Stocks are going up
The commonly accepted definition of a bull market is when the price rises by 20% from its low point.
And this past week the S&P 500 shot up to 4,170 points marking a 20% gain from its low back in October 2022.
So the bear market is officially over and we are technically in a new bear market now. 🙂
But this doesn’t mean everything is fine and we’re going back up to all time highs next.
The market has to face a few hurdles first.
Extreme Greed Warning
The first thing to be aware of is that stocks are in a precarious situation right now according to CNN’s Fear & Greed index.
I tweeted this out on Wednesday when I noticed the index reached as high as 80, signalling extreme greed.
This typically means a correction is imminent.
The stock market has done well year to date.
But now's the time to be careful and think about trimming some winning positions. pic.twitter.com/Xy9YTLL2xc
— Liquid 🚀 Freedom 35 Blog 🕊 (@Liquid_f35) February 3, 2023
The second headwind facing the market is seasonality. Certain time periods of the year will perform better than others. 🙂
Here’s a chart going back nearly 100 years showing the varying average returns by month.
Notice how February on average actually had a slight loss.
Markets will be facing this historical downside bias this month, so be careful.
The last piece of the puzzle is that the smart money doesn’t believe in this most recent rally.
Dumb money is retail investors and smaller traders (red line in the graph below.)
Usually when this rises above 0.7 and reverses it corresponds to a correction in the stock market.
Meanwhile the smart money or large institutional investors (blue line,) have been sitting mostly on the sidelines.
So just because the bear market is over, it doesn’t mean we won’t go right back into one again soon.
In my latest video from uploaded today I explain why the market may be reacting irrationally to recent events, and what to watch out for next week. 🙂
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Random Useless Fact:
Police sirens are typically 110 to 120 decibels loud.
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Hey Liquid, interesting times for sure and a great start to 2023! For you, will you be taking any profits? Or staying put on the sidelines?
Hey Moe. I think this is a good time to take some profits from the recent run up of the stock market. I sold some $GOOGL, $ETSY, and $CNQ shares recently. I will be looking to get back into these companies at lower prices. 🙂
how was your options P&L for January?
Not too bad, I made $3,600. I’ll write up a post about it in a few days. 🙂
Hey Liquid,
Solid post and interesting times! I’m sitting on a decent amount of cash, that was a random windfall a few months back. About $100k.
I’ve been unsure of what investments to buy and when so I’ve just been holding… 95% of my portfolio is index funds.
If you were me and you wanted to distribute 100k into investments, sounds like you would not recommend putting too much in now… so maybe average in the next 6 months? 🤷♂️
Hi Jay. I would invest it over the next 5 months at $20K per month.
I would also consider investing part of that money in small cap stocks.
Here are a few I like if you need ideas.
https://youtu.be/HEvG8VH0bbE
You can also buy a small cap index fund such as IJR (iShares Core S&P Small-Cap ETF)
Good luck and congrats on the windfall. 😁
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I hope we get out of this recession unscathed… I don’t like living in this constant state of fear of layoffs 😅
Great post/analysis, as always!
Thanks David. I hope you’re right. Being laid off back in 2018 was not fun for me, lol. But whatever happens to the economy I’m sure we’ll bounce back.