My take on the current market
and why Patience and getting Ready for the upside makes sense.
I always try to look at the “big picture” and from there look at the weekly action of the markets.
That helps with managing emotions which, as an individual investor, is the most fascinating aspect of investing.
If you follow market action daily, pay attention to your feelings and instincts.
It is crazy and fascinating to notice how it can change wildly in a matter of days: from high optimism to pessimism like a pendulum.
We are in such type of market in 2022.
We just had the worst first 6 months for the market in 50 years! (link).
The Big Picture - backdrop
Since 1945 there have been almost 6X Bull market years vs Bear years. (chart source)
Also, Bear markets last 1.1 years on average vs. almost 6 years for Bull markets.
What’s the point?
After the current Bear market, there will be… a new Bull market!
Let’s keep that in mind.
The Big Picture - the economy
The key point is still the bet on the effects of the FED intervention to win over inflation while avoiding a deep recession at the same time.
The variable is simple: for how long the FED will need to push and keep rates higher? Nobody knows.
The last CPI report was worst than expected and from there the market started to go lower.
“Sticky” inflation means that the FED will need to keep raising rates for longer.
It is the worst scenario for an equity market that is finding a bottom… unless the inflation data will start improving faster (it is improving but still a way to slowly).
The worst data point is that credit conditions are deteriorating.
See the data about US Banks tightening credit conditions: tightening is happening fast.
If the inflation data don’t improve fast enough, the FED will need to keep hiking rates for longer.
The probabilities of entering a recession are higher today than in the past 6 months.
The Big Picture - the market
Without sugarcoating it, the weekly chart of the Nasdaq looks again very bad:
The last week's close on Friday, Sept 16th does look bad from a chart perspective and everybody is predicting a retest of June lows (see my red-marked red box).
If the market breaks below that box then it will get uglier. If.
On the other hand, another worrisome sign is that the biggest names are getting hit too. See Apple below:
The price of AAPL 0.00%↑ is below all key moving averages (50, 150 and 200 days) and it started to underperform the SP500 index on a high volume day.
What now?
It looks like the market is heading down to retest the June lows;
To change the course we need a catalyst: either the next CPI report on October 13th to be better than expected or the War in Ukraine to end (ex. peace negotiations starting) or very bad economic data which may force the FED to be less aggressive with rates hiking.
My Portfolio (POTS) management:
My POTS are designed for my kids and are “never sell” portfolios;
I add to the positions that show progress over time and do not add to those that don’t work;
I have added little to the POTS this year and intend to wait for improved market conditions before adding again to the POTS;
I am building a list of great companies that should perform extremely well in the next Bull market;
I’ll share here what I’ll add to the POTS when I’ll make that decision
I’m not predicting anything, just observing the data and how the market reacts to it.
Closing remarks
If the market corrects another 10% to 20% or worst from here, life-changing wealth opportunities will emerge because such a market will take down incredible businesses with it.
If you are dollar cost averaging (DCA), the worst it gets, the better, as you are accumulating on the way down… before the next leg UP!
Have a look at the first chart: there is always a new Bull market after a Bear market.
Historically, investing when pessimism is at its peak has been an incredibly good decision.
Let’s see what the last quarter of the year will bring us and learn along the way.
And let’s be aware of our emotions.
Have a great day, week, and month ahead!
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Important:
this is not investment advice. Consult a licensed financial advisor before making any investment decision.