: There will be none until Thursday, and even then if things don’t transpire as I expect I will sit on my hands.

So what’s my plan for the rest of the week? I am going to do NOTHING. Not trading is doing something too. I will watch, I will take notes, I will attend to my other business, I will not touch the trading screen. If the chuckleheads in Congress get their act together tomorrow or Wednesday and pass a bill, and Trump has the signing ceremony on Thursday. I still will hold off. Why? Because that means I got it wrong, and if I got it wrong, I will trade angry or fearfully, and I will lose money. I actively try to manage my emotions and want to approach trading mentally strong. If I'm proven correct and the market does sell off hard I will continue my plan. If the market shrugs off the bad report I will console myself with the knowledge that my long-term investments are still fully invested. Monday, I will start fresh.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.