The stock market (SPY) is getting more complicated by the day. Bulls are making good business given the recent rally. But so are the bears, given the clear weakness in the economy pointing to a recession. Who’s right? And how best to trade the market in the coming weeks and months? 40-year investment veteran Steve Reitmeister shares his balanced views in this fresh commentary below….
Why are so many investment experts still calling for a bear market?
And just as interesting…why are so many equally talented investors saying the new bull market is already here?
Because investing is an imprecise science, some rely on economic data…while others prefer to read the charts…or the expression on Powell’s face…or astrological signs or…(fill in the blank with the craziest whatever you can think of).
So what is an investor to do when there are so many well-informed opinions reaching such conflicting conclusions?
That will be the focus of this week’s commentary.
I believe the best way to tell this story is from a very personal place. That’s where I have a degree in economics and most definitely diagnose the market from a fundamental point of view.
Early in my career I used to laugh at chartist for playing the market like a video game instead of taking it more seriously with the basics. Still, that was rather silly on my part, as I’ve come to respect many of the leading chartists like Kevin Matras of Zacks and JC Parets of AllStarCharts.com immensely. Their keen insights into the direction of the market simply cannot be denied.
Now let’s move the conversation to Wednesday’s Fed meeting. I was bearish beforehand…as are most market commentators right now. And I got even more bearish after the announcement. Amazingly, others saw it differently as stocks were up 3% from the time of the speech to the end of Thursday.
I went Wednesday night angry, confused, down, perplexed and downright stunned.
But then something hit me in the wee hours and I couldn’t get back to sleep. This led to the next trade alert I sent out Reitmeister Total Return members on Thursday morning.
I’ve edited it for our talk today and will follow it up with some additional comments.
[Trade Alert] Less stubborn Steve
As you probably gathered from last night’s commentary, I cannot look at Chairman Powell’s speech yesterday without being decidedly bearish. Maintaining aggressive policies through the end of the year + 12 months of delayed securities + very weak economic data right now = plenty of room to create a recession with job losses and lower stock prices in the coming months.
On the other hand, I want to share with you this conversation from a month ago that haunted me all night and led to this morning’s email. I have been asked to answer the following question:
What lesson did you learn in 2022 and take with you into 2023?
To which I replied: “In May, I finally turned bearish as the market moved closer to 4,100. Earlier than most… but later than necessary if I focused on the clear break below the 200-day moving average in April around 4,500. Recognizing that proven signal would have improved my results and will heed that warning in the future.”
The only way to rectify these 2 opposing positions is to find a middle ground. To become less bearish in our portfolio to take more advantage if the bulls are correct with their recent rally above the all-important 200-day moving average.
Just as important is not to get so bullish as to pull the rug from us at some future date when the economy could flip into recession and stock prices fall again. The solution is to execute the following trades that take us to 36% long in the stock market from the formerly 0% long bearish hedge.
(tradetickers reserved for Reitmeister Total Return members)
…I could have accomplished the task with many different combinations of professions. So don’t think about that for too long. If you see another path to get to the same destination, take it. The key is that we are no longer completely bearish. We are now a shade bullish.
As the wisdom of the bull rally deepens, we will continue to ramp up our bullishness in the portfolio. Usually with stocks with the best POWR ratings. Whereas, if we break below the 200-day moving average again, we will get back into our defensive bearish hedge by selling (asset risk) and adding suitable inverted ETFs.
I can definitely be a stubborn person with strong beliefs. And it would be easy for me to remain bearish given the economic facts as I perceive them.
However, I am also open-minded enough to realize when I am being hypocritical and going against sound logic. (such as ignoring the time-tested benefits of pimples with a 200-day rolling average). Therefore, this is the prudent move that gives us enough flexibility to change in the future.
Heck, if the bear market started in earnest again this afternoon… then at only 36% long, we’d be losing a lot less money than most. And when we crossed the 200-day moving average, if we went back to our bearish hedge, we would make a profit as the market fell lower. That’s not too bad for a “worst case” scenario.
If the wisdom of the public that created this rally is indeed correct, then we’ll be glad we joined the upside at this stage rather than much later.
Finally, I want to share this valuable lesson.
The investment world is rarely straightforward. That’s why there are so many incredibly intelligent players with well-reasoned views that are 180 degrees opposed to each other. Therefore, in the most confusing moments, it is often prudent to strike a balance, as we do today.
It is better to be partially right than 100% wrong!
As time passes and clarity emerges, it becomes easier to shift to the most sensible course of action. For now, we will bridge the bullish and bearish camps by executing the 3 trades above. No doubt more transactions will follow.
Let’s stay nimble with our thoughts and quick with our actions.”
(End of 2/2/23 Reitmeister Total Return Trading Alert)
Back to the top…there are many good opinions from a large number of seasoned investors. In the end, some will be right and others will be wrong.
Your challenge is to determine what to do next.
If you’re like me… and realize there’s a competing sound logic, then you don’t have to make a binary, yes/no decision. You can find a nuanced approach that strikes the right balance.
Just remember that you are not married to whichever approach you choose. That’s because your investment strategy should always be evolving.
Not just about being bullish versus bearish. But also when you consider whether it’s time for…
growth versus value
large caps vs. small caps
which sectors are hot versus which are not
I looked in the mirror and made an appropriate change to my strategy. Time you do the same.
What to do now?
Check out my brand new presentation: “Stock trading plan for 2023” that lets you see the full bull vs. bear case to create the right trading strategy. It covers essential topics such as…
- Why 2023 a “Jekyll & Hyde” year for shares
- How the bear market could retaliate
- 9 trades to make a profit now
- 2 Trades with 100%+ upside potential as new bull emerges
- And much more!
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares closed Friday at $412.35, down $4.43 (-1.06%). Year-to-date, SPY has gained 7.82% versus a percentage increase of the benchmark S&P 500 index over the same period.
About the author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the company, but he also shares his 40 years of investing experience in the Reitmeister Total Return Portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.