If there is one tip I am driving home this year it is to let the charts guide your investing/trading decisions, not the news.
As we all know, our media channels are designed to present a grim picture. The result is that people are clueless about how to manage their finances, which means your financial future is at risk.
I would argue that this happens every year, but 2022 has been an especially tough year with the stock market crash. Phrases like bear market, recession, worst year ever are thrown around freely, so I’m not surprised that you’ve cheated even more this year.
However, this state of indifference to your delusion cannot last forever. At some point, you have to accept that the system will never change. It’s up to you to take the bull by the horns (or the bear by the claws) and take control of your financial future.
What you don’t want is to be in this same internal conversation a year from now. 2023 should be different.
So why has 2022 never been a bear market?
Really simple. S&P 500 Spy Has never broken below the weekly 200 simple moving average (w200sma).
Below I have weekly deadlines
The last time price broke below the w200sma was in 2008, and before that, surprise surprise, was in 2000. Both are marked with red arrows above. These were confirming bear markets, and when ideally you wanted to go short. In fact, most would have gotten stung while making the classic mistake of catching falling knives. You must learn to short the market. This is a skill very few acquire, but it is extremely beneficial when the market is bearish.
When the S&P 500 retook above the w200sma in 2010, price has been using the w200sma as a key level of support. All are marked with green arrows above.
- 86% jump after 2011
- 61% jump after 2016
- 106% jump since 2019 (current all time high)
Given the strong rally post CV19, it is not surprising that we have seen such an aggressive correction this year. Contrary to what has been spewed all over the internet, these corrections are healthy for the market. You just have to learn how to deal with them in a cool, calm and collected manner.
(We can ignore the blue arrow above. This is a 35% drop in price due to CV19. Black swan events almost always have a violent short-term effect before the market is absorbed back.)
This brings us to the orange arrow above, where the S&P 500 bounced off the w200sma in October. This was followed by a 14% bounce off the November high, but the price is currently about 6% away from the w200sma.
Price is in a very interesting position leading us to 2023…
If the S&P 500 works its way below the w200sma, we are likely to see a repeat of 2000 and 2008. This is when we will officially be in a bear market and when we will be low.
If the S&P 500 remains strong, we could see the next phase of bullish momentum and a revival of the bull market since 2009 and when we buy.
Currently, we are in this gray area where to stand aside, be patient, protect capital and wait for the market to decide the direction. We can react accordingly, either long or short.
But Zaheer, what about all those tech stocks that plunged this year?
Tech is a sector. Earlier this year, we saw a rotation of money from tech to healthcare.
(Regular readers will know that I like stocks that are trending and printing new all-time highs. They move the fastest. I usually hold 12 to 24 months before moving on to the next set of stocks.) hold.)
While stocks like Tesla Inc. TSLA and PayPal Holdings Inc. PYPL Down 70%+, McKesson Corp mck is up 50%+, a stock I’ve highlighted several times this year. Arch Capital Group Limited acgl, the consumer discretionary stock, is up 50% since October. Financials are looking interesting too, with stocks like WR Berkeley Corp. wrb Looks strong. This year it is 27%.
Below is the monthly time limit for MCK
Your job as an investor is to know when to discard turning stocks, and replace them with the next set of strong stocks from strong sectors. It forms the foundation of portfolio management.
If you’re not sure how to do this, maybe in early 2023 your priority should be right here…
My advice, block out the noise and make sure you position yourself to profit regardless of which direction the market goes. Repenting is not an option.
I wish you all a progressive, productive and profitable 2023. Out with the old and in with the new!
featured image taken from Shutterstock