New Lows Next week?
Be ready for anything.
Hello everyone,
This is week 14 of ∞ that I will be posting a written version of my stock market outlook.
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Last Week’s Action
Last week, the market continued the downward trend and the selling accelerated after the Fed rate hike announcement.
We are below all the key moving averages
Daily chart of the QQQ:
We are just above the June lows.
The weekly chart shows a textbook Stage 4 Decline
The monthly chart shows that this correction could last quite a bit longer
The McClellan Oscillator is the most oversold since the 2020 correction.
The T2108 - the % of stocks on the NYSE above their 40-day SMAs is just above 10%
Leadership
In terms of leadership, themes biotech looks the strongest this weekend. Solar has taken a bit of a hit although FSLR and ENPh remain in focus.
Sentiment
We actually saw an increase in bullishness in my Twitter survey from 27% to now 38%
The NAAIM declined further to 29
The Put call ratio is just above 1
IBD is currently a market in correction
Stock Market Outlook
Leadership took more hits last week although biotech is holding up alright. We are “oversold” on almost every indicator.
This could mean that we have a bounce sometime soon but it also just suggests we are in a very weak market. The trends at this moment are all downwards. We are below all the moving averages and making lower highs and lower lows.
We are approaching the June lows which would be a logical spot for, at least in the short term, to see the start of some type of bounce. Watch for hammer candles after an undercut. Know yourself and if you can actually trade these fast, short-term movements.
With this said, don’t just put on a trade because we “have” to bounce from oversold conditions. Oversold can become much more so. Trade when you have an edge.
Since we are so extended to the downside it’s not likely the optimal spot to be shorting but if we do rally for a few days and then break downwards, that should present some opportunities.
Until things improve likely your best investment would be to focus on education and improving your system.
Be ready for anything, we could put in the bottom next week or this could last another few months.
Take it day by day and manage risk along the way.
What To Look For (Same game plan as the last few weeks)
When it is time for a new bull market we will see divergences as groups decouple from the indexes and show relative strength. Setups will proliferate your screens.
When the market is ready it will be obvious, and it may happen when the news and sentiment is the absolute worst.
The leaders in the next bull market will once again have the potential to quickly double and triple and they will likely be completely new names that are unfamiliar. Try not to become biased and focused on last cycle’s winners.
Follow the sector, industry group strength, and look for the strongest stocks coming out of these strongest areas. As the market bottoms these future winners will likely be completing bases and may even be making new 52-week or all-time highs.
Keep an eye out for turnaround plays with excellent earnings and sales growth as well as recent IPOs within the past 2 years forming out their first proper bases.
Have patience, preserve your mental and financial capital, and be ready. Stocks can shape up faster than we think.
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Have a great weekend!
Richard
Love that you look at the monthly chart, keeps things in perspective given we’ve had more red months since Jan 2022 (assuming Sept closes red) than April 2020 to Dec 2021!