We're now 8 weeks from the December, 2021 market top and into an extended correction that has resulted in major downside for the US equity markets that has seen the S&P 500 down 14% and the Nasdaq down as much as 22%.
In our last update we mentioned that cryptocurrencies had offered fierce bounce back rallies, but equities were struggling to bounce and hold. The question was which one was leading and which was lagging.
As it turned out, equities were leading risk assets lower, and the pain points we mentioned wound up being strong signals in advance of the market declines that followed:
- Credit showing signs of stress
- Bonds unable to find a bid
- Inflation breakout
- Continued pressure from the yield curve
- No overall improvement in breadth
As a result, we offered the following advice:
"Our advice to members is simple...the market is indecisive and choppy at best. Therefore, there's no reason to be an active participant until things clear and we have a verified bottom signal, or another moment from which to short."
This proved to be timely, as the market not only sagged under the weight of the above mentioned pressures, but tensions in Eastern Europe between Ukraine and Russia resulted in a massive bout of selling that left many stocks gapped below support and indices down 3-5% across the board as the opening bell rang.
Fortunately, our indicators and analysis offered plenty of positive signs going into last week, and we were able to offer insight, to include live bottom calls, that kept our members safe and then allowed them to buy the bottom last Thursday.
So what happened next? The market recovered 100% of its Thursday open downside and then some, closing into Wednesday's range. Friday followed up with even more upside, closing above the prior Friday's opening price and halfway through last week's range.
Where does this leave us for next week?
Well, with war drums beating in Europe and a potential SWIFT sanctions against Russia, there is plenty of fear for the market to harness into a reversal, but our indicators and analysis suggest that downside might be minimal, though some chop is likely as we close out the month and head into March, where the bigger risk of Fed rate hikes via FOMC await.
For now, we dip our toes in slowly, and ride the wave higher as long as it allows us. It's also a great time to rotate out of cyclicals and begin buying tech names that are down 40-80%, and some of the leaders offering 10-20% discounts.
Last but not least, if you think our analysis can help you save money and make better investment decisions, then consider joining CakeTrades Pro, which includes access to our private Twitter feed, private Discord, and timely trade alerts.