Trading charts for Thursday, March 16th
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Good morning and Happy Thursday,
Yesterday was another crazy and chaotic day in the markets, not a great day for having any equity exposure. The indexes did close off their morning lows and the Nasdaq even squeaked out a small gain but overall the volatility makes it really difficult.
These big pullbacks and gap downs are great for triggering stop losses then bouncing which happened yesterday with several of my positions. I thought I’d be in good shape buying some potential leaders as they pulled back to their 50d moving averages but then yesterday morning they sliced right through the 50d and bounced off the 65d or 100d but I don’t want to have my stop losses 8-10% below my entry prices. I’m focused on risk management but yesterday it kind of backfired. This market is still in no man’s land, we’re not in a bear market anymore (just my opinion) but we’re also not in another bull market. We’re just chopping along which is a very difficult and frustrating market for swing traders and position traders. It’s probably more ideal for day traders and long/short investor.
Even if the FOMC decides not to hike rates next week or they hike rates with a dovish tone, it might spark a short term rally but we’re starting from already stretched valuations so I don’t think that rally would last long. If you look back at the bull market that started after the dot com bubble and the bull market that started after the GFC, both bull markets started with valuations significantly lower than they are today partly because the indexes were down more than 50% from their previous ATH.
Part of me wants to see SPX crash to 3400 or below so valuations start to look very very reasonable which might trigger a new bull market as cash comes off the sidelines however the other part of me knows a correction to 3400 or lower would feel extremely painful for many investors (especially growth investors) because if SPX dropped another 12-15% to where valuations became much more compelling, the majority of growth stocks would significantly more (ie 25-30%) during the same time frame however it’s also possible that certain growth stocks would hold up better as money rotated from value into growth while yields were coming down.
TBH, I regret starting any positions on Tuesday after CPI, I should have been more patient — even though I still endorse buying the next potential TMLs on pullbacks to their 50d moving averages, this market is still too volatile and unpredictable because those 50d moving averages aren’t holding up like they should be in healthy market. Personally I think we might not see a new bull market for 12+ months, unless we flushed hard to 3400 or lower and valuations finally looked compelling. That’s when I’d want to get aggressive with my positions — just impossible to know if this happens or do we just keep chopping along the rest of this year. Not sure we ever get that capitulation event like March 2020 although we all know why that happened. I don’t think we get that sort of widespread meltdown unless the stresses in the banking system got dramatically worse, possibly caused by blowups in commercial real estate portfolios. Being patient is so hard — waking up early every day, looking at hundreds of charts and then not doing anything feels like a complete waste of time and effort but sometimes it’s the smart thing to do. You have to wait for your “fat pitch” if you want to maximize returns and minimize losses.
Futures have also been getting worse throughout the morning with some of the regional bank stocks down 10-20% pre-market so clearly there is still plenty of fear in the system which will make it hard for the equity markets to do anything on the upside. FWIW, the semi’s still look the strongest.
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