V-Bottoms: No One Get’s In, Bears left Behind

This is going to be a short video. Its title, V-bottoms in stocks, no one gets in. I am confessing that I waited until Monday afternoon to write this one as I wanted to see if there was a weekend China trade deal, and if President Trumps 3^rd call over the last 4 weeks to buy stocks would prove as good as the first two.

Of course we now know, over the weekend there was a big reduction in tariffs to and from China and what looks like a big walk back of verbal hostilities between the two countries.  And on Monday, stocks exploded higher led by higher growth technology stocks and semiconductors up 4.35% to almost 10% in many semi equipment company names. The S&P 500 gained over +3.25% and the laggard was the slower growth more value biased Dow Jones 30.

As we had postulated for weeks in our videos, looking back April 7^th “was “The Low” for the overall S&P500 index and USA stocks much to the dismay of those calling for crashes, retests of the lows, trading ranges lower, or worse yet those blown out on margin at the lows, or investors who panicked and went to cash late in the move down.

As we discussed for our prior three videos, ex a few periods like the GFC in 2007-08 and the popping of the speculative Dot.com bubble frenzy in 2000-01, which did proceed longer and deep recessions. History says enough damage had been done and many hedge funds got zero out on the lows and many retail investors have been buying the correction.

The Zweig Breadth thrust on April 24^th, created the first of what many chartists call a bullish “Island Reversal” pattern. And the tariff “deal over the weekend created a second island reversal higher leaving those longing for lower prices to get back in desperate to buy or cover their shorts.

On Monday the 12^th, we blew right back through the 200-day MVA which many had predicted would stop us. History, being on the side of the bulls, said calls for a retest will be wrong.  We’ve given you the data on Zweig Breadth thrusts, investors sentiment data, and vix spikes and retracements in the last 3 weeks.

One can rationalize why markets have V-bottomed since early April on walking back of tariff extremism, better jobs, and wage inflation data, but viewers who know me know I like real time market data.  The bond market data since early April was saying real growth was “ok” and inflation peaked early in April, not the stagflationary doom biased call many have suggested.

Innvestors, like it or not, this is what goldilocks for stocks look slike in the bond market.  The components inside the Treasury market were saying, its better to buy growth stocks,than hiding in “boring, stable names”. And boom, a news story hits that corraborates what the real time market has been saying if you were watching closely.

I’ll leave you with an update on how the charts look vs a similar peroid that was mid Dot/com not peak Dot.com.  I feel compelled to keep showing this because Charles and I listened to dozens of technology confernce calls the last 3 weeks that were positive of the continued AI buildout growth for the next 12-18 months and most the stories I read in financial meadia are of the pending AI collapse which isnt happening yet. Secondly, I havent been able to find anyone who believes this analogy or will spend any time researching it.

Remember, the late 3qrter 1998 LTCM hedge fund blowup period, which was mid Dot.com buildout that we’ve previously referenced when the S&P 500 dropped over -21%, tech tanked, semiconductors dropped, the dollar fell -10% was also one of these “death cross” periods.

Here’s the overlays of the SP500 and the very cyclical SOX/Semiconductor index back then and now.  It will be fun to see how this plays out the next 9-15 months.

Investors have rarely been this fearful and sentiment this negative, and historically when it’s been at these levels, you’ve been better off buying, particularly as we previously mentioned growth stocks, and walking away for 12-18 months than selling.  I titled this video, V-bottoms, no one gets in, because historically speaking, if you didn’t buy the first 10 days after The Low on April 7/8^th you missed your best chance during the selloff.

The market has behaved almost exactly as it has the last 15 years during event induced selloffs that reached bear market levels without the likely hood of an earnings or economic recession like we got in 2022.  What’s that? We spent EXACTLY 2 months to the day, breaking the 200-day MVA and then regaining it.  Count the days. Then go back to our previous comparison in late 1998 with the LTCM October 1998 blowup event and count the days?  2 months to the day.  While it would be normal to digest these gains next week and pull back in a minor way, I would not expect large % declines, hoping to buy lower in the 2q.  Historically, these moves lead to frustratingly bullish, lurch and grinds higher for about 3 months before the market finally sees significant sellers emerge.

Investors you most likely won’t see those low levels of April again for quite some time if at all this year.  Many institutions got too bearish near the early April lows and “de-risked” and are already way behind the performance curve in the 2^nd quarter.  Does that mean you shouldn’t add to stocks?  No, rarely can you pick the absolute level in both price and time, particularly in growth stocks.

Here’s some great data on the XLK technology ETF returns over forward periods when momentum turns in its favor.  It says that the tide has finally turned positive for technology growth stocks.

Regardless of the path for the economy and financial markets in the next few months, the investment team at OHFG will be here manning the ship and adjusting our models and long/short, hedged equity fund where we can.

Until next week, have a blessed weekend and know that the OHFG team is doing what we can to plan for you and your family’s future regardless of what stage you are at in your career or retirement.

Do you need a retirement plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at 877-896-0040 or fill out this form for a free consultation: https://click2retire.com/Connect