'Pennies: Going In Raw' Recap: Market Sell-Off… What Now?
Last week, many traders who got started within the past year saw something they had never seen before: multiple red days in a row.
In their latest episode, "Pennies: Going In Raw" hosts Hugh Henne and Dan Knight discussed different ways for individual investors to protect their portfolios and find opportunities at the same time.
Small Caps: Last week, small-cap stocks in particular took a big hit. Even after Friday's end-of-day rally, the Russell 2000 finished down almost 2 full percentage points.
Knight and Henne went into detail about different ways to hedge one's investment portfolio. Knight opted for selling positions to go more cash heavy, while Henne said he prefers to trade SPDR S&P 500 ETF Trust (NYSE:SPY) options as a way to hedge his long positions.
While this may be scary to many retail investors, Henne sees it as an opportunity.
"All in all, we're getting really close to where small caps are basically starting to get undervalued," Henne said. "They went up crazy and now some of them are down 50%, 60%. I think we are going to see confirmation that the dip is over and then they will start to crawl back up."
Henne wasn't alone. Knight also found some smaller companies attractive at their current prices, including Churchill Capital Corp IV (NYSE:CCIV), the SPAC that recently merged with Lucid Motors.
"I've actually started to add some $CCIV into my CashApp account," Knight said. "It started to hit that $21, $22 mark. I was looking for teens but that looked like a great spot to start adding. I flipped the switch."
Not Unexpected: Henne explained that the sharp drop-offs can be expected with the rapid growth of some stocks. Many investors would rather see a subtle climb in their positions as opposed to the rapid and volatile growth that has been commonplace in the market throughout the past year or so.
"Personally as a small-cap long trader I don't want to see that massive influx of new money," Henne said. "Because what that does is the same thing that we saw a few weeks ago when $SPY was getting toward that $400 level. In my opinion, I want $SPY and small caps to gradually start to climb back up. I don't want to see these huge 10-15% moves."
This point has been repeated on multiple "PGIR" episodes: the "backend" of the trade always comes quicker. What this means is that stocks can climb throughout a period of time, only to see those gains wiped away a lot quicker than it took to accumulate those gains.
Bitcoin: Another area that the pair saw opportunities in is in Bitcoin plays. As opposed to investing directly in Bitcoin, Henne and Knight pitched different stocks involved in cryptocurrencies. They see these bitcoin plays as attractive because some of the stocks have dropped while Bitcoin has maintained its price of about $50,000 a coin.
"I think the Bitcoin sympathies are going to go hot this week," Henne said. "Now that Bitcoin is really starting to break out, if we get a new all-time-high on Bitcoin that is just going to ignite miners and sympathy plays."
One specific Bitcoin stock that Knight mentioned is Diginex Ltd (NYSE:EQOS). Shares hit a high of $22.27 on Feb. 9 and now trade at $12.42.
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