Anybody who says they like this kind of market environment is either lying or needs to be checked into an insane asylum, states Steve Reitmeister, editor of Reitmeister Total Return.
I am not talking about the direction of stocks. This is a well-timed correction in light of significant gains in hand + already existing inflation + energy shock + question marks on any potential United States military involvement against Russia.
No. The real issue is the off the charts volatility.
This is not the same market that I grew up with in the 1980's and 90's. Instead, this one is dominated by computer traders who can turn on a dime and apply a fire hoses worth of pressure to move the market to its will. That is why we have so many sessions with gains/losses greater than 1%. And why you can see such gigantic intraday swings.
Yes, I know there is little sense in complaining about it. That is just the way of the modern world. Thus, we learn to adapt or die. I choose the former. And in that light of adaptation, the rest of this week's commentary we will discuss where the market stands...what likely comes next...and how we adapt to put ourselves in the best position to prosper.
Yesterday we made a slate of trades to get more defensive. This was a short term move to get to only 59% long the stock market which seems like a more logical posture given the short term negatives at play.
At this stage I see little standing in our way of a test of 4,000. That is nearly a 20% correction from the all time highs and should be a good point of capitulation to find a lasting bounce.
So I plan on taking profit on our 3X short ETF shares at that stage and then assess what to do next. Meaning, does it look like stocks will have to retest the lows…or maybe make lower lows? Or are folks ready to appreciate that this is enough pain, and that we just don’t have the conditions to press lower?
Just for the general amusement of it all, I want to put out this number: 3,854.90. That is precisely a 20% correction from the all time highs of 4,818.60.
I share it with you because if 4,000 is breached, that would be the next level with tremendous support. And very, very hard to imagine a drop below that point given the current state of the economy. And the still low rate environment which makes stocks the far superior investment value over cash and bonds.
I provided a much more detailed picture of my market outlook and trading plan in the POWR Platinum monthly webinar, recorded Monday, 3/7/22.
Reity, What Would Make You More Bearish?
I get asked that question about 49 minutes into the POWR Platinum webinar. So you can fast forward to hear my answer on that. As well as the thoughts from options expert Tim Biggam.
But to sum it up, I would need to see a more serious fundamental deterioration in the economic environment. Like ISM Services and/or Manufacturing tipping down closer to 50 than their current perches of 56.5 and 58.6, respectively.
Note that a drop to say 52-54 is lower than now…but still the sign of a healthy growing economy. It is really knocking on the door of contraction territory below 50 that would have me much more cautious leading to the sale of more stocks in the portfolio and the purchase of more inverse ETF positions.
For now, I am expecting a move down to 4,000 where we will take profits on our three times inverse ETF. Then after a likely bounce, reassess if the market is truly ready to get back on the bull for good, or if we need to retest the previous lows…or lower.
Stay flexible and ready to trade for whenever those alerts come out.
Learn more about Steve Reitmeister at StockNews.com.