March 25, 2020

I think I’ve aged more in the last three weeks than in the past 40 years.

I’m not looking for sympathy because I know you feel the same way. The market moves we’ve seen over the past three weeks have been utterly exhausting for anyone with money in the market. You dread waking up in the morning.

There are glimmers of hope. Yesterday was a fantastic day to be an investor; the best single-day move in the Dow Industrials in percentage terms since 1933. Investors see a light at the end of the tunnel. It’s bad out there, and still getting worse. But aggressive action by the Fed and the promise of a major stimulus bill in Congress should be enough to keep the bottom from falling out. At least, that’s the hope.

Is this the bottom?

Maybe.

Maybe not.

It would be unusual to see a bear market this violent end in a V-shape, but then again, we’ve also never seen a bear market quite like this and under such unusual circumstances. Disease epidemics have come and gone over the millennia. But we’ve never had all economic activity come to a forced stop like this. Not even during the Spanish flu pandemic a century ago that killed an estimated 50 million people.

My best guess is that we have a sustained bounce for a few days or maybe even a few weeks. But once it becomes obvious how bad the economic damage is – and that the economy won’t magically snap back in a couple weeks – I suspect the rally will hit a brick wall. Too many small businesses will be impaired, and too many investors will be too rattled to keep their money invested.

I do know this: There are already some fantastic bargains out there, and you don’t have to get particularly exotic. You can buy a portfolio of low-debt blue chips today, drop them in a drawer, and simply ride out whatever happens next. This isn’t the end of human civilization. We’ll come out of this, eventually, and life will go on.

I also believe that there will be some fantastic money to be made in small-cap value stocks like we track in Peak Profits. The issue we have today is that, as a momentum model, we are woefully short of stocks exhibiting any sort of momentum.

For now, we remain hedged. New opportunities will present themselves soon enough.

Portfolio Update

There’s not a lot of portfolio to update at the moment. We have two long positions remaining, semiconductor maker Diodes Inc (Nasdaq: DIOD) and security firm NortonLifeLock Inc (Nasdaq: NLOK). We’re down 8.36% and 15.21%, respectively.

Our offsetting hedge, the ProSahres Short S&P 500 ETF (NYSE: SH) is up 11.85%.

We’ll see how this month ends. For now, we wait for our moment to get back in.

That’s all I have today. We’ll pick this up next week.

Charles Sizemore

March 18, 2020

I don’t have a lot to report today. Frankly, I’m just watching the market melt down along with the rest of you.

It’s funny how being under quarantine changes your perception. I was in Peru this past weekend and couldn’t get out of the country before they shut the airport. I’m now stuck here… and no telling for how long.

I thankfully escaped Lima to the countryside before the lockdown went into effect, but my friends have been sending me photos. It’s never comforting to see the café-lined streets patrolled by soldiers.

I think it’s likely we’ve reached something close to peak hysteria. The U.S. hasn’t been put on lockdown to the extent much of Europe has. But the good news is that with each passing day, our health system has more time to prepare for an onslaught of new patients. That’s good.

My fear is that the response to the crisis has done major damage to the economy.

The good news – if we can call it that – is that our portfolio can’t take a lot of further damage at this point. We went in to this week hedged and with only three long positions. And after today, it’s only two.

We hit our stop in Cooper Tire & Rubber (NYSE: CTB) today. So, when the market opens tomorrow, please take the following actions:

Action to take: SellCooper Tire & Rubber (NYSE: CTB) at market.

Action to take: Reduce your position in the ProShares Short S&P 500 to 10% of the portfolio.

As of today, we now have 5% positions each in Diodes (NYSE: DIOD) and NortonLifeLock (Nasdaq: NLOK) and a matching 10% allocation to our hedge.

What we are going through today is truly extraordinary. I was investing in 2008, and that epic crisis didn’t even come close to this. A 10% daily move in the S&P 500 or Dow used to be almost unheard of. Now, we’re getting those moves daily.

The good news is that high volatility doesn’t last forever. At some point, even if the market continues to trend lower, the extreme volatility dies down as the wholesale selling gets exhausted.

Are we close?

I think so. But we may not know for sure for several weeks.

In the meantime, all we can do is wait to see what sort of government backstops or bailouts will be put in place.

That’s all I have for you today. We’ll pick this up next week. Until then, stay safe.

I don’t have a lot to report today. Frankly, I’m just watching the market melt down along with the rest of you.

