Do not time the market

 

This is the Bottom, So Ignore This Market’s Sell Signal

 If the recent two-week long downturn in the stock market has got you down… you’re not alone.

And I totally get that it can be scary to hold onto stocks – and even harder to buy them – at this particular time.

That said, today I’ll show you why right now you can ignore the most recent Sell signals and either…

1. Resist the urge to sell out of your bullish positions, or, better yet…
2. Use this first Sell signal off a bear market bottom as a buying opportunity and be a buyer of stocks

These are not sentiments you’ll see in the mainstream financial media. But trust me – ignoring the first Sell signal after a bear market bottom is almost certainly the right move to make right now.

At a bear market low, the economic news is always ugly and sentiment is always negative. That’s one of the key characteristics of a bear market low.

When people see that first sell signal, they freak out and make the mistake of exiting the market. But that’s almost always the very best time to step in and buy.

In fact, from a stock market low into the next bull market is when we see the sharpest gains. And it’s also when we see the absolute worst news.

Since the economic news is dire and the geopolitical situation is scary, and since gas prices are high and the Federal Reserve is saying they’re going to keep increasing the cost of borrowing… 

The mood of everyone from the greenest DIY investor to the most seasoned veterans is — negative.

How do we define “bear market bottom?”

We use the granddaddy of all technical indicators – the New York Stock Exchange Bullish Percent Index (NYSE BPI).

When this indicator moves below the 30% level (shaded in red, below) the market is oversold or washed out.

(Click any image to enlarge)

The black arrows point to the most recent times the market was oversold in 2022 -- in June and October.

(For more detail on the NYSE BPI, visit our free webpage dedicated to important changes in this indicator.)

By the way, this rule – ignore the first Sell signal off a washed out, bear market bottom – applies to all technical indicators, not just the NYSE BPI.

And this rule was not arrived at because of any “theory.” You can see it operate in real life at real bear market market bottoms.

In all of the examples below, we saw the BPI get oversold before reversing higher.

Then, the first Sell signal we got turned out to be a great buying opportunity. 

In these examples, I show two of the most popular indicators – the RSI and the MACD. You don’t need to know the nuts-and-bolts of those indicators to see how the market behaved at their respective bear market bottoms. The black arrows show the Sell signals and the green arrows show the S&P gunning higher.

The crash of 1987 and the correction of 1991…

The major dip in 1997 - 1998…

After the Tech crash in 2002…

The bear market of 2008 - 2009…

The quick “flash crash” of 2011 going into 2012 after the U.S had its credit rating downgraded…

The COVID crash of 2020…

To sum up: No matter how scary it might seem... NOW is the time to be a buyer of stocks.

(adapted from Chris Rowe, True Market Insiders)

Is Michael Burry right?

Michael Burry has SOLD ALL his stocks.

Burry believes that while we are due for disinflation in the short-term due to inventory builds, higher-than-usual inflation will stick around for the long-term, powered by persistent commodity and labor shortages.   

Burry further believes that poor economic policies from the U.S. government will exacerbate the negative economic impacts of this elevated inflation. As a result, the U.S. economy will plunge into a deep recession. This deep recession, Burry reasons, will lead to a dramatic drop in corporate profits, which has yet to be priced into stocks.

As corporate profits drop over the next 12 months, Burry thinks stocks will collapse.

Burry’s saying that if inflation persists, stocks are doomed. We’re bullish, and we entirely agree with that thesis. If inflation persists, stocks and bonds, cryptos, and every other financial asset out there are doomed.

But the bulk of evidence today suggests inflation is meaningfully decelerating. Inventory levels are rising. Commodity prices are crashing. Energy costs are falling. Home prices are starting to drop. Wage growth is slowing.

All the core drivers of inflation are trending in the right direction. If these trends persist, stocks aren’t going to crash – they’re going to soar.

(adapted from Luke Lango)

Are bears wrong?

