Buils vs Bears - Which side are you on?

This year has definitely been defined by the bears. After a rather long time hibernating, theycame out in full force to wreak havoc on a stock market that in actual fairness has been lulled into complacency by a very accomodating 'Don't fight the Feds' Fed as well as the youthful carefree exuberance of many investors who were probably only teenagers the last time the bears were romping in full force more than ten years ago. 

However, it is only at times like these when the tough gets going and you get your badges per se. Times like these with the volatilities thatcan induce nausea even in the most sturdied minded will test the mettle and really separatethe wheat from the chaff. And in times like these only will many realise the importance of removing emotions from your trades. Always do your research and due diligence, keep abreastof updates and adjust when necessary. Do notget entrenched into a particular sentiment or market noise. Markets often turn well ahead of all the noise.

The noise and flavour of the month and year is of course inflation. That as well as the rate hikes that comes with it has been pressurising stocks and compressing value across the board. Truth be told, there is some sense to that. Inflation eats into spending which reduces earnings. The wheel goes round and round. But inflation is not new. It has been around since ages ago and textbooks have been written aboutit as well as the different strategies to combatit. Fantastic well run companies are usually ledby the best of minds who are trained to see opportunities in circumstances and grasp them.Yes, they might also get affected by all the selling but when the tide turns, these companies will surge ahead. That is why it is so importantto choose the correct ones. 

Why am I saying all these? It is just a gentle reminder to look at things from a bigger perspective. The bigger perspective seems to show that dollar index has peaked, bonds have bottomed, some indexes such as the Canadian index which tends to lead the US one has broken above the downtrend line. Many other indexessuch as the Australian index are in the midst of that too. The markets are global and interconnected and when they move, they move together. Some move faster and that is why divergences are seen especially in a bottoming or toping process. 

Technically, the US broad market index might still face resistance at the long term downtrend line, needs to overcome that and stay abovethat to increase the probability that the bottom is in. Price action at those levels are crucialand will go a long way to pre empt if this is another bear market rally or a new bull.

The risk is a black swan event and that possibility has increased with all the rate hikes. That may trigger a new wave down. However, the higher probability in my point of view after looking at the global markets and how they relate to each other, is a possible retreat from these levels at 4000-4100 to possibly around the 3700 based on chart analysis and if those levels hold, expect a rally into the year end and beyond which will awe many observers. 

However at this point of time, I believe the rally has gotten a bit too hot. It might extend a bit more but it looks likely to retreat in the near term. That will be a better price point in my opinion so be cautious at these levels.

Thanks for reading! 😊