I’m travelling this week, yet there is quite a bit going on out there. So I know you will want an update on what is happening on the markets. Today’s blog will not be overly long, as I am significantly time crunched to keep things on point. So here goes.
First, the SPX cracked my support zone of 4200 last week. So far its only been a couple of days. I like a week or so when it comes to a market index before jumping to strong conclusions. Nonetheless, ValueTrend took another chunk out of the market last Thursday (whew!) and current cash position sits pretty close to 20%. We may push this level to 25% – but we are mindful of an oversold condition that may provide us with a better selling point if the market bounces.
In a nutshell: the chart below shows us that the SPX is approaching oversold short-mid term momentum (RSI, stochastics). The bigger picture of a lower low (albeit only a couple of days below 4200) and a sustained level below the 200 day (40 week) SMA is more concerning. That, and MACD – which is a much longer termed viewing momentum indicator, suggesting that there is much more downside potential to come. So, lousy longer termed picture, but a probable neartermed bounce in the coming week or two. That’s my two cents worth.
So- my view: We are now close to the next flush – a probable capitulation low that should provide a tradeable bounce. I feel that there is a good potential that we may see a long–drawn–out bear market – coming soon to a theatre near you! But don’t despair! If that bearish potential turns out to be correct (its not a prediction, its a strong potential) there are some opportunities that can come with a prolonged bear. All sustained bear markets – aka NOT the kind that pump n’ dump like the 2020 Covid crash or the 1987 crash- are highlighted by countertrend rallies.
These rallies, and the declines that make up the downtrend, offer us opportunities to trade! You can move in and out of markets in such an environment to take regular 5-10% profits. This is, of course, assuming we get a prolonged bear.
You can’t predict, but you can prepare for such a potential. In addition to having an appetite to trade such a market (should it occur), here is how we at ValueTrend prepared for this years selloff (which I did warn you about in blogs through out the latter part of 2021). It is for these reasons that our Equity Platforms continue to outperform the markets (visit our performance page here later this week, when we will have out April; numbers posted):
- We’ve (so far) raised 20% cash
- We have focused on hard assets (commodities like oil, gold, industrial metals, potash)
- We have focused on value vs. growth
- We have one position in a specific emerging market, with an eye on adding additional select emerging market ETF’s.
- We hold some defensive positions.
Like I noted above, I will not be around much this week to reply to comments, but I will answer them next week when I am available. In the meantime, I recently published a video on the defensive sectors – a pertinent topic given my macro outlook. Please visit our video page (link at top of home page) to see all of my recent videos.
Hello Keith. I’ve been in some of the ags, base metals and oil/gas equities, which look to be consolidating now. I also observed that traders lost no time in piling into utilities (a bit of a surprise) and consumer staples while healthcare appears to be holding its own. Given that the long-term huge winners of the last cycle (AMZN) have finally broken, do you expect that the deep correction/bear will eventually take everything down with it, including commodities and defensive stocks? Was this your experience in previous bear markets or is there sometimes a sector that way outperforms everything else? My experience of REITS, utes, staples has been that they usually just go down less than consumer discretionary or tech during bad markets, and I don’t know how hard commodities will get hit if inflation cools from 7% to 5% or if consumers significantly reduce their spending.
As you’ve noted in your blogs the possibility of a protracted bear market, I’m wondering what you mean by that. Most investors say that the average bear lasts 1.5 years, so are you thinking even longer than that?
I know there’s always something to worry about out there but recession risks do seem higher than in many years, and so many Nasdaq stocks have already been cut in half (obviously not a sign of a healthy market). I can’t help but feel that everything is precarious without a clear trend in the broad indices.
Hi Paula–todays blog will help with your questions. I do feel this bear is not the same as a credit bear (2008) or bubble crash (2001 and 1929)- this is a Fed driven bear based on inflation and resulting contraction (stagflation)–so commodities make sense. Also, I feel that there is a commodity super cycle starting. We’ve been through a stock super cycle, now its the hard assets in charge.