Miserable market action continues on Tuesday morning as oil hits its highest levels of the year, housing starts come in lower than expected, bond yields continue to move higher, the Canadian consumer price index comes in higher than expected, and worries build about the strength of the economy.
Technically, the S&P 500 is breaking to its lowest level since Aug. 28, and the other indexes are all trading below key moving averages. The Russell 2000 fund (IWM) continues its deplorable action as it hits levels last seen on July 6. Small caps have been lagging for quite a while, which has been reflected in very poor breadth. Breadth is running about three-to-five negative, but I’m watching to see if the number of new 12-month lows continues to expand. Currently, they are at 250, but hit 350 on Monday.
The selling is accelerating as I write this column and I see few good opportunities, aside from a bottom fish stock I describe below. Nasdaq 100’s breadth now running four-to-one negative and all the key big-cap technology names in negative territory.
My game plan for this market is to have a clear watch list of 25-30 stocks and to track them closely as they react to the poor market conditions. Many of the stocks should rebound nicely when the market improves and fundamentals matter, but just because they appear to be incorrectly priced in this poor market, doesn’t mean it is a good time to buy them.
The key to bottom fishing stocks in a bad market is to avoid the inclination to try to time the exact low. When you focus on that, you are much more likely to start buying too early and quickly. The better approach is to wait for some clear support to firm and then look for bounces. That support will be the obvious stop-out level and prevent you from riding the momentum in the wrong direction.
There is a strong temptation to buy into the teeth of a decline in hopes of catching a quick bounce. It can work when the selling is intense enough, but it isn’t easy to do consistently.
One stock I’m looking at as a bottom fish is AST SpaceMobile (ASTS) . The stock has been scraping the bottom of the barrel for a couple of months and spiked up today on news that it has made a 5G connection between a satellite and an unmodified smartphone. This stock has been a major disappointment for loyal retail investors, but it may finally have a chance at a little bounce now that it has technical support and some news.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider ASTS to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)