In late 2010, stocks were rebounding after some pretty lame economic data in the summer, and investors didn’t believe in the rally. Bets against that rally accelerated. But those bearish bets actually led to the rally’s acceleration. And consequently, the stock market rallied big into       mid-2011.

It happened again in late 2011. The market was rallying big as it tried to recover from the fallout of the European Debt Crisis. Lots of investors didn’t believe in it. Bearish bets rose. But from late 2011 to mid-2013, the market surged 50% higher.

Then it happened in late 2015 and early 2016. The market was rebounding from an oil price collapse. Investors weren’t buying it. Bearish bets rose. Stocks proceeded to surge higher in 2016 and 2017.

And, of course, it happened in early 2020. Stocks were on the rebound after the pandemic-induced market crash. Investors kept questioning the rally’s durability. Bearish bets rose. But stocks just keep powering higher. And the balance of 2020 into 2021 saw enormous stock market returns.

This happens time and time again. It’s a repeatable cycle.

• Stocks collapse after bad news.
• They start to rebound once the news starts to fade.
• Investors – still remembering the bad news – don’t fully believe in the rally and bet against stocks.
• But the bad news keeps fading, and stocks keep rising.
• Those shorts are forced to cover. The market rally kicks into a higher gear. Investors who buy the dip and stick with the rally make a ton of money.

Will it also repeat this year?

[adapted from: https://www.iqstock.news/n/big-short-squeeze-brewing-stocks-bullish-4392746/]

Investing at the top still turn out tops

 

Time to buy semicon?

There are good reasons to start considering the tech sector now. QQQ has never been a bad choice with its low fee, broad market representation, and excellent liquidity. However, more aggressive investors with a long timeframe might want to consider SOXX also given the valuation correction and the quieter volatility ahead. SOXX has historically enjoyed a valuation premium over the overall market. But its current is ~17% discounted from the S&P 500 and about 30% from the QQQ.

Adapted from:

https://seekingalpha.com/article/4530498-soxx-vs-qqq-time-to-consider-heavier-bets-on-tech

How to make BIG Money

 In short, buy at attractive prices and HODL.

10x from here?

 Money can be made in bull markets, but fortunes are made in bear markets.

Thus is because the U.S. stock market has a strong upward bias. Over time, it goes up. Bear markets happen. But they always turn into new bull markets. Those new bull markets always push stocks to new highs. And the biggest gains in those bull markets always happen in their earliest stages – when bear markets end, and bull markets begin.

To test this idea of “fortunes are made in bear markets,” we ran an analysis that counted the number of “fortune-making” stocks in any given year and contextualized those numbers with trailing market returns. We defined a “fortune-making stock” as a stock that rises 10X in any given year.

The idea is that if fortunes are indeed made in bear markets, then the number of 10X opportunities in the market should soar right after bear markets, or right after stocks crash.

This is exactly what tends to happen.

As it turns out, the number of stocks that rise 10X in any given year is about two to four. Basically, in a “normal” year, around three stocks rise 10X in value that year. You have three opportunities to 10X your money.

But in the years after the stock market crashes, that number grows exponentially.

In the wake of the COVID-19 stock market crash, the number of stocks that rose 10X soared to 25 in 2020 and 17 in 2021.

In the wake of the Great Financial Crisis in 2008, the number of stocks that rose 10X soared to 25 in 2009.

After the Dot-Com Crash of 2000-2001, the number of stocks that rose 10X hit six in 2002, 13 in 2003, and 10 in 2004.

In other words, our analysis suggests that the number of 10X opportunities presented in the stock market any given year tends to soar in a bear market. Remember: If all these stocks soared 10X in 2009, then that means the investors who bought those stocks in 2008 were the ones who scored those 10X gains.

The data proves the saying to be true: Fortunes are made exactly during times like the one we’re in today.

