Monthly Review (March.2020)

Toughest Month Ever traded

Dear Copiers and Followers,

The last month has been devastating for our lives as well as for our Portfolios.

The double punch that the markets received from a sudden freeze of the global economy due to the Covid-19 pandemic and the price war Russia-Saudi Arabia, plunged the market prices into the fastest collapse of this century and the highest spike ever recorded of the VIX which skyrocketed above the level of 85!

When something like this happens, trading becomes nearly impossible and the typical hedges such as Gold (i prefer Gold Miners because are more volatile), Bonds and other strategy not only become, temporarily useless, but they actually become like a double edge sword that can damage even more greatly the portfolio than simply owning stocks.

Figure 1: Portfolio composition 31.03.2020

I expect that the worse for the portfolio has passed, I took actions to further reduce our exposure to stocks which are now about 25% the lowest on record since i started trading years ago (Figure 1 shows Portfolio composition, Figure 2 shows details of the ETF component).

Figure 2: ETF component composition

The panic selling and market liquidation which brought down basically every asset, seems to be slowing down and I worked hard to stabilize the portfolio and free up some cash that is allowing me to re-start a cautious trading activity.

I expect gold to conclude its consolidation phase soon, probably within a few weeks and resume its run upward to at least 1700$ by end year and then probably higher as the liquidity comes back to the market and finds its way toward one of the best assets to buy during an coming economic recession and FED rates at 0%.

The market recovery is likely to take about a year.

The VIX finally fell to a value of 50 for the first time in 3 weeks, also a sign that panic selling is slowing down and that most of indiscriminate assets selling is ending.

The gold miners that we invest into got hammered but I am expecting that when the gold resumes its upward trend will quickly recover the past values and will keep increasing even though in a very volatile way. Unfortunately also the Gold miners are subjected to production reductions due to the corona virus, at least initially.

For this reason I shifted part of the investments to the GLD-ETF, which allows us to get exposed directly to gold which is less volatile than miners.
Once the situation stabilizes we will allocate part of those resources to stocks and Gold miners which i expect to have the best upside potential medium term (1 year).

I doubt that all the FED and the global governments are doing will be enough to avoid a recession and I would expect a "L-type" recovery of the markets which means a long a slow recovery that will speed up once the fear for the COVID-19 goes away, maybe within 6 months if some effective cure is found, maybe a bit longer.

The market crashed, the Nasdaq fell to a value of about 6500$, if the past repeats itself, we are going to see a revisit of such low, and if that support doesn't hold, maybe the actual bottom of the market will be around 6000$ or below.

The VIX above 50 is telling us that, although it probably peaked at 86, the market did not bottom yet. I think that to call a bottom a revisit of this months low and a VIX below 27 are required.

Until the VIX stays above 35, we will keep opening shorts on the NASDAQ at strategic levels as a hedge to our open positions in stocks, with a tight Stop Loss. This will help us stabilize our portfolio and avoid new shocks.

Conclusion

Our Portfolio suffered a very painful draw-down, our Risk Factor increased from our typical 3-4 to 6.
We had to freeze most of the activities and wait for the storm to at least reduced.

Now are in the conditions to resume the trading activities, I expect the month of April to be very volatile but hopefully be the first month of this year to end in profit and from here to rebuild and recover our losses investing on defensive but volatile assets such as Gold and others less volatile such a treasuries (TLT).
After we confirm a bottom of the market, our preferred assets will be again stocks.



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The graphs and prices shown in this analysis were taken using as a source www.etoro.com, the platform I am using for my trading as DanieleTrader.
Whoever is interested to follow my trading activity there is welcome to subscribe to the platform using the following link and follow me or Copy-Trade my activity:

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