Author: Ivanhoff

MarketSmith powers the charts in this video.

Last week, we talked about the potential for the FOMC meeting to become pivotal for a market bounce. This is exactly what happened. Sentiment changed after the FOMC meeting. Powell finally said that the current risks are balanced between inflation and a recession. This means that the Fed is not likely to touch interest rates in the foreseeable future unless something breaks. This was enough for the stock market to rip higher. In the meantime, interest rates and the U.S. Dollar pulled back which is usually a green light for stocks.

A few days into this bounce, one can clearly see that the worst-hit groups in the past three months outperformed by a significant margin. Typically junk outperforms either during bear market rallies or after a deep and long market correction. It can easily be the former, but we are going to give the benefit of the doubt to this rally until we see some evidence of heavy selling. 

The silver lining of last week is that there were several back-to-back high-volume accumulation days in the small-cap index – something we haven’t seen since June of this year when the stock market started its big summer rally. Another potential tailwind for the current bounce is the overall reluctance to believe in it after so many failed follow-through days in the past few months. The majority of market participants are underinvested, short, or want to get short. The first group is praying for a dip so it can enter with a tighter stop. This is not a bad approach, the problem is that when it finally happens, many will be too afraid to pull the trigger. 

Keep in mind that the indexes haven’t made a higher high yet. They are up several days in a row, so it’s only normal if there’s some form of consolidation sometime soon. The new leaders will stand out during that consolidation. 

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Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.

MarketSmith powers the charts in this video.

When the market is bullish, it is looking for the slightest reason to go up. We saw that in October of 2022 and January 2023, when earnings reports and growth were lackluster, and yet, many stocks rallied. We are seeing the opposite now. Company after company from various industries reported much better than expected earnings and raised guidance. And yet, they were all sold off for the most part. I pay attention to the earnings reactions because the market is forward-looking and often sees/discounts things that might not be so obvious right now. Google, Meta, and Microsoft crushed estimates and still traded lower. Poor reaction to good news is what causes bear markets.

I know, you keep hearing that positive seasonality is about to kick in and we will have a year-end rally. We’ve been reading the same thing for the past four weeks and most stocks have been making lower highs and lower lows. One of these days, seasonality experts will be right. I am not mocking. I am just saying that relying solely on seasonality is not a practical way to manage risk if you are actually trading or managing money.

Nothing goes straight down. The indexes are not too far from reaching oversold levels that historically led to powerful short-term bounces. Maybe the FOMC meeting next week will trigger one of those rallies? I don’t know, no one does. The sentiment is still a bit complacent considering where interest rates, oil, gold, and volatility are. Traders will be traders and we will look for opportunities regardless of the tape. Those opportunities are not the same every week. This is why we don’t have to be active every single day or use the same position size in every type of market. It’s ok to sit it out and protect capital and confidence if your approach doesn’t work in a corrective tape. It’s ok to be short if this is working for you, It’s ok to learn new tricks if the old ones are not working right now. Whatever you do, make sure that you enter asymmetric trades where your winners are at least 2x your risk. Otherwise, why are you even trading in this tape?

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.

MarketSmith powers the charts in this video.

The indexes are still in a pattern of lower highs and lower lows or in other words a downtrend. Until that changes, any talks about positive seasonality are fruitless. The mere fact that stocks are correcting despite bullish seasonality should get your antennas up. There’s something rotten in this market. It tried to rally on October 6th; ran for a few days and just like any other rally since August, it was met with overwhelming supply and sold off again. 

I am not sure if the market is still worrying about inflation but the 10-year yield tagged 5% last week. The jump in rates might be a reflection of a bigger bond supply to fund the ever-expanding deficit and worries about the price of oil if the Middle East conflict escalates. The net effect is the same nevertheless. Interest rates are like gravity for stocks. 

There are no growth, momentum stocks left to hide in. Anything that held relatively well up until recently, was taken out on a stretcher after TSLA missed earnings estimates. What about GOOGL, META, and MSFT some might ask? I don’t consider them high-momentum, high-growth stocks. They are slower movers and more of a cash-cow play. When cash pays 5% and stocks are falling, people have an easy alternative. 

Earnings season has begun. So far, the reactions have been mostly bearish. Regardless of beating or missing estimates, most stocks have been selling off post-earnings. NFLX was a minor exception. The expectations there were too low as the stock was crashing ahead of its report. It gapped near its declining 50dma, where it is trying to hold and build a new base. Tesla missed estimates and it was completely crushed. Next on the deck are Google, Microsoft, Amazon, and Meta. If some of them don’t really surprise to the upside, the indexes are in trouble.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.