I’ll be the first to admit, we are not always right.
The other week, I wrote that it was the perfect time to turn bearish.
Stocks have slid lower since then, but I could still be wrong.
But it hasn’t stopped me from staying bearish in June as we look for more opportunities to the downside.
And if you are having trouble giving up to the optimistic side of things, that’s okay.
You can still be bullish overall but add a few bearish trades along the way.
It’s the only proper way to navigate the latest rally.
So if you are stuck being bearish, despite the latest market rally, you are in good company.
Here’s why…
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The market has been all about trends.
2022 was clearly defined as a downward trend in the S&P 500.
2023 broke that downtrend and, for the past 10 months, the market has been trending higher.
Based on the price chart of the S&P 500, we just hit a short-term top.
Take a look:
That red resistance level has defined this uptrend, and the S&P 500 just hit it, and pulled back.
The support, in dark green, is well off that level, signaling plenty of room for the overall market to drop.
Keep in mind, it could take this plunge and still be considered bullish overall, because it is hanging onto its key support in green.
I left the previous price channel from 2022 in there as well, in orange and light green. That lasted for about a year, then finally broke out of it.
We are at the perfect time for a pullback to begin and have us breakout of the 2023s’ channel after about a year as well.
So the timing matches up, but so does the broader context with regards to who is betting against the market.
You know the saying, don’t fight the Fed. Well, if you are bearish, you have some good company.
Don’t Fight the Fed
The Fed has not pivoted with interest rates just yet.
So, for now, they continue to have one thing in mind – to stop inflation.
In turn, this is set to slow the economy due to higher interest rates.
It’s basic Fed policy. They increase interest rates to tighten the economy and slow things down.
They have pushed rates past 5% and we still haven’t imploded.
This will make some claim that the worries over the Fed were not justified, that this time is different, and that the Fed has it all under control.
I can’t emphasize enough how wrong those statements are.
A brief, few months rally, is not something to get excited about.
Instead, think of it as your last chance to dump your bullish positions before the bottom falls out.
Because right now, the Fed is still tightening and that is set to crash the market.
It has each time in modern history, so the odds are that it will happen once again.
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE