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Market Updates

Markets Had A Good Week But Will This Just Be A Dead Cat Bounce?

Calvin Lo

What a powerful end to the week! Markets closed last Friday strongly in the green. S&P 500 and Nasdaq composite were up 6.7% and 9.0% over the past 5 trading days. Markets appear to be turning slightly more optimistic on falling energy prices, maybe as an indication that oil prices and therefore inflation might have peaked.

Last Friday 24 June 2022 performance

Personally, I’m don’t share that optimism though. Yes inflation might’ve peaked with many commodities especially oil correcting slightly. However, I’m not convinced that inflation won’t continue to stay high and that the Fed can engineer a soft landing, which even Fed chair J.Powell admitted would be challenging.

I think globally many countries even the US will eventually fall into recession. The question in my mind is how deep and how long will this recession be?

Hopefully we see better inflation numbers, continued strength in employment numbers, and solid earnings from corporates in coming months. Otherwise, in the current climate I think the tendency is still towards the downside.

On the S&P 500 (SPX) chart below, I’m looking for a break above the upper bound red line ~4,000 level for this rally to even start to convince me it has legs. Even then, that 200 day MA ~4,400 will be tough to break through. Until then, I’m still bearish. If this rally crashes against that resistance level, I’m thinking there’s a lot more downside possibly down to 3,400 (pre-pandemic high) or even 3,200 level.

Personally, my money is on a dead cat bounce. Although I’m bearish, I still think prices are attractive for long term holdings (think 10-20 years). That said, I’m definitely not intending to plow in substantial amounts of cash just yet.

For the Family Portfolio, I’m still planning to deploy some cash in the next 2 weeks, partly also because I’m sitting on an uncomfortably high cash position at 27% (I usually try to keep it around 15% or less). If stocks continue upwards next week though, I might reduce my purchase amounts. I’m looking at the usual VT and QQQ. I’m not convinced yet to add to my individual stocks just yet but some do look enticing and seem to be forming a base.

For the Personal Portfolio, I’m looking to possible add SQQQ and/or SARK as downside insurance and sell covered calls on Palantir (PLTR) after the recent run up. I’ll still be sitting on 40+% cash waiting for lower prices, since this account is intended more for short-term trades.

Check out my portfolio here.

What are your trading plans for next week? Do you think this rally is real or just a dead cat bounce?

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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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