A counter-trend rally is looming. Do not miss this opportunity to evaluate your LT strategy.
Like this email for a pause in bearish sentiment. We're in for a marathon of volatility. Get ready.
Note: This is a very brief note to our community now that the SPX has breached 4000. For more frequent, insightful, and tactical strategy on markets and career guidance, let me help you inside our investment community.
Dear Public Investment Community,
I am back with a quick update given that the S&P 500 is now under 4000. I understand how this market is impacting all of us psychologically, and I want to provide some commentary to provide some clarity.
If you are positioned long in your investment strategy, there is no doubt that 2022 so far, especially with the accelerated selling we have seen post May FOMC, has been exceptionally challenging.
Some might even call it excruciating. Gut-wrenching could be a fair description too.
As painful as deep unrealized stock losses are (and trust me, I know how it feels), it’s even more painful for homeowners who realize that their employment and their job outlook is at risk given the ongoing talks about a “hard landing” in the economy. While hope is not an investment strategy, I DO hope that the economy doesn’t veer off the deep end which would cause much more severe economic hardships for many people across the world.
Now back to markets: let’s discuss the updated poll numbers on where the S&P 500 is likely to find its footing now that there are 2.1K votes compared to 1.2K votes from my previous email.
As a reminder if you enjoy my work, I only have one ask: that you share my newsletters with friends and family who you believe are looking for answers to their questions on markets and the economy.
We can see that roughly 54% of market participants view 3700 as a potential floor whereas 46% view the S&P 500 likely to fall below 3700.
In light of high inflation, rapidly rising interest rates, and deteriorating earnings, it is objectively becoming more challenging to find positive bullish catalysts that can lift the market materially higher from here.
On the real economy perspective, there is no doubt that I am very bearish. It is incredibly difficult to find positive perspectives from interest rates that may rise to restrictive territory - where credit cards, auto loans, mortgage/interest payments, and student loans become more expensive.
That said, stock market bulls have one edge on their side in the near term - and that is investor positioning.
Allow me to explain:
More and more retail investors are now experiencing margin calls (this results in deleveraging and accelerated selling that you see in markets)
Institutional investors are also decreasing their investment mandates to equities in light of all the macroeconomic concerns that we face (rightfully so)
Cryptocurrency investors in BTC now are under great stress, and there is now severe selling in digital assets where Michael Saylor sees a margin call at BTC 21k.
There is a point where the market reaches a state where there are very few people/organizations left who are interested in selling at these levels (or below). At that point, all sellers who want to (or have to) sell have sold.
And there will be a point where buyer come off the sidelines to begin accumulating.
That is where the market hits an inflection point, regardless of the fundamental & macro considerations in the environment. That’s why markets sometimes make no sense to investors.
These inflection points are very challenging to pinpoint exactly, but we are at a moment where bulls feel extremely disheartened and bears are getting greedy. We know this because short-interest piled up on stocks when the S&P 500 was in the 4050-4200 region. This means that new bears are probably up around 3-6% on their short positions. Any bounce can erase short-selling profits on a dime.
So when could we see a relief rally? And more importantly will it even last?
For me, I believe a relief rally in markets could be arriving in the coming days and weeks, and I discuss specific levels that I’m looking at inside my investment community along with specific themes that I’m strategically adding exposure to while ensuring risk levels are appropriate.
However, whether a counter-trend rally lasts or not is still up for debate, and the answer to this question is a day-by-day analysis and not something that can be definitively answered at this very moment.
Remember that markets do not go up or down in straight lines. Rather, they chop up and down within a larger directional channel.
I continue to believe that markets do not go down every day, and that at some point in the foreseeable future, we will see a bounce that will be fast and furious. That said, I am actively monitoring this day-to-day and providing timely updates to our community.
How you take advantage of this bounce and any upcoming limited market opportunities is up to you.
What we’ve been doing inside our Investment Community:
Last week, there were several companies that I’ve brought to our community’s attention that I believe could be powerful diversifiers to portfolio beta while still capturing the offensive qualities of a market rebound. (These companies were up on Friday / traded near flat today).
Continuing to advise any members who are interested in finance careers on their strategy via 1:1 chat on Patreon.
Providing macro, fundamental, and technical strategy to keep our members objective and level-headed during this highly uncertain period of time
Helping our members upgrade their equity analyst skills using my methodology where I combine out-of-the-box thinking and forward looking commentary
I don’t discuss news whatsoever - I assume you know what CNBC or Bloomberg has already said. I help you interpret what it means, and what our move should be.
That’ll do for this short update.
If you’re looking to truly understand the investing environment we’re in, and want to support my research/work, let me help you inside my community. I’m on a mission to help people as many people as I can - hardworking, highly intellectual people like yourselves.
❤️ this email if you enjoyed the read. And see you in my next Youtube Video.
Until then, follow me on Instagram for some VISUAL commentary.
Your Investment Strategist,
Larry