A Stunning Reversal In Market Sentiment: The key now is to KEEP your gains by forming a thoughtful plan.
Press the like ❤️ button if you plan to KEEP your gains from this latest market surge.
Exclusive Research Content (Link Below): As the U.S. market stages a remarkable rebound, the mood across the world has greatly improved. Out of continued deep committment and goodwill to my Public community, I will be making my August 1st Half Investment Research (August 1st-15th Bi-Weekly Note) available to all friends on my email list for 24 hours to view publicly.
This will provide new friends an opportunity to understand the level of fine-tuned insight and care that has accompanied every single Bi-Weekly update that I’ve used to help our Community navigate the tremendous volatility that we have faced this year.
It is my plan to help our Community capture as much upside of this current rally as possible. I personally believe that Winter is Coming.
If you vibe with this type of thorough research and actionable strategy, you’ll likely deeply appreciate the insights I share within my Community.
Like I’ve often said, I’m looking to make as many Global Friends as possible, and everything I’ve designed up until this point reflects this. By offering Institutional-grade research at retail-based pricing, I am to help many, many friends develop the life-long profound skill to become advanced investors. This is my mission, and I want you to be a part of it.
If you enjoy my Research, share this email with friends and family who are concerned about the sustainability of this current market rally.
Dear YT Friends & Public Investment Community,
We will talk about Investment Strategy very soon. But if you’re familiar with my email style by now, you know I always love sharing a bit of intellectual content before discussing markets. Today, I want to talk about the famous character Icarus from Greek Mythology.
Icarus is a Greek Mythology character often taught in the U.S. public high school system. This story is often forgotten by the time we become Adults (which I assume you are), but its relevance is greater than ever - at this specific moment in time.
Icarus (as seen in the image above) was the son of a master craftsman Daedalus (who also happens to be the creator of the Labyrinth). Due to a series of issues with the then-King at the time, both Icarus and his father were imprisoned in the Greek island of Crete, and to escape, Daedalus constructed a set of wings from feather and wax. These wings would later allow both Daedalus and his son Icarus to escape from the island.
In a famous phrase to his son to warn him about being complacent using his newfound tool, Daedalus said the following before they took off.
For the fogs about the earth may weigh you down and the blaze from the sun are going to melt your feathers apart.
These words were meant to help his son Icarus ensure that he didn’t fly to “extreme” levels in his path, either being too high on earth where the sun would melt his wings or being too low near the ocean where the water would clog his wings.
Tragically, Icarus ignored his father’s directions and flew as high as he could and embraced the thrill of the wings Daedalus had given to him. As he flew closer and closer to the sun, the wax within his wings started melting. Icarus would later fall out of the sky, plunge into the seas, and drown.
If you have ever heard the phrase “don’t fly too close to the sun,” now you know where it originated from.
The relationship between Icarus and your Investment Strategy
This story from Greek Mythology is one of the most valuable lessons from literature in that it has the ability to inform how we think and act in markets. It is a powerful reminder that even if things are going our way, practicing an open-minded and humble mindset is among one of the most valuable in our investing journey.
Hubris is a quality that may feel good for a period of time, but it is a state of mind that can ruin people in the future. It is a state of mind we must absolutely avoid. We cannot afford to feel “on top of the world” in the stock markets, because it is an environment that can change without any warning at all.
In the first half of this year, bearish speculators became very confident that the market would continue to fall to new depths without any intermittent chop (strong relief rally) in between. For the most part, they were right. Every 10% bounce eventually failed, and no recovery lasted more than several weeks.
As the 2H of 2022 has shown, extreme bearish positioning is now burning bearish speculators. They say bear markets produce the most violent rallies. Bearish speculators are now experiencing this pain now.
As Bears retreat in the market after this latest painful short-squeeze, the bullish camp is now growing in confidence. In some parts of the market, bullish sentiment is actually at extreme levels based on certain technical and positioning readings.
The market has an incredible way of punishing both sides (bulls and bears) when overextension becomes apparent. The most healthy way to produce a sustainable uptrend is to form an advance, consolidate, have minor pullbacks, and then continue its advance.
However, we have seen very little pullbacks, and not even consolidation in the most recent S&P 500 rally. The most heavily shorted parts of the market are making a gigantic comeback in conjunction with the Fed Pivot narrative that seems to be prevailing within headlines.
Once the market becomes too one-sided, the risk of a dramatic turn in the other direction with no warning becomes far greater.
I am always cheering on bulls despite my cautious tone, but now more than ever you should position your portfolio in a way that isn’t too close to the Sun.
You need to ask yourself the following questions about the names you hold in your portfolio:
What is this company’s valuation relative to its history? Does it make sense in TODAY’s context?
What is this company’s revenue and earnings generating power in this environment? Is is sustainable?
Does this company have a lot of debt on its balance sheet relative to its liquid assets?
These are just a few questions to consider as investors enjoy the recent powerful rallies in the S&P 500 and Nasdaq.
Now is the best time to think about a plan to KEEP your winnings in the market rather than take unnecessary risk in the realm of speculation.
What we’ve been doing inside our Community
I want to take a moment to share a thoughtful breakdown of how I viewed the Inflation report that has media headlines cheering about the end of Inflation. This premium note was shared inside my Investment Community. You can see that I choose all my words carefully, and each note to my friends inside is designed to not only share market direction but also educate and inform.
Once again, my mission is to create one of the most intellectually enriching and positive-minded Investment Communities on the internet, and I believe we are serving this mandate well.
If we think about the forces that moved down CPI, most of them are volatile line items (meaning they can change up or down by the next report).
If we think about the forces that moved up CPI, most of them are sticky/entrenched line items such as Rents that may keep CPI elevated past a 5-6% reading for quite some time.
I will provide as objective of an analysis that the marketplace has provided us.
Objectively speaking, the positive momentum in the market at this moment is a force to be reckoned with. Momentum will keep running, until all of a sudden it stops.
Valuations, fundamental analysis, and macro considerations may come second as investors buy now, and ask questions later.
But is that sustainable and more importantly a REPEATABLE investment strategy? That is something that investors must keep in the back of their minds.
And as the markets get closer and closer to potential euphoric levels in the current rally, I will continue to share the highest quality research to inform our friends how to take advantage of whatever upside is left.
Now more than ever it is critical that a plan is formed (stop-loss levels, trailing stops, limit orders). So that regardless of where the market goes, you are able to keep as much as possible of this current counter-trend rally’s gains.
People who impatiently chase this rally at the wrong levels without a solid plan in place will indeed fly too close to the sun, and subsequently get burned.
We will participate in this rally for as long as the market will allow, but we will be equally ready for what may lie ahead.
In the short-term, momentum is the most powerful force. In the long-term, fundamentals, valuation, and macro will prevail. While stock prices and economic reality may diverge from sometime, eventually they will converge.
If a melt up does happen in the market, do everything you can to take advantage of it while strategically preparing for the inevitable melt down that follows.
Avoiding the pain of a massive head fake should be your top priority, and I will do everything I can to help.
Words of affirmation from our Friends inside - thank you!
That’ll do for this brief update. Add me on Instagram and Twitter below. On Youtube, I only get to post once per week. But I am able to be a bit more active on Twitter and Instagram.
Add me! 😊
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Best Investment Platform For HK-Listed Shares for Chinese Internet Companies: Interactive Brokers or Moomoo
❤️ this email if you enjoyed the read. And see you in my next Youtube Video.
Your Investment Strategist,
Larry
Important note: My public letters are not financial advice. You must do your own research. They are designed for educational purposes only.