Broad Market Outlook
In a bleak mid spring, the stock market has officially entered into Bear Market for 1 whole day so far. Inflation fears, Rate Rising fears, Housing Crash fear, you can pick your fear but to me, this is just normal trading action. The reason is always obvious after the fact, yet does us no good in the moment.
All bear markets are basically the same, yet they happen at such intervals it can be hard to remember other then the most memorable. Its easy to remember the Covid Crash or hear stories of the Financial Crisis but it is hard to remember all the other ones in between.
For myself personally, I have been through 11 Bear Markets in my career and there is nothing special or different about this one then any of the others. The stock market doubled in 2 years that no one says thank you for, but most are quick to point out the 20% drop which would only really matter if said person top ticked the all time high.
Trading wise, yes, I'm with you, it has not been easy but the writing has been on the wall and it has been great to see many of you sitting on the side lines and avoiding the chop.
I am divided on my outlook in 2 camps, one of which (bearish) is that there are still plenty of traders trying to trade this market and are not out of their minds frustrated, meaning we could still see more downside. Just like on the way up, the market does not top out until everyone and the dog sitter is bullish, the market does not bottom until everyone is bearish and looking to give up.
But on the flip side, (the bullish side) there are a few indicators I keep an eye on, and those are personal ones that unfortunately you won't be able to find one trading view.
The first one is the "I want to cash out my 401k and sit in cash" calls or direct messages. I had more calls that I can remember talking people off their emotional ledge in March 2020. I have started to get those dm's but not at the rate during the previous crash.
The second one are the members who quit due to market related performance. This one is a much closer indicator as it is an excuse only used near market bottoms. People don't quit due to market performance in an up trending market. The excuse to me is always a dead ringer because they claim that they want to step aside and come back when times get easy. Yet they often quit and cash out at the worst time and then get caught flat footed where the psychological issue of getting back in when things are safe (20% higher) makes it impossible to start back up.
I got the most bullish in March of 2020 as every single phone call I got was about selling and going into cash and a handful of members all with the same specific excuse as if they banded together to say the same thing. All of which never came back. As most are still waiting to get back in at prices when they were originally getting out of.
Given that we have entered technically into a bear market, looking for areas to buy on the way up will often yield great results but it still seems a bit too early. Looking at the monthly charts of the major sectors hence "The Biggest Picture", the massive bearish engulfing h patterns are in no way bullish signs.
The one key sign that we may be getting close to the end of the worst of it, say we get another week or two of horrible action and we push another 10% lower could be exactly what we need.
That key sign was seeing the 10 year do almost exactly as what we felt it would, gives us a glimmer of hope that the bullish case after a bit more of a shake out a higher probability. The headline fear of rising rates and the FED wanting to continue to raise rates are exactly that just headlines. The 10 year capitulated into that 3.3% area that it has not been able to break for a decade and is now starting to fade. It will take the public a long time to understand that trade is over, while we are some of the 1st to know. However sometimes being too early to the news isn't always the best. As we want to act on, yet most are clueless about it. They still think we will see 10% mortgage rates while we watch the 10 year continue to drop. This is a good sign but one we don't want to act too prematurely one. We need the price action to line up with this reality.
If this were a stock, we would be stopped out as the meat of the move to the upside is over.
If you want to see SPY 600 in a year or two, then we will probably need to see SPY 300 before that happens. The more you can work on sticking to your long term plans during these times and step away from the day to day action, it will help you avoid getting burnt out for when the easier times come. As they always do, you just need to be patient enough to make it towards those times.
With the weather getting nicer out, get outdoors, leave the phone at home, go try a new experience. Whatever your average PnL is for the day, find something fun or different to do that is within that budget. Trust me, it will be far more fun to go to a concert or take someone to dinner then to lose the same amount of money trying to short the SPY at 10am while then trying to get long around lunch time.
Macro Rotation Outlook