After the ‘bullish reversal’ on October 13, several pundits claimed the bear was dead and a new bull market had begun. I remained skeptical but was willing to run with the bulls while they were in control. That weekend I reviewed the history of such reversals and noted that in 2002-3, there were five 4.5%+ bullish intra-day reversals before the market truly bottomed and began climbing. After the first reversal in Sept. 2008, the markets dropped a LOT more before finding bottom in March 2009 and made the 11th 4.5%+ bullish intra-day reversal.
I also noted that the CPI and Fed announcement days are ones to watch and suggested the best strategy is to be holding cash and then focus on one trade with a big position and watch it closely. Since SOXL has been showing strength since October 13, I chose it as my focus. Plus, semiconductors are a vital part of today’s economy.
This past week, Jerome Powell was set to give a speech on Tuesday at 1:30 pm. Talk about a rocket launch! All the indexes went straight up. From the recent 11.60 floor, SOXL shot up to close 13.82 (+19.1%). Short of the +34.2% on October 13, but not bad. On Oct. 14, it closed down 13.4%, then pushed higher. Needless to say, I was watching for a drop this time as well but the next day it closed down a mere 2.32%. Friday was the drop instead, gapping lower, then rallying.
RollsRoyce777, from Robert Balan’s group, follows the ‘big money’ and said “The Dark Pool boys bought $6.2B SPY in the dark pools yesterday. The market was going up no matter what Powell said. He really didn’t bring good news, but that doesn’t matter. The Dark Pool boys have a nice advantage over us.”
And he’s right! Look at those moves at each ‘event’, they’re huge! We’ll never know which way the move will be in advance, but we can be ready in advance and take action quickly to get on for the ride.
The big question is what to expect going forward. It’s quite possible that the ‘big money’ has had their fun to the downside since the start of the year and plan to push the markets higher for a year or more. Sometimes bias is your worst enemy. If the big boys continue buying, we have a lot more upside to go. There will still be great short trades to be had, but focusing long may be the best strategy. We’re also due for a pullback, so be patient in getting your long position.
The S&P 500 could now be on a path to climb steadily. The Dow is back to 2021 levels where it held flat and it may climb slowly going forward. The Nasdaq, which dropped the most this year, could have the biggest upside going forward. QQQ is the ETF that essentially mirrors NDX and TQQQ is the leveraged ETF, which is great to hold if the trend is up, but don’t hang on if it reverses.
Volatility is also down and could remain low for an extended period. There will be spikes to trade UVXY according to the strategy, but it’s been rather lame since October 13. Another indication that was indeed the pivotal day.
A look at SOXX, the underlying ETF for the leveraged ETF, SOXL, suggests there’s room to run to the upside.
Some individual stocks are showing some sustained strength. CROX is a stock that I looked at as a prime example of just how crazy the prices were at the end of 2021. To my surprise, it has been showing a lot of strength. Has their business really grown so much since 2020, after being flat for years? Seeking Alpha articles have all been bullish since August (and maybe earlier, I wasn’t looking).
How many of your holdings are up 126% since August? What’s are some good picks going forward? I didn’t buy SHOP years ago, since I didn’t want to chase it, and it kept going up and up. This year it’s been going down and down and down, but has been a good pick off the low and I plan to keep holding.
ASAN is one that I mentioned back in July and traded successfully. On Friday it tanked. “Asana plunges 15% as analysts fret after 'challenging' Q3, weak guidance.” I was a buyer early as it shot up from the large gap lower. Yes, I already had shares, unfortunately, but trade gains since June made it a lot easier to buy with conviction.
This is yet another example of the benefits of trading a position when it tops out and is holding over a range. KRR, which I also suggested buying in July, “KRR - Get Ready to Back Up the Truck”, is an example of when to stop trading as it breaks higher.
It’s still okay to trade, but you don’t want to accidentally get left behind as it blasts higher. Another bullish factor is that since World War II, stocks have never sold off in the year following a midterm election. There have been 20 midterm elections since World War II and every time, stocks rallied over the following year.
I never really believed that inflation was going to kill the economy, and I believe the main issue causing inflation was the price of oil and supply chain issues. For sure, prices were severely inflated but is a drop of 90% in major companies like SHOP warranted? I don’t think so. Now that there are multiple signs that the tide has turned, I’m willing to start running with the bulls. Here’s another idea:
MGNI is the largest independent sell-side/supply-side online advertising platform. Like semiconductors, the future demand will only grow so current prices are likely a bargain.
Here's a comment from Robert made on Friday but in today's post: Do no overstay longs beyond Dec 13/14. Hunker down until late January (we will likely see hot CPI in November and December). By early February markets will be on a new bull phase, as CPI and 10yr yield fall sharply together.