It’s funny how being under quarantine changes your perception. I was in Peru this past weekend and couldn’t get out of the country before they shut the airport. I’m now stuck here… and no telling for how long.

I thankfully escaped Lima to the countryside before the lockdown went into effect, but my friends have been sending me photos. It’s never comforting to see the café-lined streets patrolled by soldiers.

I think it’s likely we’ve reached something close to peak hysteria. The U.S. hasn’t been put on lockdown to the extent much of Europe has. But the good news is that with each passing day, our health system has more time to prepare for an onslaught of new patients. That’s good.

My fear is that the response to the crisis has done major damage to the economy.

The good news – if we can call it that – is that our portfolio can’t take a lot of further damage at this point. We went in to this week hedged and with only three long positions. And after today, it’s only two.

We hit our stop in Cooper Tire & Rubber (NYSE: CTB) today. So, when the market opens tomorrow, please take the following actions:

Action to take:Sell Cooper Tire & Rubber (NYSE: CTB) at market.

Action to take: Reduce your position in the ProShares Short S&P 500 to 10% of the portfolio.

As of today, we now have 5% positions each in Diodes (NYSE: DIOD) and NortonLifeLock (Nasdaq: NLOK) and a matching 10% allocation to our hedge.

What we are going through today is truly extraordinary. I was investing in 2008, and that epic crisis didn’t even come close to this. A 10% daily move in the S&P 500 or Dow used to be almost unheard of. Now, we’re getting those moves daily.

The good news is that high volatility doesn’t last forever. At some point, even if the market continues to trend lower, the extreme volatility dies down as the wholesale selling gets exhausted.

Are we close?

I think so. But we may not know for sure for several weeks.

In the meantime, all we can do is wait to see what sort of government backstops or bailouts will be put in place.

That’s all I have for you today. We’ll pick this up next week. Until then, stay safe.

Charles Sizemore

March 13, 2020

Yesterday was one of the worst market days in the entire two century history of the stock market. Not surprisingly, we took some damage. Several of our positions hit their stops and should be sold.

So, please take the following actions:

Action to take: Sell shares of Arcosa (NYSE: ACA) at market.

Action to take: Sell shares of Verso (NYSE: VRS) at market.

Action to take: Sell shares of Photronics (Nasdaq: PLAB) at market.

Action to take: Sell shares of Reliance Steel & Aluminum (NYSE: RS) at market.

Action to take: Sell shares of IES Holdings (Nasdaq: IESC) at market.

Action to take: Sell shares of SYNNEX (NYSE: SNX) at market.

Action to take: Sell Shares of AC Immune (Nasdaq: ACIU) at market.

As this removes most of our portfolio positions, we need to adjust our hedge as well in order to avoid being massively net short. So, please make one final adjustment:

Action to take: Reduce your position in the ProShares Short S&P 500 ETF (NYSE: SH) to a 15% position.

It looks like the market will be higher today, so at least we’ll be able to sell at more favorable prices.

This is brutal, but it will pass. We’ll pick this up next week.

Charles Sizemore

March 13, 2020

It’s that time again. Today, we’re rebalancing the portfolio. But before I get into that, I want to make sure you saw my update yesterday. After the thorough drubbing the market took on Monday, our model put us back in hedge mode.

It’s been a while, so let’s review what that means. Peak Profits is based in part on a momentum model, and when market-wide momentum breaks down, it triggers our hedge. When the hedge is in place, we reduce all positions by half, cutting from 10% each to 5% each, with the remaining 50% of the portfolio going into the ProShares Short S&P 500 (NYSE: SH).

This converts Peak Profits into a long-short portfolio. In this case, we don’t necessarily care whether the market rises or falls. We simply care that our stocks perform better than the market. If the market falls but our stocks fall less, we still make money the way the math works out (the hedge would rise in value enough to more than offset the losses in the portfolio’s positions).

So with that, let’s jump into it.

What’s In? The first and most obvious, the hedge. So, if you haven’t already…

Action to take: Buy the ProShares Short S&P 500 (NYSE: SH) with 50% of the portfolio.

Up next is Arcosa Inc (NYSE: ACA), a brand new addition we haven’t seen before. Arcosa provides infrastructure-related products and solutions for the construction, energy, and transportation markets in North America.

Interestingly, its Energy Equipment Group is mostly insulated from falling crude oil prices, as it provides structural wind towers for wind turbine producers.

If we see a recession later this year, Arcosa may see its business slow down. But for now, our model is telling us to invest. So, that’s what we’re doing.

