Is economy headed to a recession? We don’t know. Jay Powell and his top economists don’t know it either. That’s why the market moved like crazy as of SPX upped 3% after the Fed’s interest rate hike and then fell 3.12% next day. Predict the market trend is unrealistic, but the current support which is around 4062 (SPX) have been tested and resulted in two long legged Dojis patterns (Chart 1). It is too early to talk about temporary bottom at this moment, especially the first Doji was eaten by an aggressive engulfing bearish pattern on May 5 and, the second Doji which showed on May 6 critically need a following bullish engulfing pattern to valid a technical rebound as the market has been over sold for a while.
On the other hand, Investors flocked to the inverse leveraged ETFs to bet on declines and to hedge everything from tech stocks to small caps. In which retail traders have been a key driver of activities. That could be explained by recent flat trading volume during these aggressive price moves. however, the inverse ETF growing volume not only shows that traders have rushed to hedge their portfolios or speculate on further downside, but also suggests that sentiment has been over bearish, which normally corrects with at least a short-term rally.
It will be interesting to know if these inverses leveraged ETF traders are the same groups who traded meme stocks previously.
SPX posted its worst monthly performance since March 2020. our Long-term investment portfolio dropped 22.22% for the April and shrunk its total return to 49.27% since the inception of May 2020 (click for our latest portfolio performance report). Along with our Dynamic investment portfolio that dropped 21.23% with an 8.67% of total return since May 2020. additionally, our crypto portfolio which allocates with 50% of BTC and 50% of ETH got a -15.69% of total return since the launched date (03/31/2021). Different from these portfolios, the loss/gain for the structured notes portfolio is based on current market value of its underlining assets. The actual notes’ return will be reflected by its underlying assets’ value on its maturity date, since the most of notes in this portfolio mature in 3-5 years as well as each of those come with different terms (duration, buffer/barriers, and the final value of underlining assets), the market volatilities would have less impacts on its actual return until the last day. For instance, we allocated a structing investment that links to SPX with 40% downside protection and 1.25X upside leverage could be working well in this tough condition by hedging volatilities meanwhile maximize its return when rallies occur.
The market has been oversold with 49% of Nasdaq constituents more than 50% below their 52-week highs, and 58% of the Nasdaq more than 37.3% down, however, the sentiment indicators, such as the VIX and Fear & Greed Index have not turned to extreme level yet, thus, we should keep an eye on the key support which has been recently tested around 4062 seemingly will illustrate where the market will move to.
Sen Zhang
Managing Partner
Corrigit Capital Group