February 02, 2023

Key Takeaway

The fear on Wall Street has very quickly turned into FOMO (fear of missing out) this week. The market has finally broken its year-long down trend. There was a quick 1-day test of support, and then shot to the moon.  The positions most damaged last year are the ones flying off the bottom this year.  Just two weeks ago, there were many stocks we would not touch with a 10-foot pole (think Peloton) that are in uptrends, dramatically over-bought and now due for a pull-back.  Probably a lot of short-covering, which will work its way off soon.  We've been adding money in, and although the market could continue to run a bit longer, it's becoming overbought, so some caution and patience is well advised at this point.  If the market is truly breaking out (higher highs, higher lows), you must jump back in; however, dollar cost averaging and dip-buying are probably the best methods of doing so, especially as we draw closer to the upper red resistance line (see below).  I personally feel that the solid blue downtrend line was too strong and well respected, and therefore most likely will get a proper re-test as support at some point soon, which would provide a great entry point if it can hold that line as support. 

At the end of the day, no one (yes, no one) knows where this market will be in a year from now, but many are beginning to believe that if the Fed halts their rate increases, it could be much higher.  I think it certainly could, but not without some hefty and scary swings in the meantime.  We still have a huge yield curve inversion, rising corporate layoffs and a probable recession to work through, but for now, let's enjoy the party.  We intend to play the swings as new trends develop. As of now, the red-dotted lines below represent our best guess of what the new short/medium trend will be.  The S&P could struggle around 4200 & 4300 as represented by green-dotted lines.

Schedule a meeting to see how we can help you reach your financial goals.