Action to take: Buy Arcosa Inc (NYSE: ACA) at market with 5% of your portfolio. Set an initial stop loss at $34.86 based on closing prices.

Up next is semiconductor maker Diodes Inc (Nasdaq: DIOD), which we added to the portfolio in July of last year. We sold it a month later for a modest 4.28% gain. Let’s see if we can score some bigger returns this time around!

Action to take: Buy Diodes Inc (Nasdaq: DIOD) at market with 5% of your portfolio. Set an initial stop loss at $30.55. based on closing prices.

Next we have a brand new addition, Cooper Tire & Rubber (NYSE: CTB). Cooper does exactly what its name suggests. It designs, manufactures and sells car tires. It’s the simplest business if there ever was one.

Even if auto sales slow, Cooper shouldn’t be all that affected. In fact, if Americans hold on to their cars a little longer and thus need replacement tires, it might actually help Cooper.

We’ll see. In the meantime…

Action to take: Buy Cooper Tire & Rubber (NYSE: CTB) at market with 5% of your portfolio. Set an initial stop loss at $17.69. based on closing prices.

And finally, we have a familiar face with paper products company Verso Corp (NYSE: VRS).

Last time we traded Verso, it didn’t go so well. We bought it in September 2018 and sold it a few months later at a 19.08% loss. Given how roughed up the market is today, I like to think our timing will be a little better this time around.

Action to take: Buy Verso Corp (NYSE: VRS) at market with 5% of your portfolio. Set an initial stop loss at $12.24. based on closing prices.

What’s Out? We’re selling three stocks at losses this month. In KEMET Corp (NYSE: KEM), it’s a modest 8.97% loss. However, in Dillard’s Inc. (NYSE: DDS) and Commercial Metals (NYSE: CMC), we’re down 32.10% and 26.96%, respectively.

It is what it is. We’re in a nasty correction, and stocks are getting pounded. All we can do is react.

Action to take: Sell KEMET Corp (NYSE: KEM) at market.

Action to take: Sell Commercial Metals (NYSE: CMC) at market.

Action to take: Sell Dillard’s Inc. (NYSE: DDS) at market.

What Stays? We’re holding on to five positions: Photronics (Nasdaq: PLAB), Reliance Steel & Aluminum (NYSE: RS), IES Holdings (Nasdaq: IESC), NortonLifeLock Inc (Nasdaq: NLOK) and AC Immune SA (Nasdaq: ACIU). Since we are in hedge mode though, we will be reducing these positions to half-sized.

So, please take the following actions:

Action to take: Rebalance Photronics (Nasdaq: PLAB), Reliance Steel & Aluminum (NYSE: RS), IES Holdings (Nasdaq: IESC), NortonLifeLock Inc (Nasdaq: NLOK) and AC Immune SA (Nasdaq: ACIU) to be 5% portfolio positions each.

Keep your chin up. This is brutal, but we’ll get through it. And this cycle, we’re going into it hedged.

Charles Sizemore

March 10, 2020

We have the normal Peak Profits weekly update scheduled to come out tomorrow, but I wanted to let you know that yesterday’s massive market selloff pushed us into hedge mode. So, please take the following actions:

Action to take: Reduce all open positions by 50%.

Action to take: Buy the ProShares Short S&P500 (NYSE: SH) with 50% of your portfolio.

More details to come tomorrow.

Until then, buckle down. Today could be another wild one.

Charles Sizemore

March 4, 2020

After the rollercoaster we’ve seen in the market over the past week, you might feel like you have whiplash. I know I sure do.

Monday gave us the biggest point gain in the entire history of the Dow Jones Industrial Average, with the Dow jumping more than 1,200 points. And then, we gave most of it away the very next day.

Yesterday’s move had a lot more to do with the Federal Reserve than with the coronavirus (COVID-19). In a botched attempt to calm the market, the Fed made an unscheduled rate reduction of 0.5%. But rather than calm the market, it had precisely the opposite effect. Investors wondered if the Fed knew something they didn’t… and if another big shoe was about to drop.

Another concern weighing on the market was the insurgent candidacy of Bernie Sanders. Wall Street legitimately feared what a Sanders presidency would mean for the bull market.

Well, Joe Biden’s strong showing on Super Tuesday makes the possibility of a Sanders nomination a lot less likely. The November election should come down to Trump vs. Biden. And while Wall Street would probably prefer a second term for Trump, Biden is considered pretty benign. He’s not likely to anything proactive to upset the applecart.

