Banks, Bears, and Bottoms

There’s been a lot of distress about the stock market over the last week. A quick search of the CNN Fear & Greed Index as well as of financial YouTube shows how bearish everyone has gotten.

It makes sense that people are fearful given the Silicon Valley Bank news. Moreover, the once mighty Silvergate has been utterly decimated and now trades close to $2 a share. XLF has been hit hard, and videos of 2008 are popping up all over the news.

But what are the charts of the major indexes showing? It is interesting to note that the S&P 500, NASDAQ, and Russell 2000 have still not taken out their prior lows. The failure of these indexes to make a new low despite all the bearish news is constructive. It indicates most of the bad news may have already been factored in. When we look at a weekly chart of the S&P 500, we can see that it appears to be forming a base with the right side currently being developed. The weekly chart also shows support at the 200-week moving as well as a bullish long-term MACD signal. Bitcoin and Ethereum have also both made higher lows and have shown strong action this week.

While these are all constructive signs, individual stocks have not displayed the type of strength I’d like to see. So far, my sense is that this rally has been dominated by former leaders like NFLX, GOOGL, and AMZN. Remember, there is a big difference between a bottom and a hot market. Even if the bottom is already in (link to fall 2022 post), it's hard to make significant money if the market is not hot. While I still own SPY, IWM, and QQQ in my long-term accounts and Bitcoin and Ether in my crypto accounts, I’m currently 100% in cash in my swing trading account. I’ve done some light trading over the last few months but haven’t seen many positive gains. From my experience, it is best to wait for the “hot” markets before getting aggressive. The market may need some time to build out the right sides of bases as all eyes continue to be on the FED.

All of these leads to two conclusions. First, be open-minded. Rather than blindly listening to the news, remember the market always has the final say, and the reaction to the news may be different than initially expected. In addition, every bear market always ends the same way: with a new bull market. At some point, the market will offer an enormous opportunity. The key is to be prepared when it comes.

Risk right. Sit tight.

Full Disclosure: I currently own Bitcoin, SPY, IWM, QQQ, and Ethereum.

To learn more about swing trading strategies, stock market trading, and how to trade cryptocurrencies, visit my course page.

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