How many of you think we are in a recession currently?
When I asked this morning a lot of you were saying you think it is still down the line. “We are just in a bear market” you said.
The reason so many people are saying we are just in a bear market, not a recession, is because of the way the data is being perceived. The Atlanta Fed is predicting that July 1 will mark the beginning of a recession.
That’s interesting to me, not the idea of us being in a recession, rather the specificity of the date.
You see analysts and the Fed alike are watching this market play out based off data that comes out once a month. I don’t know about you but I don’t plan my day by looking at an annual calendar.
We are watching the markets unwind constantly and we are seeing that data come in one a second by second basis. We see what is happening, many times, before it plays out because we know whats going on around us.
Although this is much more time consuming it allows us to get a clearer picture of the current conditions that will affect our bottom line. By the time the Fed is willing to mark their seal of approval saying we are officially in a recession, it will be half way over. Your portfolio would have already taken a beating greater than Muhammad Ali could have doled out. Inflation will have run rampant on your pocket books. Companies will have crumbled beneath the heavy hand of the market. Without the ability to zoom in and have a proper expectation for how to position yourself in the market your journey as a trader could be over before you even get the ball really rolling.
How can you avoid this when you don’t have control over what the headlines are saying?
All jokes aside, there is an actual solution to the problem at hand.
When they say don’t put all your eggs in one basket they never said don’t use a basket.
Let ETF’s be your basket. We love looking at different sectors of the market as a whole! There are many reasons this is pivotal in your trading success!
First, it allows us to reduce the headline risk.
Headlines and trading with emotion has been the bane of new and seasoned investors alike since the dawn of the markets. By trading the sector this positions us in such a way that you don’t have to be worried your favorite companies CEO tweeting something that investors don’t like. You don’t have to stress over one company’s earnings that came in low because of poor management. None of that affects you anymore because a gap that one company leaves in your basket of stocks another will fill.
Secondly, we can slow down the market.
In the current times everything moves so fast. You can have an item you need on your door step in two days thanks to Amazon. You can get delivery from your favorite restaurant in minutes without even leaving your couch. You can get a message to somebody one the other side of the world in seconds.
Much of the same comes from the market. Millionaires can are made overnight and retirement nest eggs can be scrambled in a day.
We would all love to be the overnight success story but, naturally, those are few and far between. So let’s take what we have control over. Take the luck and emotion out of the equation, and approach the markets from a safe zone.
I also wanted to take a second to touch on the low volume we saw yesterday.
Volume is truly the life blood of any rally or, because of the day we saw yesterday, any pull back.
Let’s take QQQ as an example.
You can see several instances that are on this chart where volume was at 80% or less of its average at this point the large institutions can influence the markets by buying large quantities of shares and we see a brief spike to the upside.
Historically, while light volume can certainly give you one day up, it tends to give you a period where the markets will continue to float down. There is nothing to really catch the market during its fall in these situations. This is one factor that causes the dead cat bounce that people have been so interested in lately.
This is where another indicator that we talk about becomes the star of the show, the 20 day moving average! With the buy the dippers of the world still out there and acting in full swing they may see this spike upward and think we hit the floor….
They are wrong on this one.
We look at the 20 day and see the trend downward. Then we notice the volume was low recently and we know exactly what happened.
We won’t be fooled by the markets again!
I hope that the information here is starting to help you connect the dots. As a matter of fact, some of you have even told me how much ive been of benefit to you. Don’t take my word for it see for yourself.
This is why I do these letters. I love getting to spend time with my subscribers both free and paid. Unfortunetly, for you, we only have so much time we can spend working together before the people upstairs put up a paywall. If you find what ive been giving you as valuable as the people above do, Feel free to click here to check out my latest offer to get more of my time and information.
See you all tomorrow,
Quantitative Specialist, Penny Hawk
June 22 2022