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Most stocks started to rally ahead of the FOMC meeting and accelerated their ascent afterward. 25 basis points increase in rates is probably viewed as too conservative. The take is clear – there’s is rampaging inflation that is not likely to taper any time soon and the Fed is being overly careful with the interest rates increases. 

The bounce in most stocks last week was statistically significant. The S&P 500 gained more than 1% four days in a row. All cyclical sectors gained. The worst-hit groups went up the most – Europe, China, software, biotech. The odds are that this is just a bear-market bounce but we have to also admit that is normal to distrust any rally after the constant breakout failures and 50-90% drops in so many stocks in the past four months. Trends die hard because sentiment changes slowly – this is why there are so many bounces in uptrends and downside reversals in downtrends. Sentiment follows price action.

I am operating from the view that this is a bear-market rally. I am still participating in it but taking quick profits. If the major indexes can go back over their flat to rising 20, 50, and 200-day moving averages, I will have a good reason to change my mind and tactics and look for longer-term holdings.

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

The charts in this video are powered by MarketSmith

The price action in most stocks last week was basically a selloff on Monday and Friday and a weak bounce attempt in the middle of the week. All major stock indexes are looking vulnerable to further breakdowns. The one thing to keep in mind is that this is a headline-driven market. Any rumor about a ceasefire in Ukraine or the Fed being less hawkish than expected can lead to a massive short-term rally in most stocks and a big decline in oil. Other than that, I can see SPY testing 400 and QQQ testing 300 eventually.

The price leaders remain the same – oil, marine shipping, metals. Clean energy names tried to join them last week but still have much to prove. The solar ETF gained 10% in one day last Tuesday only to give most of it back afterward. It’s still a space I will be keeping a close eye on. It has two major catalysts going for it – high crude oil prices which should make all other energy plays more valuable too. Europe and the U.S. will invest even more heavily in renewables to reduce their dependence on foreign oil. Price setups have to confirm any market theory for me to open a position. 

Let’s keep things in perspective. Over the past decade, we experienced some sizable corrections but they never really lasted more than a couple of months. A whole generation of investors hasn’t really faced a real bear market that lasts multiple months and it is filled with gradual lower highs and lower lows, panic selling followed by panic buying. The silver lining is that a bear market is the best thing that can happen to a trader – not only because it brings much wider price ranges and good opportunities to make money on the short side; not only because it lays down the foundation for 10-20x gains when the recovery begins but mostly because it teaches discipline. If you are not disciplined during a bear market, your account won’t make it for the inevitable bull market that eventually follows.

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.

The charts in this video are powered by MarketSmith

The market is flexible, adaptable to new conditions. Money always goes somewhere. While the main indexes continue to be under pressure, select sectors are thriving. Last week, the big winners were oil, coal, grains, metals, grocery stores, military stocks, railways. The losers were tech, consumer discretionary, Europe. In fact, most of the European indexes and ETFs made fresh 52-week lows on Friday.

For a brief moment last week, alternative energy stocks also perked up – solar, fuel cells, you name it. It only makes sense. If oil, gas, and coal are getting way more expensive, their alternative should be worth more. This is exactly what happened in 2007-mid2008 when oil went from $60 to $140 per barrel. ESG wasn’t even a thing at the time. It’ll be interesting to see if the same patterns repeat this time again. Most alt energy names are down more than 70% from their recent highs and still in a downtrend but I’ll be paying attention. 

I don’t know how long the run in commodities will last but what I know is that eventually, it leads to further weakness in the general market. Most stocks keep making lower highs and lower lows in a declining market but shorting is not easy when volatility is elevated. In a headline-driven market, even a rumor can cause a quick short-term bounce that can stop you out before a stock continues lower. The cure is to be aware of the choppy nature of down-trending markets, be nimble, take frequent profits when you have them and use smaller positon size; be selectively active, and simplify things as much as possible.

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.