XAO – The All Ordinaries hit an all time high on the 20th Feb 2020 at 7289. A mere 22 trading days later the All Ords traded as low as 4229, a fall of 3060 points or 41 percent. With current levels around 5350 the index is currently around 26 percent from the peak and very close to 26 percent from the low.
So, in the words of the song from Steeler’s Wheel, “here I am, stuck in the middle with you”. What’s next?
While I rarely comment on politics or external fundamental issues, it is impossible to ignore the Corona pandemic. Conspiracy theories abound, the CIA released this virus. Questions remain unanswered, how is it that the SSEC (Shanghai exchange) is only down 10 percent?
There is no doubt the world has changed forever, so for what it’s worth, here are my thoughts.
In Australia, assuming the lock-down and self isolation continues for a mere three months some of the results will be, cheap fuel that we can’t use, more divorce, more suicide, lower road toll, lower burglary rates, more AA meetings, etc. At Pro Trader we have been self isolating for three weeks.
I doubt that a lot of industries will ever return to normal operation ever again. With this in mind, I am certain many others feel the same way, hence I see a lot of commercial real estate vacant for years to come. I did say “when this blows over” but I think that is a very simplistic view. “Rona” is here to stay. Unless you think that we can firstly produce an effective vaccine (and we have not accomplished that with some current ordinary flu virus), then produce enough to immunise 7 or 8 billion people worldwide the Rona is here to stay.
Let’s assume our lucky country vaccinates the total population, including the anti vaxxer’s and we eradicate this virus from Australia, “What do we do then?” Open the borders to international flight and bang away we go again.
So, back to the market. Obviously crude oil is one of the big victims, but more a victim of the Saudi’s and Russia. At some stage the cars will crank up again and crude will move north, taking Santo and Beach Energy with it. I believe these are as good as any opportunities in the oil sector. STO anywhere under $4.50 should pay off in the medium term.
However the biggest devastation is probably to the travel industry and I would certainly be steering well clear, there will be bounces along the way but far too risky for my liking at the moment.
Without going through each sector I still feel that the best approach is waiting for the best buy signal on each individual stock. The best buy signal is the higher high, higher low setup. We saw plenty of this at the end of the 2008 downturn.
We have posted some of these opportunities on facebook.
While there are many great short term rebound trades I want to focus on two stocks that I believe will perform well in the medium term.
While this ETF has a very limited history the makeup is quite exciting.
FANG holds only constituents from the NYSE FANG+ Index. To be eligible for inclusion in the Index, a company’s shares must trade at least US$50 million per day on average, making FANG extremely liquid.
Transparent: Full portfolio holdings for FANG are made publicly available daily. Core exposure to the world’s leading technology and tech-enabled companies including:
- 13.7% Tesla,
- 11.3% Amazon,
- 11.3% Netflix,
- 11.00% NVIDIA,
- 9.5% Alibaba,
- 9.5% Apple,
- 9.00% Alphabet,
- 8.3% Facebook,
- 8.1% Baidu and
- 8.1 percent Twitter.
The NYSE FANG+ Index serves as a benchmark for the top innovators across today’s tech and internet/media companies. The index is designed to provide exposure to highly liquid companies from major US Stock Exchanges, while meeting requirements from the index committee. At each quarterly rebalance, the Index committee selects FANG and FANG-related equities from the New York Stock Exchange.
From this selection, the constituents must meet liquidity requirements to be included in the Index.
We have not included these charts, however, IFL and DOW are two other stocks we are also currently keeping our eye on.
All of us at Pro Trader would like to take this opportunity to wish everyone a very safe and happy Easter and hope everyone’s camping trip on their back lawn is one to remember!