The last couple of months, and especially the weeks since the beginning of the new year were not the easiest to endure for those practicing restraint and patience.
FOMO rallies in past tech wonders, retailer AI frenzy, over-bullish sentiment a few weeks into a questionable rally, thin leadership overall, and short-covering and bottom-fishing driving an overbought state of the market which intensity outpaced even that seen during the QE-driven lockout rally post the covid crash.
The whole rally was largely predicated on the retail side of the market. Amateurs too eager to see the market of 2020/21 continue, too eager to see the Fed pivoting to cutting interest rates in 2023. This sentiment will hopefully shift soon, once the real cracks in the economy caused by steep monetary tightening begin to show. Statistically, this bear market has overstayed its welcome, but statistics mean nothing compared to the action of leading stocks.
Finally, the indices have started to undercut support, and renewed waves of selling are reaching the market. The S&P 500 is currently trading below its 50DMA, which it might challenge to overcome again as we are due for a few days of dead cat bounce. Heavy volume has not come in yet, but there were many historic downtrends where the real volume did not come in until the final panic. And we are still far from seeing that.
Complacency remains high – the VIX is still hovering around 20 and has never exceeded 35ish during this bear market. As inflation metrics continue to stay sticky while the markets had a sensational relief rally without any fundamental changes in the corporate environment, a Fed fixed on frying equities to cool spending, an over-tight labor market and consumer sentiment likely has no chance but to step up their game again.
Fed Funds futures are now pricing in a 30% chance of a renewed 50bp hike in interest rates for the March meeting, and speculators are starting to doubt their own enthusiasm, reflected by dropping stocks.
Some growth traders are trying their hands at the currently strong AEHR, ACLS or FSLR, but why risk money in this market at all? The odds are against us, and the little money one might make trying to position oneself in those stocks while trying to keep risk minimal will pale to what one should be able to make when the market finally turns for good. Odds and risk vs. reward are all that matters, and both are currently heavily biased against stock speculators trying to wring out longer trends. If you keep getting spanners thrown in the works, why bother risking more money?