The End of the Bear Market May Be Near

Fortunes are made in bear markets – when those bear markets turn into bull markets. Fortunately, we appear to be turning the corner into a new bull market right now.

Stocks are rallying, with the Dow Jones, S&P 500, and Nasdaq all up more than 6% over the past month. Importantly, this rally doesn’t represent a straight-line-up rally, which is what your typical bear market rally looks like. Instead, this rally has two-steps-forward, one-step-back characteristics – it looks sustainable from a price-action perspective.

We’re also seeing some really healthy volume behind the recent rallies, and hedge funds, institutions, and insiders appear to be healthily participating in the rally, while the VIX isn’t spiking – all bullish signs.

On the sentiment side of things, it looks like we’ve capitulated. Risk sentiment levels have hit record-low levels on par with previous market bottoms (like late 2008). Economic pessimism levels have hit record-high levels on par with previous market bottoms (also like late 2008 and early 2009). Cash balances have hit record highs also consistent with equity market bottoms.

Meanwhile, over in the bond market, yield spreads have collapsed over the past few weeks in a manner that they only do when market selloffs turn into market rallies.

There are bullish signals flashing everywhere. This bear market appears to be coming to an end. Next up? A new bull market – and lots of 10X investment opportunities.

Adapted from Luke Lango

Five Reasons Why Now is Great Time to buy Stocks

Hope it will turn out right soon. I am prepared to take a 5 to 10 year view for stocks to recover and reach new highs.

https://www.nasdaq.com/articles/5-reasons-why-now-is-a-great-time-to-buy-stocks

U.S. Stock Crash Is 'Huge' Opportunity to Cash in: Top Investor

Billionaire investor Ron Baron said Friday that the recent U.S. stock crash could present Americans with a "monstrous" opportunity when looking at the economy from a long-term perspective.

Baron's comments were also echoed by Sylvia Jablonski of Defiance Investments, who said she felt optimistic going into this weekend when compared to last weekend, when it was reported that inflation reached a 40-year high.

"This is a great generational opportunity. This is going to end up being noise when you look back

on it" Jablonski told Squawk Box on Friday.

However, she did caution that the next few months would be difficult for investors who are likely to face range-bound volatility.

"In the short-term, it's painful, it feels terrible, and we have to ride it out," she said.

https://www.newsweek.com/us-stock-crash-huge-opportunity-cash-top-investor-1716885

Should we time the market?

 

Keep Faith

Keep the faith when investing in stocks - this article says.

Soon, things will turn out well again.

But - keep a diversified portfolio. No cryptos, thematic funds, or concentrated portfolios. Although at this juncture, I feel there is nothing wrong with being a concentrate fund. Warren Buffett's portfolio has a huge proportion of Apple shares.

https://www.businesstimes.com.sg/wealth-investing/keeping-faith-despite-the-market-downdraft

Dollar Cost Averaging

How to best time the markets?

By dollar cost averaging - as it ensures we continually buy the best companies at better prices during a market crash - like now.

https://www.thestreet.com/investing/how-to-invest-during-a-stock-market-crash-bear-market

This is good if we apply to an ETF - as we immediately remove the unsystemic risk.

And the safest of them all? The S&P 500 - SPY, VOO, etc

Maximum Fear but Warren is buying

Amidst the doom and gloom, Warren Buffett is buying stocks now. 

https://thesmartinvestor.com.sg/get-smart-warren-buffett-is-buying-will-you/

I am buying.

Will you? 

A Huge Reversal in the Nasdaq-100 Is an Ominous Warning Sign

 Just two days ago -- on Monday, May 2 -- tech stocks did something they haven't done since 2008 and, before that, 2001.

It's something tech stocks tend to only do during bear markets and recessions -- a massive intraday reversal off a yearly low. You see, the Nasdaq-100 dropped more than 1% on Monday, hitting a new 52-week low. It then reversed course throughout that same day, closing up more than 1% higher.