This brings us to today. Stocks are trading higher as the Sanders threat recedes and the coronavirus news gets priced in. True v-shaped recoveries tend to be pretty rare, and I expect we’ll have some more choppiness to come. But the worst of the correction may be behind us… at least for now.

For us, the portfolio doesn’t look a lot different than it did last week. There’s a lot of red, which was to be expected given the circumstances. Thankfully, the losses haven’t gotten much worse.

Photronics (Nasdaq: PLAB) and Reliance Steel & Aluminum (NYSE: RS) continue to be our best performers, up 17.65% and 10.65%, respectively.

AC Immune (Nasdaq: ACIU) continues to be the laggard, down a whopping 30.02%.

For the moment, I’m not expecting us to hit any more stop losses. So for now, all there is to do is watch and wait.

We’ll pick this up tomorrow.

Charles Sizemore

February 25, 2020

Well, after a rout like yesterday, we shouldn’t be surprised that the portfolio took some damage. We hit our stop loss in Celestica (NYSE: CLS) yesterday, so please take the following action today.

Action to take: Sell shares of Celestica (NYSE: CLS) at market.

I’ll go into more detail tomorrow about the coronavirus and its potential impact on the market. But for now, just hang in there. This too will pass.

We’ll pick this up tomorrow.

Charles Sizemore

February 19, 2020

There’s not a lot going on in the market today, and frankly, I welcome a slow news day!

The news cycle has been dominated by the coronavirus outbreak and by the Democratic primaries. However, for the time being, it seems as if the news is priced in. After dropping for a few days, the market is up modestly today.

But it’s worth looking at the bigger picture here. I don’t believe the coronavirus is going to be devastating to the global economy. We’re seeing some weakness in earnings outlooks, as Apple (Nasdaq: AAPL) announced this week that demand would be weaker in China for the next quarter or two and that there would be some iPhone production delays due to the work stoppages. Apple certainly won’t be the last company to offer negative guidance like this.

The question is… what happens next? If growth slows for a quarter or two before recovering, that’s a recipe for, at most, a mild correction.

But what if it’s worse than that? What if the work slowdown in China turns into a bona fide recession?

And then there’s the election. The stock market seems pretty happy with President Trump for now, and I think that a Michael Bloomberg administration would be taken in stride. Bloomberg might not be quite as business-friendly as Trump, but he’s not exactly a threat.

But what if Bernie Sanders takes the nomination and ultimately wins the presidency? That doesn’t seem likely. But this time four years ago, a Trump administration didn’t seem likely either. If young people come out in force in a handful of swing states, we could get some unwelcome surprises.

This is to say that the bull market while looking pretty good today, could be at more risk than most investors are appreciating.

That’s ok. In Peak Profits, we’re ready for a bear market. We wouldn’t get out exactly at the top, of course, but our hedge is designed to keep us from getting dragged down in a prolonged bear market. Much of the portfolio’s backtested outperformance comes from avoiding major drops.

We’ll take it one day at a time. In the meantime, let’s look at the portfolio.

Portfolio Update

hWe’re off to a slow start. The market has been mostly lower since our rebalancing, and most of our new positions are down slightly. Cyber security leader NortonLifeLock Inc (Nasdaq: NLOK) is up a slight 0.24%, and electronics component maker KEMET Corp (NYSE: KEM) is up 0.11%. I expect both to be big winners for us over time.

Celestica Inc (NYSE: CLS) is the laggard among our newer positions, down about 3.82%. Though our biggest laggards overall are legacy positions AC Immune SA (Nasdaq: ACIU) and Dillard’s Inc. (NYSE: DDS), down 13.59% and 7.50%, respectively.

We still have a lot of time left in this cycle, and I expect us to see gains in most of these positions. But we need to get through this little rough patch first.

That’s all I have today. We’ll pick this up next week.

Charles Sizemore

February 14, 2020

For those of you investing in the Peak Profits model via our FLEX-10 Index Motif at Motif Investing, I have a quick update for you. Motif Investing had a technical issue and was not able to initially hold IES Holdings (Nasdaq: IESC). That issue has now been fixed, and the model is ready to go.

So, if you’re invested in the Motif, please log in at Motif Investing and rebalance your portfolio.

If you have no idea what I’m talking about… don’t worry about it. Some of my readers trade their accounts at Motif Investing, and this issue affected only them.

If not currently investing via Motif but you’re curious, feel free to check it out here: https://www.motif.com/motifs/flex-10-index-y5Orlu42

Have a great Valentines Day

Charles Sizemore