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The Bulls took an early lead in 2023…but it looks like the bears are about to win the pot again as more cards are flipped. Let’s discuss the recent changes that point to further declines in the stock market (SPY) to come. Even better, 40-year investment veteran Steve Lightmeister shares his plan for trading and his top 9 picks to show you the path to trading profits. Read on for more information.
I have been bearish since May 2022. However, we have to admit that the evidence for early 2023 has made a return to the bull market more likely.
That party is over!
Let’s discuss the growing evidence that bears are poised to come out of hibernation and more downsides to follow. I’m here.
Quite simply, stocks rose on the false assumption of a 2023 start.
This is a sign of easing inflation that could cause the Fed to end its rate hike regime sooner than expected. This soft landing scenario has led more investors to believe that a bottom has already been established and it’s time to bid on stocks for the birth of the next bull market.
The Fed heartily rejected the idea at its Feb. 1 meeting.st meeting. They thought inflation was too sticky, with no plans to raise interest rates and change hawkish course until the end of the year.
The bulls were clearly blowing aerosol paint cans at the time because they resented the erroneous idea that these statements were somehow dovish. The best I can figure out is that Powell wasn’t banging the podium and foaming at his mouth, so he was somehow a dove.
Obviously not true.
Since then, more investors have taken note that the year-to-date rally is premature. Especially since Thursday, the producer price index showed inflation to be much higher than expected.
This event came on the heels of two other events that indicated that inflation was much higher than expected, so we considered it a Strike 3 for the bulls.
Strike 1 is Friday, February 3rdrd When monthly employment reports were too solid. Not only did 517K jobs get added when only 190K were expected. But even more sharp was the strength of wage growth…which is exactly the same sticky inflation that Fed Chairman Powell warned of two days ago.
Related to this event was Powell’s subsequent interview at DC’s Economic Forum. So he was asked what this strong jobs data would mean for Fed policy. He couldn’t have been more clear that it made him even more hawkish.
Specifically, it is likely to force the Fed to do two possible things. The first is to push interest rates higher than the previously expected 5% level. Second, to keep these high interest rates longer than the year-end previously announced. And maybe both!
This put the stock up for sale very instantaneously. But the bulls got another hit from the aerosol can in hopes that his CPI report on 2/14 will be a Valentine’s gift to the bulls. Unfortunately, it’s actually a deadly arrow through the heart, further proof that inflation is too hot.
This sets the stage for last Thursday’s PPI report. As already shared, it was a devastating Strike 3 for the bulls.
The addition of two more Inverse ETFs to our portfolio made that message clear. It was a smart move as the S&P 500 fell -2.9% from Thursday’s open. Luckily, our two Inverse ETFs are even better at +3.3% and +4.9%.
The curiosity at this point is whether the overall market is truly ready to return to bearish territory. Or the current S&P 500 bottom (spy) trading range between 4,000 and 4,200???
If the bears really come back now, the recent extension of selling will break below the 3,942 200-day moving average. This sounds like his FOMO-style warning that many other investors will overturn their misguided bullish thoughts and sell, sell, sell now.
Other notable spots along the way include:
A 20% drop from the all-time high of $3,855 further supports the bear market outlook.
3,491 October Low
3,180 represents a 34% drop from the all-time high, which represents the market’s average drop in a bear market.
Don’t go too far.
The point is that the bulls have some on their chins.
At this stage, we will continue to monitor emerging economic events and see what we can learn about the health of the economy, inflation, and future Fed action.
The more bearish these tilts are…the sooner we can hit some of the lower targets above…and the more on the way down given the portfolio builds for the resumption of the bear market. You can earn a lot of money.
my brand new2023 stock trading plan” cover:
- why 2023 “Jekyll & Hyde” stock year
- How the bear market should revive
- 9 trades to profit right now
- 2 Trades with over 100% upside potential when new bulls appear
Good luck with your investment!
Steve Lightmeister…but everyone calls me Reity (pronounced “Righty”).
CEO, StockNews.com, and Editor, Lightmeister Total Return
SPY shares rose $0.25 (+0.06%) in after-hours trading on Tuesday. Year-to-date, SPY is up 4.36% on him, while the benchmark S&P 500 index gained 10% over the same period.
About the Author: Steve Lightmeister
Steve is better known to StockNews audiences as “Reity”. Not only is he the company’s CEO, he shares 40 years of investment experience. Lightmeister Total Return PortfolioFind out more about Reity’s background, links to our latest articles, and more on stocks here.