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Fear is Rising!

Fear is Rising!

May 18, 2022

Key Takeaway

The S&P 500 has flirted with near Bear Market levels while experiencing very high levels of volatility so far this year. Based on the Put/Call ratio which helps us to measure various levels of fear and greed, I'm not convinced yet that we've put in a bottom to this pull down. We've continued to raise and sit on very hefty cash positions across our various portfolio sleeves. We've recently begun to buy back into the market at very modest levels and will continue to do so, in order to take advantage of this opportunity when good companies go on "sale".  We will however not go "all in" until we get solid signals that the storm has indeed passed. Below is the Put/Call ratio chart which indicates that we have not yet experienced selling capitulation or "throwing in the towel" that is associated with most market bottoms. Keep in mind that technical analysis cannot read the future (unfortunately!), but does provide good insight as to current conditions relative to previous conditions. So we do not know how low the market will go or when it will bottom; however, once it hits oversold readings and begins to change character, will mark the time for us to fully redeploy capital - or "put our cash back to work". 

Market Pros:

  • Good companies are on sale - but the sale may not be over!
  • The market is set up for a bounce - will it be a "dead cat bounce" or a bear market bounce, or have staying power?  TBD

Market Cons:

  • The market is clearly in a downtrend - lower highs / lower lows
  • Technical Indicators suggest more downside risk is likely
  • Buyers of the dip are out to lunch! 

    CBOE Options Equity Put/Call Ratio Chart

Source: Cannon Advisors, data StockCharts