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MarketSmith powers the charts in this video

Most central banks around the world are likely to remain in tightening mode into the first half of 2023. Even the Bank of Japan is joining the chorus, which helped to send interest rates higher last week. When money managers expect a recession, most can hide in Treasuries. This is not working this year. TLT has been absolutely demolished serving the 60/40 portfolios one of their worst years in history. After a brief bounce in November, TLT is down again. When the cost of money is rising, many new and existing projects don’t get funded, and most stocks are worth less. This is the environment that awaits us in the foreseeable future. The question is how much of that has already been discounted. Markets tend to overshoot anyway. This is what creates opportunities. 

Even if 2023 is similar to 2022, there will be plenty of opportunities on the long side. Bear markets are often interrupted by violent counter-trend rallies. In 2022, we saw three major bear market rallies varying between 12% and 20% in a few weeks. Plenty of stocks went up 50% to 100% during those rallies. Each of those bounces was led by a different set of stocks. In February/March, energy names stood out. In July/August, biotechs outperformed. In October/November, Chinese and semiconductor stocks made huge upside moves. After every one of those rallies, the indexes made a lower high and the bear market resumed. Every single time, the move lower was led by tech stocks. At some point, the trend of lower highs will end and a new bull market will begin. It always does. In other words, there’s nothing to be afraid of in 2023. There will be plenty of opportunities on both the long and the short side.

Merry Christmas and Happy Holidays!

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MarketSmith powers the charts in this video

The large-caps ETF SPY, the small-caps ETF IWM, and the semiconductor ETF SMH were rejected again near their declining 50-week moving average after the FOMC meeting and Powell’s briefing last Wednesday. They keep making lower highs. The downtrend is still firmly intact.

The Fed raised interest rates again. This time by “only 50bps”. The market was paying more attention to their guidance – the majority of Fed members expect an interest rate of 5%+ for the entire 2023. The market sold off because it believes that the Fed might be behind the curve again, potentially laying down the foundation for a recession at some point in 2023. The Fed is not worried about a recession. It has proven that it is easy to get out of one – cut interest rates, buy bonds, flood the system with liquidity, and encourage more fiscal spending by the government. What they have not proven yet is that they can stop inflation. This is why I understand their willingness to overdo the tightening but to make sure the inflation bug is squished for good.

Recessions are not as scary as the mass media is trying to present them. They are a natural part of the economic cycle and eventually result in a stronger, leaner, more productive economy. I don’t know how long this bear market is going to last. For some stocks, it has been 22 months long already so we are very likely in the second half of it. When this bear market ends, it will present a generational opportunity to build wealth. You have to have the capital to take advantage of it. This is why it is important to protect it during turbulent times.

Bear markets are rare and there is nothing wrong with taking advantage of volatile markets if you are a skillful short-term trader. The average investor is not. I am still active every single day but I trade smaller. There will be better times to be aggressive. 

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Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email to get an idea of the content I share with members.

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

MarketSmith powers the charts in this video

I don’t remember the last time the Fed chairman spoke and the market didn’t tank. Turns out Powell is seeing and acknowledging the same thing the market is – inflation might be slowing down so there are enough reasons to slow down the pace of hikes as soon as December. The market liked what it heard and staged a massive rally on Wednesday. 

The S&P 500 is less than 2% from its 50-week MA, which has been a major resistance during the correction this year. Going and starting to trade above it would be a significant event from a technical and psychological point of view. Obviously, we are not there yet and this bounce might turn out to be just another shorting opportunity, especially if the Fed is hawkish during its last FOMC meeting for the year on December 14. What matters right now is that we see more stocks from various industries break out and set up for potential breakouts. The dip buyers seem in control. Even the strong payroll report last Friday was insufficient to stop the bull run. 

Here are a few industry themes that are currently standing out:

Solar stocks continue to show notable relative strength. ENPH tested its 10 and 20-day EMAs multiple times in the past few weeks, only to finally break out on Friday. If it doesn’t fail next week, other solar stocks are likely to join the rally – SEDG, SPWR, RUN, ARRY, etc.

The sentiment towards Chinese stocks might have changed. All the news about protests in China and Chinese ADRs have been gapping up almost every day last week. It could be just a temporary short squeeze or the foundation for something bigger. The Chinese tech ETF, KWEB is back above its 50-week moving average for the first time since April 2021.

Speaking of 50-week moving averages, the biotech ETF $XBI  is finally back above it. This is an important indicator of risk appetite and can have significant implications for fear of missing out in December. Some biotechs to keep an eye on: AXSM, PRTA, MRTX, VRTX, REGN, NBIX, AMLX, HRMY, HALO, etc. 

One of the factors that might cool the market enthusiasm down is the potential escalation of the war in Ukraine. The market is expecting that something might happen as defense stocks broke out across the board on Friday – BA, LMT, NOC, etc. Steel names have been rising too – STLD, NUE, X.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email to get an idea of the content I share with members.

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