Veteran investor turns heads with bear market advice

If you’re heading to Wall Street, you’d better leave that Magic 8 Ball behind.

💵💰Don’t miss the move: Subscribe to TheStreet’s free daily newsletter 💰

Sure, the plastic sphere, which was invented in 1946 and used for tell fortunes and give advice, is a lot of fun, providing answers like “signs point to yes” and “better not tell you now.” 

But do you really want to use it as part of your investment strategy?

My sources say no.

“You know when the Magic Eight Ball is on a roll, you stay with it. That’s the trading superstition in me,” global strategist Jay Woods said. “But no, you know, what I do is I always follow price action as a market technician.”

Woods shared his thoughts about investing and the current state of the market with Chris Versace, lead portfolio manager for TheStreet Pro Portfolio, in the April 23 edition of TheStreet Stocks & Markets Podcast. Woods laid out his investing style.

Investor says uncertainty is the word of the year

“For me, it’s always about risk management and then setups from a risk-reward perspective,” said Woods, chief global strategist at Freedom Capital Markets.

And what about price action?

“You look at something as simple as the last sale,” he said. “Once you buy a stock, you’re anchored to that price. That is your level where if it goes up, you’re making money; if it goes down, I’m losing money. And when it goes down, you look at it differently and you have to game-plan differently.

“So, whenever we talk about trade ideas and time frames, I want to know exactly what that ultimate goal is by someone getting in. And when I set up trades, you look at risk-reward.”

Versace noted that the market landscape is always changing, with new data and fresh insights.

“If you haven’t noticed, it’s been a little volatile lately,” Woods said. “So time frames are quick and goals are met very quickly, from tweet to tweet, as we like to say.”

Volatile is one way to describe the current situation. In fact, things are so charged up that the CEOs of three of the nation’s biggest retailers — Walmart  (WMT) , Target  (TGT)  and Home Depot  (HD)  — privately warned President Donald Trump in an April 21 meeting that his tariff and trade policy could disrupt supply chains, raise prices and empty shelves, Axios reported. 

Woods said that since Trump’s been in office the word of the year is “‘uncertainty’ because we aren’t certain exactly how tariffs are being used.

“Are they a negotiating tactic? How long [might they] be exactly? Who will be implicated by them? [There] are a lot of questions. And every day we look for answers and it seems like we get one answer but three new questions. So it is volatile.”

Investors: Watch market changes, take deep breaths

Woods said it’s difficult not to worry about stagflation, where high inflation, stagnant economic growth, and high unemployment happen simultaneously.

“What we’re seeing right now: Companies aren’t hiring,” he said. “If you talk to some college students — I’ve got one graduating this year — it is a tough job market right now. Are they going through major rounds of layoffs? Not just yet.”

Woods advised investors to stay current with market changes, “so when there’s new AI technology coming out, I go to the younger people who are utilizing it [and] learn it myself.”

“I look at the indexes, then I look at what’s leading the indexes,” he said. “So, you better know those Magnificent 7 names because their market caps are kind of important. Yes, they change crazy amounts, but they are important. That’s what’s driving the market.”

Woods then takes a sector approach, mentioning such names as Walmart and Costco  (COST) .

“These are some of the consumer staples that you have to be on top of,” he said. “And then the Procter & Gambles  (PG)  of the world, the Kimberly-Clarks,  (KMB)  the Colgate-Palmolive’s  (CL)  all reporting earnings this week. These are the things you follow. 

And then you try to find those best in class and then those that have risk-reward setups that are favorable. So, price action, to me, is what dictates that.”

Related: Veteran hedge fund manager raises eyebrows with market outlook

Woods called this a traders market.

“We are not technically in a bear market,” he told Versace. “We haven’t closed 20% from the high. But you and I have lived through enough of these to know that when 65% of the S&P 500 has had a drawdown of 20%, it’s a bear market. When your leadership technology, consumer discretionary [is] down 20%, the Nasdaq [is] down 20%, this is a bear market. It may not be labeled in history. It sure feels like it, though.”

Woods’ advice for investors boils down to two words: deep breaths.

“The headlines are still going to be volatile,” he said. “This time will give many trading opportunities, but you have to be on top of your trades now [because] always over time America will win, the indexes will win out. And this is a turbulent time, but this, too, will pass.”

Related: Veteran fund manager who forecast S&P 500 crash unveils surprising update