It’s been quite the ride so far this year, and we are pleased to say that our Fidelity accounts have generally performed very well as compared to the equity benchmarks. In March, the Dow Jones Index had the 3 biggest daily drops AND the 5 biggest daily gains on record. On March 30th the Bullish Percent for NYSE (BPNYSE) had moved up into X’s from 6%, the lowest level seen on the chart since October 2008. In this move, the BPNYSE managed to not only reverse back up into X’s, but moved to the “middle of the field” at 50%, placing it in Bull Alert status. This swift upward move told us that more and more stocks in the New York Stock Exchange (NYSE) universe had managed to return to buy signals and were being controlled by demand. In essence, more stocks were beginning to participate in the upside swing. We began to judiciously add strong stocks into the portfolios while keeping a good cash holding and waiting for more signs of a bottom.
Now, less than a week later, the BPNYSE chart has again reversed back down into a column of O’s, showing supply taking control and moving us from the 50% level down to the 38% level. We are back on defense again and moving through the bottoming process.
As a result of this move, I want to reach out to our clients and friends who participate in a 401(k), 457, or 403(b) retirement plan and advise you to move 20% to 30% of your current investments to the Money Market, Stable Value, or Guaranteed Account within your plan to capture the gains made recently and to protect your account from further deterioration while we are on defense again. When we move back to offense, I will broadly advise a reallocation from these cash-like positions back into the equity markets. If you would like personal advice as to our current recommended allocation for your plan specifically, please call us at 828-274-7844.
BPNYSE CHART April 6, 2020
The Bottoming Process
According to Andrés Cardenal, an economist, financial analyst, and columnist whom I follow on the Seeking Alpha website, the bottoming process in a bear market typically has this anatomy:
- First, you get a shocking decline driven by panic
- Then you get a relief rally that typically recovers 30% or so of the losses from the panic decline.
- The third stage is generally a demoralization phase, in which prices move up and down with lots of volatility, and bottoms are generally retested. If the bottom retest is successful, then things can start to improve, but if you get a break below that bottom then we need to start again from zero.
I believe we are in the third stage now and will continue to monitor and manage your accounts accordingly.
Coronavirus and Your IRA
Please read this informative and comprehensive summary of the impact of the CARES Act on IRAs, as presented by James B. Fleming of Strauss Attorneys PLLC. Strauss Attorneys article
The most notable provision is that Required Minimum Distributions from Roth and traditional IRAs are waived for 2020. People who take their Required Minimum Distribution only because it is required may choose to skip the 2020 distribution. Skipping the distribution will reduce your taxable income for 2020 and may reduce your tax liability for the year. If you choose to skip your RMD for this year AND you pay estimated taxes, you may want to touch base with your CPA to discuss whether making an adjustment to the estimated tax amount is warranted.
If by chance, you have already taken your RMD in 2020, and the distribution occurred less than 60 days ago, there may be a way to undo the distribution. Please let us know as soon as possible if this applies to you.
We appreciate your continued confidence in us, and we welcome your calls or emails if you have any questions.
