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Think back New Year’s Eve, and all the uncertainty still surrounding COVID, and the aftermath of a disputed election. If an investor told you he had $500,000 and was unwilling to risk a drop of more than 20% over the next six months, what would you have suggested he do?
Our approach to investing in a state of fear is to buy likely winners and hedge away the fear. Here’s an example, followed by an explanation. Let’s say that you have $500,000 in cash you want to put to work in 2021, but you aren’t willing to risk a drawdown of more than 20%. If you indicated that in our hedged portfolio construction tool on New Year’s Eve,
Here’s a very interesting graphic (click on it for better readability); it shows dividend size as well as longevity. I never realized AT&T paid out such a huge dividend (relatively speaking). Decades ago, pretty much the ONLY reason people bought stocks was for the dividend, whereas these days I doubt many of the Robinhooders would even be able to tell you what the word meant.
Obviously SPX broke up at the last inflection point and may well be on the way to the resistance trendline I mentioned in my last post, currently in the 4400 area.
I’m still leaning towards seeing a decent backtest of the 4000 area over the summer sometime and ideally that backtest would reach the 3800 area. I’ll explain why that is in another post over the holiday weekend and if we were to see that retracement, and then found decent support there, it would set up a potentially very bullish scenario for another leg up.
In the shorter term, the rising wedge from March 2020 broke down on the last retracement and if that break was just an expansion of the wedge, then we should see that test of wedge resistance in the 4400 area next. If seen I will then redraw the wedge support as unbroken.