What is going to happen next?
No, I'm still bearish. I still think we have at least one more big move to new lows. And, yes, I think we will break the current lows and drop 20% below those lows. So plenty of Big Bear coming. But I think we have a traceable bull move starting now. Why? Three main reasons: - Bullish seasonality
- Downside exhaustion
- The bear news is discounted
Let me explain. | |
Right now we are in a mid year election cycle with a first term Democratic president. According to the excellent StockTradersAlmanac.com, there should be a bull seasonal that runs from now until the end of August. It is long enough and strong enough to be tradeable. Please note that the same seasonality says that the market will enter an even more bearish mode than we have been in after the late August high! I think that the Bears have run out of gas pushing the market to the downside. Volume is getting less. Ranges are getting smaller. There are only so many days you can go down without the Bears getting exhausted or the Bulls capitulating. I don't think the bulls have capitulated yet though there are some signs they have, at least temporarily. Finally, I think the market has discounted all the current bearish news. A week ago the Fed Funds futures curve showed that the market expected Fed Funds to peak at about 4.00% in 2Q2023. They are still looking for a peak in 2Q2023 but now only at 3.70%. That is a pretty big move in just a week. What they are saying is that the Fed's hiking regime will work. The economy will go into recession soon and that will cause inflation to stop rising. Then, in 2Q2023, the Fed will start to easy monetary policy. Now, I think the market is wrong. But it seems to me that they are far too optimistic about inflation but, for now, the market is satisfied with the Fed stance. Later, say end of August, they will realize that inflation will still be rising and the Fed will have to keep hiking. That will be the trigger for the market to move lower again. | |
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This rally will cause all the instruments that were hammered over the previous six months to lead the market to the upside. That includes all the tech stocks and crypto. The key is to be nimble. You have to get in quick and get out quick. The top will not develop over weeks but will develop over just a few days. To learn how to play this market, check out the ultimate stock trading education in the world, the Wealthbuilder Insider. Click here to learn more now! | |
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