whipsaw
[ˈ(h)wipˌsô]
NOUN
1. a saw with a narrow blade and a handle at both ends, used typically by two people (Merriam Webster)
2. the movement of a security when, at a particular time, the security's price is moving in one direction but then quickly pivots to move in the opposite direction (Investopedia)
If you are like me, you don’t REALLY know what a whipsaw is. Here is a timely picture.
Not totally sure if they have modern uses, but they certainly are useful as a catchphrase for making mistakes when trying to time the market.
Over the last month(ish), the price action we have seen in ALL markets has been unprecedented in modern times. For the record, modern times just means the post WWII era. Prior to that, stock investing was essentially the wild wild west. Stocks were not widely held, and markets were generally inefficient.
Without further adieu, let he whipsawing begin. US large cap stocks realized their worst selloff, by a mile, since the great depression. All it took to create the fastest “bull market” bounce in history was the prospects of bazooka full of money getting shot into the skies of America. By the time the $2+ trillion spending package (and all of the junk coming with it) finally got through congress on Friday, we were already in a “bull market.” Timing this was bordering on impossible. Many will say they got the bottom just right, and they made a bunch of money back over the last few days. Those are likely the same folks who told you they were in “cash” for an entire month leading up to last week. That is “fake news.” While I’m sure somebody timed this right, all you have to do is look at the volume of trading and the relentless ascent of the VIX to know the vast majority of participants were panic selling all the way down.
What makes matters more complicated is the fact we have seen 2 of the 12 best up days in market history, sandwiched in the middle of the most aggressive selling stampede ever recorded. Normally I don’t like to use phrases like “in history” or “ever;” yet this time, it unequivocally applies. My sources are the historical charts of the DJA and SPX.
Since we are speaking in terms of “forever,” let’s look at arguably the whippiest of saws. Enter the price of a barrel of oil. The peak to trough to peak to trough prices of WTI in the last month are as follows:
March 2nd, 2020 - $46.78
March 16th, 2020 - $20.48 (-56.3% in 14 days)
March 17th, 2020 - $25.09 (+22.5% in 1 day)
March 30th, 2020 – Below $20 (-20.29% in 13 days - as of 6:15 am MT)
This is absolutely stunning price action. While it is likely oil prices will recover over time, trying to pick a bottom could prove challenging. We have not seen a record oversupply coupled with a negative demand shock, wait for it…. EVER. Of course, there are opportunities for the long-term investor here, but trading in an environment like this is incredibly challenging. Making one wrong short-term decision can cost a trader 20% in a day right now. That is truly amazing.
I only have one more asset class to cover. So please stay with me. Let’s talk treasury yields, if only for a minute. The ten-thousand-foot overview of what has happened in this space over the last month is almost as interesting as watching the price of a barrel of oil. That is not supposed to happen. For the sake of argument, I will be referring to the long bond, or 20+ years to maturity. Just for hypothetical purposes, let’s say you purchased a 20+ year treasury right after volatility started to bounce on March 9th. The fed tried to help you out by cutting the Fed funds rate to 0-.25% on Sunday, March 15th. Awesome right? Then why did you effectively lose 18+% on your investment by Wednesday, March 18th? You got the timing right on a theoretical basis and got WHIPSAWED. If you sold to lock in a loss and get out of the way of irrational price movement in fixed income, you missed the subsequent 15% recovery in lockstep with a massive bear market bounce last week. While these are hypothetical moves, the numbers are real. Just look at the ICE US Treasury 20+ Index.
The entire premise of this blog is to hammer home the point that a thoughtfully diversified portfolio can weather market volatility, but it is incredibly challenging to time markets in periods of uncertainty. Even as a professional, I only make changes on the margin during periods like this. Wholesale shifts in asset allocation have a tendency to get you whipsawed.
Disclosures:
Any opinions are those of Alexander Leonida and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. VIX is a real-time market index that represents the market's expectation of 30-day forward-looking volatility. DJA is a real-time market index that represents 30 large, blue-chip companies from the NYSE and NASDAQ. SPX is a real-time market-capitalization weighted market index of the 500 largest U.S. publicly traded companies. WTI is a specific grade of crude oil and one of the main three benchmarks in oil pricing along with Brent and Dubai Crude.
Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.