May 18th, 2020
Chadd Mason, CEO The Cabana Group
Markets Closed Up Big Today Amid Positive Coronavirus Vaccine Results
The past week saw continued volatility as equities sold off Monday, Tuesday and Wednesday just below the 200-day moving average and right at the late April highs. Major indices opened down more than 1% on Thursday and Friday, only to make their way to positive territory by the close. This is a big positive on two fronts. First, it is impressive to have a big reversal two days in a row, not to mention in the face of terrible news. It shows that bullish investors continue to step up amid pronounced selling. Secondly, the buying occurred just as the 50-day moving average was being tested. After the 200-day moving average, the 50 is the next most important. A close of the S&P 500 below its 50-day moving average would portend more selling to come.
Today, we are seeing the impacts of Friday’s reversal continue. Bullish confidence, as well as news that the biotech company Moderna has completed a successful human trial of a COVID-19 vaccine, has propelled stock indices higher by more than 3%. This is the best day we’ve seen for equities in over a month. We are witnessing perhaps the worst economic news in our lifetimes and stocks have not collapsed. In times like this a little bit of good news can do wonders for the bullish cause. It can be a very dangerous thing to be short when all the bad news is priced in. Any hint of improvement can result in massive short covering and a rapid and steep rally.
Let me be clear, we are nowhere near out of the woods as investors or as an economy, but we are holding our own. We will see if the third time is a charm and the 200-day moving average can be reclaimed. If that can happen, it will likely force a lot of cash sitting on the sidelines back into the market. We discussed this phenomenon in early 2019 as markets began to climb out of the hole dug during the fourth quarter of 2018. That commentary can be found here.
Lastly, it’s worth noting that small caps and materials outperformed today and that is also a good sign. Equities have been in a trading range for the past six weeks. A break in either direction will be significant.
At Cabana, we added risk on last week and are in our Moderately Bearish Scene. We are prepared to respond should the market move in either direction.
This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.
Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV, Part 2. A copy of which is available upon request or online at www.adviserinfo.sec.gov/.
The Financial Advisor Magazine 2018 Top 50 Fastest-Growing Firms ranking is not indicative of Cabana’s future performance and may not be representative of actual client experiences. Cabana did not pay a fee to participate in the ranking and survey and is not affiliated with Financial Advisor magazine. RIAs were ranked based on percentage growth in year-end 2017 AUM over year-end 2016 AUM with a minimum AUM of $250 million, assets per client, and growth in percentage assets per client. Visit www.fa-mag.com for more information regarding the ranking.
The Financial Advisor Magazine 2019 Top 50 Fastest-Growing Firms ranking is not indicative of Cabana’s future performance and may not be representative of actual client experiences. Cabana did not pay a fee to participate in the ranking and survey and is not affiliated with Financial Advisor Magazine. Working with a highly-rated advisor also does not ensure that a client or prospective client will experience a higher level of performance. These ratings should not be viewed as an endorsement of the advisor by any client and do not represent any specific client’s evaluation. RIAs were based on number of clients in 2018, percentage growth in total percentage assets under management from year end 2017 to 2018, and growth in percentage growth in assets per client during the same time period. Visit www.fa-mag.com for more information regarding the ranking.
No client should assume that the future performance of any specific investment or strategy will be profitable or equal to past performance. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for any investor. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. While loss tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account. It is the responsibility of the advisor to determine what is suitable for the client. An advisor should not simply rely on the name of any portfolio to determine what is suitable. Cabana manages assets on multiple custodial platforms. Performance results for specific investors may vary based upon differences in associated costs and asset availability.
Cabana claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a trademark of the CFA Institute. The CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS Report and/or a firm’s list of composite/pooled fund descriptions please email your request to [email protected].