It’s now clear the summer time bear market rally is over. Now we’re descending again into bear market territory with a retest of the S&P 500 (SPY) lows at 3,636 a really probably incidence. However is that backside or would possibly we be in retailer for much more ache? 40 yr funding veteran Steve Reitmeister shares his view together with a buying and selling plan to carve out good points because the market probably falls a lot, a lot additional. Learn on beneath for full particulars.
In a warfare each side battle over each inch of soil. Something misplaced in a earlier battle you attempt to win again sooner or later.
Typically the motion of the inventory market is kind of the identical. That being the place we regularly retest and reclaim key worth ranges. On this case, shares have now given up nearly all of the good points from the stunning 18% rally from the June backside with a probable retest of that degree coming within the close to future.
Why is that this occurring?
Brief reply is that it by no means stopped being a bear market and the 18% rally was nothing however a 2 month detour from actuality. The longer reply, together with market outlook and buying and selling plan is shared within the up to date commentary beneath.
The S&P 500 (SPY) tumbled into the end line this week as poor financial knowledge coupled with a FedEx earnings warning crippled shares. It seems we are actually retracing our steps again to the June lows…and doubtless decrease.
One of many causes for that was the surprising dangerous FedEx earnings report. Usually no single firm will transfer the market this a lot. Nonetheless, within the case of FedEx it’s a nice proxy for the well being of commerce with far reaching ramifications.
So with a 40% earnings miss + removing of steerage as a result of the outlook is so dangerous and unmeasurable + CEO saying worldwide recession coming = buyers headed for the hills.
Again to the half about dangerous financial knowledge this week…
Properly, the slate of reviews on Thursday alone made the Atlanta Fed GDPNow mannequin tumble from +1.3% to solely +0.5% for the present quarter. Observe that again on 9/1 that mannequin was pointing +2.6% GDP development. That’s falling very far…very quick, which is most actually not a optimistic for what comes subsequent as usually these items are a press release of momentum…and it’s choosing as much as the draw back.
Essentially the most attention-grabbing a part of what we discovered on Thursday is that retail gross sales had been ONLY up due to inflation…however since development decrease than inflation, then net-net exhibits weak spot in demand. This together with extra dangerous information on imports/exports had GDP estimates diving…and share costs heading decrease as soon as once more.
As if the basics aren’t dangerous sufficient, the Thursday shut beneath 3,908.19 for the S&P 500 (SPY) equated to a brand new Promote sign from the famed technicians at TheDowTheory.com. Their bearish calls are just about one of the best within the technical evaluation enterprise.
There may be not a lot else to report between now and Wednesday as buyers await the Fed price determination. Will or not it’s 50 or 75 factors?
WHO FREAK’IN CARES!!!
The myopic brief sightedness of most funding information is criminally insane. Thus, please pay no heed to cost motion that day. The one factor the Fed may say to get the bulls again firmly in cost is that price hikes are over and the warfare over inflation has been gained.
However that isn’t going to occur. Not even shut.
That’s as a result of the Fed already advised us only a couple weeks again from Jackson Gap that’s NOT within the playing cards. And that we’ve got a long run battle to beat down inflation and it WILL trigger extra financial ache.
And sure extra financial ache means worse that the +0.5% GDP estimate for Q3. It means probably recession which incorporates rise in unemployment. That’s not being served up at this second however will probably take high billing within the months forward. And with it the bear market ought to press decrease.
Now let’s speak about key worth areas on the way in which down for the market/S&P 500 (SPY):
3,855 = 20% down line from the all time highs. Which means the purpose that separates bull from bear territory. That got here into play in the present day with some help and little bounce on the end line. Sure, it might present help a short time longer…however little question going to fold in due time.
3,636 = the June lows. Not often can you may have a bear market with out retesting the lows. So that’s probably the subsequent level of help as we discover the true depths of this bear market.
3,373 = 30% down from the all time highs. Doubtless there can be some of us beginning to backside fish round there. I could try this as effectively.
3,180 = 34% decline from the highs which is in step with the common decline of a bear market.
3,000 = Very attention-grabbing psychological degree of help. It could be arduous to go decrease than that until it really looks like a a lot worse than regular recession. And sure, we might by no means make it down right here as there can be a variety of shopping for exercise between 3,180 and three,373.
Observe that valuations bought stretched on the way in which up on this bull market (due to extremely low bond charges making shares so rattling enticing). Since true, then certainly shares might must fall additional than common to search out backside.
That could possibly be a visit down to only 3,000. Perhaps a contact decrease.
Simply do not forget that NOBODY rings a bell on the high or backside. It is not going to be simple. And can be arduous to do within the second as a result of we are going to wish to begin backside fishing when the whole lot appears horrible (economic system…worth motion and so forth).
However certainly with the inventory market it’s all the time “darkest earlier than the daybreak”.
Or just it turns into Warren Buffett time to…”be grasping when others are fearful”.
You now perceive why the bias has pushed bearish as soon as once more. And sure, you additionally perceive from the 18% July/August bear market rally that the highway to backside is not going to be simple. It requires persistence and self-discipline.
It additionally requires a plan which we’ve got and can proceed to refine because the info dictate. Which means we are going to regulate our plan accordingly with situations.
What To Do Subsequent?
Uncover my hedged portfolio of precisely 9 positions to assist generate good points because the market descends again right into a bear market territory.
And sure, it has labored wonders because the Fed made it clear there may be extra PAIN forward which had shares tumbling from current highs above 4,300.
This isn’t my first time using this technique. The truth is, I did the identical factor on the onset of the Coronavirus in March 2020 to generate a +5.13% return the identical week the market collapsed -15%.
In case you are totally satisfied it is a bull market…then please be at liberty to disregard.
Nonetheless, if the bearish argument shared above does make you curious as to what occurs subsequent…then do take into account getting my “Bear Market Sport Plan” that features specifics on the ten positions in my hedged portfolio.
Wishing you a world of funding success!
Steve Reitmeister…however everybody calls me Reity (pronounced “Righty”)
CEO, Inventory Information Community and Editor, Reitmeister Complete Return
SPY shares rose $1.49 (+0.39%) in after-hours buying and selling Friday. Yr-to-date, SPY has declined -18.22%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.
Concerning the Creator: Steve Reitmeister
Steve is best identified to the StockNews viewers as “Reity”. Not solely is he the CEO of the agency, however he additionally shares his 40 years of funding expertise within the Reitmeister Complete Return portfolio. Be taught extra about Reity’s background, together with hyperlinks to his most up-to-date articles and inventory picks.