- Despite the recent stock market sell-off, sticking to your investment plan is still the best strategy.
- There is evidence that the market may soon rebound in what is known as the rally rally.
- It’s important to remember that although this year has been tough, the stock market always bounces back at the end.
The market has been tough this year.
Is that true harsh.
YTD S&P 500 is in correction territory, down more than 12%, Nasdaq? Forget about it. It’s in a bear market, down more than 20%. You don’t even want to know how much some of the VIPs have dropped in the last year. Let’s just say it’s a lot.
If your wallet is a sea of red, your head may be spinning.
He will be fine.
It might not be tomorrow, next month, or this year, but the stock market is a great machine for generating wealth, and over time, the dramatic selloff we’re seeing will be just another data point on the chart.
nothing else. nothing less.
Do not believe me? Look at the stocks in the following chart showing historical prices for the S&P 500 ETF (SPY) since 2007. The Great Recession, Quantitative Tightening in 2018, and COVID in 2020 triggered horrific markets, however, the market rallied — eventually – upwards.
Do you still need persuasion? The annual return of the S&P 500 is the worst in 30 years. However, the S&P 500 is up over 870% since 1992. Sure, there were some thorny moments in the early ’90s, but you really have to stare to see them now.
stay on track
‘I can’t take it anymore’ moments often upset investors during brutal recordings. However, the regret of emotional panic selling is evident when stocks eventually recover.
The internal argument goes, “I couldn’t stand it, so I sold everything. Now, the market is going up, but I don’t believe it. It won’t last. There is so much wrong that stocks are going up.”
I’ve heard this argument many times in my career. In the end, the seller becomes the buyer again but only distance Missing the biggest step up.
Remember that the average return during the first year of a bull market is 38%. That’s much better than the average return of 12% in the second year and the average annual market return of 10% since 1926.
However, it’s not just about losing the first year of a bull market. It can be costly if the sale causes you to miss out on even some of the market’s best performing days.
Go to follow
According to JP Morgan Asset Management, the $10,000 buy-and-hold investment grew on January 1, 2002, to $61,685 on December 31, 2021. However, the loss of the top ten days during that period lowered the value of the nest egg to $28,260. If you haven’t been in the market during his best days, you’ve given up 334% in your cumulative return.
In fact, enduring the Great Recession, the blackout in the fourth quarter of 2018, and the frenzy caused by the novel coronavirus in 2020 was no fun. When stocks go down, you can’t do anything right. But when do they go up? Feel like Midas.
I don’t know when the market will drop. Nobody has a crystal ball. But I know the market pain is high, and investor sentiment is appalling. The overall buying/buying ratio is bullish at above 1. The AAII survey’s bullish reading came in at less than 20%, among the lowest since the early 1990s. The number of stocks trading 5% or more below the 200 DMA is relatively high. The Volatility Index (VIX) is back above 30 for the first time since its March lows.
In “There may be light at the end of the tunnel” real money proCarly Garner wrote:
“VIX spends most of its time below 20 but can see temporary spikes. Historically, VIX struggled to break above 35-40 but did so during the Covid crash and financial crisis. However, any stock market sell-off accompanied by a VIX peak resulted from near 35 Overall the stock market recovery…While traders should remain cautious, we see a potential head and shoulders pattern in VIX.The head and shoulders pattern is exactly what it looks like;It’s a three-wave impulse where the shoulders make lower tops than the middle high (the head).Traders believe That a break below the neckline would open the door to a quick sell. If this pattern is executed, VIX may head towards the mid-teens. This will be positive for the stock market.”
There is fuel for the fire.
Could the Fed’s next rate decision be the spark? After all, the May 4th meeting may not present a “horrific” revelation. Market pricing is already in a dump truck full of tightening, including price hikes and bond run-downs on its balance sheet. Could you say something surprising? certainly. But if not, we may get to buy when the news is higher.
Back to Garner:
“Some of the stories that led to corrective action in equities may have run their course… It should also be noted that the Fed has not always been able to follow through on its campaign ambitions to raise rates (remember 2019/19?). by pricing interest rate increases more than the Fed is able or needs to achieve.”
Or maybe the spark is coming from somewhere else. As Stephen Gilfoyle wrote in real money We got the Market Recon earlier this week, a “pre-estimate (first of three) for US economic growth in the first quarter of the year” on Thursday. GDP is slowing down. Perhaps, this is encouraging because it means that inflation will go down, and the Fed will not need to raise like its forecast?
Again, pure speculation.
But there is some evidence that if the market sells a little more, we will feel oversold (in the short term at least), and if the market is oversold, it may not take much to spark a rally.
In “Waiting to surrender? All I can give you is this,” top stockHelen Messler uses oscillators to help determine whether odds are preferable to bulls or bears.
The bears are still in control, but the Meisler pointers may get a lot friendlier in the coming days. Maisler writes:
I can now inform you that by the end of this week/early next week, the index has stopped falling. It does not fully develop upwards, but rather stops going down. This is a change. It is also a sign of “overselling” in the short term.
If so, the shift towards net buying real money proThis week’s Doug Cass could prove insightful (if you missed Monday’s Smarts column, here he is again).
Cass renewed his growing upsurge in his diary today, writing:
“I wrote a long time ago that one should invest and trade unemotionally… Today, as the Bee Gees said, emotion has taken hold of the markets… The market that has recently been dominated by emotional and hyper-emotional activity is an opportunity for the tactical trader and investor… This opportunity does not materialize from selling (for those who ‘don’t care’)–but emotional selling can provide a birthright to reasonably attractive entry points.”
This year has been a bar trading so it paid off to sell rallies at resistance and buy the market at support. However, individual stock selection was a different story. Either you embraced the trading trading cycle I discussed when Smarts were first launched and stuck there, or you’ve had a meltdown.
I still think it’s a rolling bar, and focusing on late-cycle stocks is better than buying early-cycle ideas with a high beta in the hopes of getting correlations. Ultimately, early-cycle stocks will form actionable entry points. But we haven’t gotten there yet.
Simple strategy? Overlay the 200-day moving average on your price chart. Is 200-DMA climbing or falling? Is the current share price higher or lower than it? If you are a short or medium term trader, odds are you would rather buy strong stocks on pullback, and not delve into the past from big clients hoping for glory.
In general, it is impossible to constantly choose specific bottoms. But you don’t have to. All you have to do is be near them. Tracking sentiment can help you, and for now, indications are that we may be close to an actionable high. So spread out your purchases over time, but consider taking a little more here and more if we get beaten up a little more.