Ostensibly, that's bullish. It looked at first like tech stocks would collapse. Instead, they rebounded with vigor.

That seems great, but it's historically been an ominous warning sign for stocks.

The Nasdaq-100 has only posted such huge reversals off yearly lows during the early stages of a bear market. This happened four separate times in early 2001, preceding a crash over the next three, six, and 12 months. Again, it happened multiple times in late 2008, just before stocks crashed into 2009.

Adapted from Luke Lango "Hypergrowth Investing"

Time to buy tech?

Historically speaking, buying tech stocks as soon as they enter a bear market has been one of the best money-making strategies on Wall Street. The Nasdaq has entered a bear market a handful of times over the past several decades. Every time, it bounced back quickly and with vigor.

Average one-year gains in the Nasdaq after entering a bear market? 22%. Average three-year returns? 52%. Average 10-year returns? Almost 330%.

Luke Lango

What Should we do during stock market drop - Part 4

 

Rebalance your portfolio after things have calmed down

Diversification is important for successful investing. Although I’m a fairly aggressive investor, bonds and real estate securities make up about 20% of my portfolio.

After a volatile period in the market, the value of your investments may change enough to shift your actual asset allocation away from your target. There’s no rush, but big movements in the stock market are a good reminder to give your portfolio a checkup and consider making some moves to bring your portfolio back into balance.

What Should we do during stock market drop - Part 3

 

Buy stocks (if you were going to anyway)

The best time to buy investments is when you have money to invest. The best time to sell investments is when you need money for something else.

That said, if you’ve wanted to invest but have been dragging your feet for whatever reason, you might see the stock market crash as a buying opportunity. No, you don’t know if the market is going to go back up or continue to go down. But you do know this: Stocks are about 10% cheaper than they were last week.

What Should we do during stock market drop - Part 2

 

Resist any urge to sell stocks

Selling stocks in panic is the worst thing you could do after a stock market crash. Successful investing is about buying low and selling high. When you sell after a crash, you do just the opposite.

And if you think you can just cash out for now and then get back in when the market improves, consider this: You have no way of knowing when the market will swing back. And there is a big cost to missing just a few really good days in the stock market.

What Should we do during stock market drop - Part 1

 

Nothing

For long-term investors, the best thing to do when the stock market crashes is nothing.

Take a breath, turn off the news and—whatever you do—don’t log in to view your account balances.

A Recession May Be Coming. But so what?

 You may think that recessions and bear markets go hand-in-hand. But they don't. In fact, "normal" recessions don't lead to bear markets.

In the early 1980s, a U.S. economic recession led to just a 15% drawdown in stocks. The early 1990s recession similarly led to just an 18% drawdown in stocks.

Sure, the early 2000s recessions resulted in a 40% stock market collapse, while the 2008 recession sunk stocks by 50%.

But this is not that.

In 2000, we suffered from gross overvaluation. The S&P 500 was trading at 26X forward earnings, with a 10-Year Treasury yield above 5%. Today, the market is trading at 19X forward earnings, with a 10-Year Treasury yield below 2%. Today's market valuation is significantly lower both in absolute and relative terms compared to what we saw in 2000.

Meanwhile, in 2008, the entire U.S. financial system was on the verge of collapse. We don't have that today. Balance sheets across banks, corporations, and households are cash-heavy and very strong. Interest rates are very low. We do not have another 2008 on the horizon.

So, in the grand scheme of things, if we do head into a recession in 2022/23, it will likely be a run-of-the-mill recession -- like the early 1980s and early 1990s -- in which stocks dropped less than 20%.

Adapted from:

https://investorplace.com/hypergrowthinvesting/2022/03/a-recession-may-be-coming-prepare-for-it-by-buying-growth-stocks/

The Stock Market Crash is here!

Corrections till now:

Dow Jones 12.6%

S &P 500  14.6%

Nasdaq Composite  21.9% 

We should be seeing further downside...