- GRIT
- Posts
- 👉 Hold On To Your Pants..
👉 Hold On To Your Pants..
The markets are flashing red.. and you need to know about it.
⚡️ Introduction
Every Monday evening I host a 45-minute livestream with my Substack Founding Members — during this livestream I like to update everyone (there’s about 25 of you) on what the markets are doing, catalysts for both up and down, and where I think we might be headed.
A good example of the type of content covered is this post below. Charts, ideas, observances, and hypotheses.
However, I really think everyone would benefit from a wide-reaching update like the one I’m about to share below. To learn more about the Bear Market Rally we just experienced, click here.
⚡️ Ask the Experts
Let’s begin the update with a quick Q&A between Katie Stockton and I. Katie is the Chief Investment Officer of Fairlead Funds — and the creator of the (TACK) ETF.
For more information about her ETF — click here.
— Big Takeaways
TACK follows a long-term strategy (momentum trades that lasts 6 months or more) that uses month-end closing data to figure out what it should move in and out of — if anything.
As of August 1st, 2022 — the TACK ETF sits in a combination of five different other ETFs:
SPDR® Portfolio Short Term Treasury ETF (SPTS)
SPDR® Portfolio Long Term Treasury ETF (SPTL)
SPDR® Gold Trust (GLD)
The Energy Sector (XLE)
The Utilities Sector (XLU)
“We’re looking for sectors that are in long-term uptrends, and with the downturn that we’ve seen year-to-date there really are very few of those. In fact, it’s only the energy and utilities sectors.” — Katie Stockton
When asked “What are you keeping your eyes on like a hawk?” Katie replied with “All of the chatter surrounding a recession.”
She went on to explain that obviously any chatter about a recession — if we’re in one, if one’s coming, how long will it last, etc. — is not good for the public markets.
“When you look over history, when we’re in this sort of macro environment that is ‘recessionary’ from some perspectives, it tends to be negative for the S&P 500… we hope the markets will recover before the macro data bottoms, but we think it’s too hopeful to suggest that happens before year end.
We think this bear market cycle will last some time into early next year. This is a longer-term issue, not just a corrective phase. We believe this bear market cycle will have another down draft, another relief rally like we just experienced, and perhaps another down draft after that until it fully culminates into some sort of proper basing phase.” — Katie Stockton
⚡️ What are the Bond Markets Telling Us?
Remember, bonds are supposed to act as a “risk off” way of investing. When people move into bonds, they’re looking to park their money into stability — predictable coupon payments and relatively stable pricing.
As the price of bonds moves lower, it shows decreased purchasing demand (people moving out of bonds and into stocks) — as it moves higher, it shows increased purchasing demand (people moving out of stocks and back into bonds).
It’s obvious as to why on June 13 the price of bonds skyrocketed — the markets were in a free fall and everyone was trying to move to safety.
Despite the bear market rally recently peaking on August 16th, demand for bonds began increasing around August 1st, and is now continually moving higher. This clearly shows weakness in the equities markets as people (usually smart money) move more and more into bonds in anticipation for a down draft.
⚡️ Moving Averages
I’m in no way, shape, or form a technical analysis expert — I leave that to people like Katie. However, the 200-day moving average has been a great historical indicator of price action.
Below is an image from this post.
Using moving averages as a way to predict and interpret price action isn’t perfect — I’ll be the first to admit that. However, as you can see above it has always acted as sort of this “support” or “resistance” for the price.
We’ve been (generally) trading below this 200-day moving average since the bear market started — and unfortunately the bear market rally we just experienced wasn’t enough to push prices back above the moving average.
Could it make a move and push higher?
Sure! Everyone is keeping their eye on that, including myself.
⚡️ The September Effect
Worth mentioning — September is usually a rough month for the stock market. I’m not at all saying past performance is indicative of future returns. But it’s important to understand and reflect upon history.
Since 1950, the DJIA has averaged a decline of -0.8% and the SPY has averaged a decline of -0.5% during the month of September.
This market anomaly is exactly that — an anomaly. There’s no rhyme or reason as to why it happens, and it’s not just the U.S. markets that experience this. Some analysts believe it happens because portfolio managers are cashing in on summer profits. Others believe it happens because mutual funds cash out for tax loss harvesting.
Regardless if you believe in market superstitions, you’ve been made aware.
Regardless of what the market does, it’s our focus to identify, analyze, and present interesting opportunities to you all along the way.
If you’re more of a passive investor, you’d love this post.
Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
Reply