Just Do Something - A Market Low?

Equity markets recorded a recent low on 6/16/22. DynaLogic sent a record number of buy signals before the market opened June 17th. We explore how you would have performed if you acted on the signals.

If investing were easy, we would all be rich.  But we have one inherent trait that seems to always get in the way, human emotion.  If you follow behavioral economist Dan Ariely in his Wall Street Journal “Ask Ariely”, or read his book, Predictably Irrational, we are constantly reminded of the challenges in making decisions when our emotions are present.  With a world filled with more information than we can possibly process and that is growing at warp speed, we build biases to help us process those things we feel are relevant.  Confirmation bias is one that infiltrates the investment arena time and time again.  It is much easier to find affirmation than to process conflict.  Besides, we want to feel like we made a good decision.

Looking backwards on June 16th, 2022, the broad equity markets were establishing a bottom.  It certainly didn’t look like it at the time and we may certainly revisit the June 16 lows, but markets have moved considerably higher. As of the July 29th close, Dow Jones Industrials is up 10%, S&P Index is up 12.55%, and the NASDAQ Composite Index is up 14.80%.

At the time, June 16th, there was not much good news in the marketplace.

Headlines that certainly don’t conjure up a period of price stability and calmness.

On June 17th, 2022, DynaLogic published its daily “Risk Off” for the previous day’s close.  What was unusual about that day was the length of the list.  There were 76 Buy signals of varying degrees, the largest number of Buys in a single day, and there were 17 Buy signals that (based on the mathematical formula) were at 100%. 

Below is the data from June 16 close, the closing price for July 29, 2022, the period performance from the June 16 close to the July 29 close, and the unrealized market value if we had invested $1000 in each position at the June 16th closing price. 

No one knows until after the fact when a market bottom is in place.  There is plenty of information today that challenges the views that we have seen a bottom.  DynaLogic doesn’t try to forecast the future, it only looks at the past and suggest changes based on price movement. 

Nobody likes paying taxes and if you had bought on June 17, 2022, and were considering selling, your gain would be subject to short-term capital gains of up to 40%.  Remember though, the unrealized gain is money the “house created” and if you sell, you get to keep 60%.  If you bought all 17 positions and invested $1000 in each position, and decided to sell them based on the July 29th closing price, your net after-tax gain would be 9.24% for 6 weeks or 74% annualized. Maybe “Just doing Something” makes sense.  As Warren Buffett like to say, “Concentration creates wealth, diversification preserves wealth”.

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