Monday, May 18, 2020

COVID-19 Related Stock Rotation

Today the Dow was up 911 points, about  3.85%, the biggest gain since April 6.   The reason:  A positive result in Moderna's phase I clinical of a Coronavirus vaccine among eight subjects. 

The result was stocks that have benefited from COVID-19 (e.g. work from home software, health care technology) fell and stocks that have been beaten down by COVID-19 (e.g. airlines, cruise lines, hospitality, energy, financials, and REITs) surged by as much as 19%. 

I was planning buy some airlines and cruise lines today, but many were up 10-20% right from the open.   Instead, I sold some of my beaten down stocks that surged, specifically REITS and banks.   I wasn't able to do any selling for energy, since most of my buys were on the way down to  the bottom and thus, are still below my purchase price.   

Personally, I think the advance based on limited positive vaccine news is premature and an over reaction.   Therefore, I will continue to sell my profitable beaten down stocks if the advance continues.  However, I expect a reversal once the market digests the information, resulting in the beaten down stocks falling again, and those benefiting from COVID -19 to rise again.

My plan to sell the pops and buy the drops during this rotation phase of the market.  If the rotation continues for the rest of this week, I will be buying some of the stocks that benefit from COVID-19 as they decline and building a position to sell in the subsequent rotation.

For more on Strategies and Plans, check back Mondays for a new segment.

This is not financial nor investment advice. Please consult a professional advisor.

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