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Market Updates

Another Bear Market Rally Or Will This Time Be Different?

Calvin Lo

Here we are again. S&P 500 index again went up against 200 day MA resistance, and was rejected. Is this just another bear market rally and we’re heading back down yet again, or can the trend reverse quickly and break out of this downward channel this time?

Source: TradingView

This time, the rally was fuelled by slowing CPI in October and Fed turning slightly less hawkish. The world has opened up for some time now post-pandemic (except China), but supply chain issues are still not yet fully resolved. People are getting out more though, with revenge travel out in full force. Flight tickets are going through the roof (if only my stocks were too).

Source: BLS.gov

Let’s look at some market indicators I follow.

Market Indicators

The widely followed CNN’s Fear & Greed Index is flashing Greed for the past month. Extreme Greed is where I typically would want to be cautious.

Source: CNN

The CBOE Volatility Index or VIX for short is ~20 points level, which seems to be close to its lows the past year. Typically, the VIX moves inversely to stock prices.

Source: CBOE

U.S. 10Y-2Y Treasury yields (or yield curve) has been inverted since July and is now at -0.83. From the chart from FRED, U.S. recessions have followed every time the yield curve inverts.

Source: FRED

Besides these 2 indicators on top of the price chart MA, MACD and RSI, I also follow Puru Saxena on Twitter who shares a ton of useful economic indicators. As usual, any opinions of advice by anyone on social media should be taken with a huge pinch of salt and always do your own homework.

Focused on the Long Term

Despite the market indicators showing a potential reversal to the downside at least in the short term, I try to keep my mind focused on the long term. Here are some charts that help me do just that.

Although this bear market is painful and feels like forever, historical data shows that bull markets far outlast bear markets.

Read: Stay Invested or Sell in a Bear Market?

Source: Invesco / Bloomberg

Total super long term real returns for various assets in ‘Stocks for the Long Run’ by Jeremy Siegel.

Read: 3 Reasons You Should Invest In Stocks

Source: Traders Insight by Interactive Brokers (credit Jeremy Siegel)

S&P 500 historical chart (log scale; recessions in shaded grey). Not all recessions brings more stock price declines. Data from MacroTrends.

Source: MacroTrends

My Thoughts – Another Bear Market Rally

Many including myself think that a recession is coming, based on the fact that recessions have followed shortly after every yield curve inversion so far in history. But, this time could be different right?

I try to plan my investments based on the higher probability scenario and less on the best case scenario (although sometime I do smoke that hopium).

Personally, I think valuations are slightly undervalued for long term quality buys but I’m expecting a short term pullback and continued downtrend, at least until we get clarity on whether the U.S. goes into recession or not.

I’ve just added to my short term hedge in ProShares UltraPro Short QQQ ETF (SQQQ) and to long term holdings Palantir (PLTR) in Personal Portfolio and CSOP iEdge S-REIT Leaders Index ETF (SGX:SRT/SRU) for the Family Portfolio.

PLTR is a speculative super long term buy. SRT is a new position but one for accumulation at pretty good yields, in addition to Syfe REIT+. SQQQ is just a short term hedge, with a view to sell if we see a lot more downside or if we finally break out of this downward channel.

Just sharing some quick unpolished thoughts. Thanks for reading. Good luck with your investments!

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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