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Now The Proving Grounds of a Market Bottom Really Begin

CAMS Weekly View from the Corner – Week ending 4/3/2020

April 6, 2020

In our recent Weekly Views we have been focusing on the general collective behavior and psychology of fear based market bottoms.  Historically, regardless of the underlying cause, there are characteristics that are displayed in bottoming processes.

To briefly summarize our recent Views there typically is an onset market issue in the sense of some level of recognition by participants that a development may be presenting economic and hence market issues.  That stage is largely ignored by the masses and if recognized, it is brushed aside.

This then develops into more recognition of an actual underlying development progressing to a point where market participants are far more concerned and hence adjust market prices even lower.  At this stage, the masses are typically more aware but yet rarely develop concern.

Then, if “x” issue has progressed even further, we see the proverbial cliff-dive where market participants coupled with the masses hit the sell buttons feverishly and price adjustments display panic fear behaviors and corresponding panic fear type price drops – hence the “cliff dive.”

Post cliff-dive, the fear climax occurred and with this participants come back to the market and bid up prices just at a time when the masses are not only aware and concerned but will not touch the market with a ten foot pole.

Yes, here the story has flip-flopped.  When the participants were concerned the masses were not and by the time the masses became deeply concerned the participants were looking at various buying opportunities.

The “story” does not end here

It is at this stage, which is the stage we are beginning to enter now, where the market enters serious proving grounds as to whether it has truly experienced its ultimate bottom and will not be putting in a lower low from the initial panic fear cliff-dive.

It is at this stage that the market has to face, in actuality, that which it was “looking out into the future and discounting” when it was initially raising concern and dropping asset prices.  Remember, markets are discounting mechanisms which is to say they are constantly looking out into the future and adjusting prices in the now as to what they believe will be unfolding months down the line.

At this point in time the numbers they feared are coming in as reality.

To our literal current experience; collective market participants are facing dreadful numbers nearly by the day on both the health front and the economic front.  The latter part of this past week was a real-time prime experience of the market, which has been well off its panic lows, having to face numbers that were horrific in the now.

All told, the market handled the bad news pretty well in the sense that it continues to remain well off its lows.  Importantly, it is too early to offer this definitively but the market may be in its early stages of “looking through” this current bad news as it sees light at the end of the tunnel.  In today’s newfound jargon, the market may be offering the “flattening of the curve” is coming relatively soon.

Revisiting Lows

Going back to the historical storyline of general market psychology and behaviors it is not uncommon, through said historical lens, that markets find a way to revisit the general area of the previous panic lows.  This is not a certainty, both historically speaking as well as current day.

This is why in the previous few days, in light of the dreadful news, the market remaining well of its previous lows was quite notable.  This upcoming week will be another significant test for the market’s inherent strength of late as to whether it can continue to hold up.  The certainty, as we all know, is the news will be quite bad this upcoming couple of weeks in particular.  The market’s reaction to it will be quite telling.


On a personal note, I have shared in our previous View that typing out historical psychological processes and market behaviors and in today’s case, offering the market is beginning to perhaps see through the current day bad news feels terribly unimportant relative to the life challenge we all face as a society.  Frankly, while typing it feels as though I am disconnected from our reality.  I am not.

As shared previously, we have chosen to stay solidly in our lane if you will and to continue to share market based thoughts and observations as we all move through this historic time in our society.  For my part, I literally marvel at the genuine bravery of so many of our fellow citizens.

As I was sharing with a brother just yesterday, it is strange that the civic duty that the majority of us have in this challenge is to care for ourselves well and to stay away from people.  That sounds ridiculously insignificant relative to the harm’s way that many are placing themselves in as they care for we the citizenry at large.  It is not.

We literally help them by taking care of ourselves as individuals and enacting discipline of remaining as isolated as we can.

The best way that we can help our frontline people is to be safe and distance and in so doing we reduce the stress and challenges that they already are overwhelmed with.  Godspeed to all.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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