We are Standing at Crossroad Again

The expectations continue for rate-hike slowdown is the main driver that moved the market all the way up from its Octobers low. The SPX broke out its 200MA that used to reject the index 2 times previously is a positive sign that the melt up is expected to carry on for the rest of month as the weekly Coppock index keeps improving, while December is historically a strong month for stock.

However, as of December 2^nd, the long-term downward trend remains valid as no follow through to confirm the breakout on December 1^st. although the SPX closed above its 200MA which is around 4046. Soon, the SPX will test another important resistance which failed in August is its 50WMA (around 4134). The movement will clarify if the market wants to go higher by clearing up the barrier while the current atmosphere remains bullish.

On the other hand, the downward earnings revisions will negatively impact stocks if analysts’ forecast is correct, that for the current period (2022 Q4), total S&P 500 earnings are expected to be down -5.5% from the same period last year on +4.3% higher revenues. The expected earnings growth pace is down from +1.7% in early October and +2.5% at the end of August.

The downward earnings revisions may pummel stocks when the earnings come down in January and February. However, once these get priced in, we will not only see a price pull back but an entry opportunity as well.

The market resumed the rally after the pullback in the beginning of the November, Our Long-term investment portfolio gained 10.46%, made its total return to 45.53% since the inception, May 2020 (click for our latest portfolio performance report). Our Dynamic investment portfolio up 4.44% made its total return to 5.11% since May 2020.the crypto got hit significantly by the FTX bankruptcy, as a result, our crypto portfolio which allocates with 50% of BTC and 50% of ETH downed -70%% since March 31st, 2021. Although the market remains bullish at this moment, it doesn’t mean the bear market has ended, especially the breakout has not confirmed yet. Therefore, except holding current cash positions, we customized and utilized our structural investment by adding the new capital into a portfolio that combined two strategies.  One that links with SPX with full principal protection and will make profit between the range of 30% of up and down directions. The downside of this strategy is the investment will only have 16.5% of return for three years once 30% of up and down range get breakout, thus, we added another one that has 1.25X of upside leverage and 30% downside protection to enhance the return, although it’s not full principal protected, but we believe that the chance the market drops below 2900 is extreme low in three years of time horizon( watch our YouTube video ) .

The current rally in stocks will trick us into thinking the bear market is over, while we might not be ready for companies’ margin deterioration but on hopes of the Fed pausing rate hike. In other words, falling inflation is a double-edged sword that not only pivots the Fed but also will weaken profit margin and spells trouble for stocks.