I wish I could say things will be different this year, that we can watch all the stocks go to the sky and everything will be back to the way it was, but no. You still need to get and stay short until this market bottoms. It won’t do that until people give up, so why not be among the early quitters and save more of that hard earned money?
The current downturn is getting long in the tooth (RSI of the Nasdaq 100 is down to 37 after a ~12% decline from the recent peak. However, the VIX is still hovering around 22, far too low to indicate any fear or capitulation. People are complacent and watching their stocks drive progressively lower, not doing anything about it (i.e., hedge). It’s kind of sad.
My girl Katie talks here about an expected “Volatility Event”, which I have also been waiting for. Even Dan Ives, perpetual Apple bull, worries about a Category 5 Storm wreaking further havoc on stocks. Only Tom Lee will tell you to keep buying. Please don’t listen to him. Remember, don’t fight the Fed. There has been no indication of any economic downturn; the jobs data continues to come in hot. Let’s face it – the economy is actually doing fantastic in light of the interest rate hikes to over 4% (from 0ish). Today’s jobs report will confirm that and there will likely be some reckoning in the markets.
Why is a good economy currently bad for stocks? Because this is telling the Fed they can continue their dramatic rate-hike increases, putting further strain on all the debtholders out there. Don’t take it from me, listen to Morgan Stanley.
2023 Progression
For 2023, I see a sad progression of events:
- Consumers have overspent in 2022, pushing credit card balances to record levels. Given the higher rates we are all paying on our cards, this will crimp spending significantly in 2023.
- Companies will begin paring back fixed costs (i.e., layoffs will begin)
- Profitability will take a significant beating given higher debt service and lower consumer spending
The markets still don’t reflect a significant earnings decline. Check out tech stocks I recommended selling just two weeks ago: Beautiful Opportunity to Get Short – The Philosophical Trader. Apple and Microsoft have been crushed since then, and nearly all of these are down significantly. Stay the course, stay short, get out of Tech and wait for the RSI to get down below 30 and the VIX around 35. I am getting ready for the next bear market rally.
Happy New Year and Happy Trading!