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.