The intra-week volatility pattern was different this week – a large down day to start the week, a small rally, another huge down day Thursday, quiet Friday. Although the daily movements were different than in recent weeks, the result was the same – another new low for most stocks and the major indexes. Pessimism is widespread, evidenced by 53% of our watchlist stocks at new yearly lows.
Passive investors in the major indexes have forfeited all gains dating back to around Jul – Nov of 2020, for no gain of capital in almost 2 years. And, investors in individual stocks since Nov 2021 are suffering capital losses of anywhere from 30% to 70%. More trillions of household capital have been lost in this decline than in either the dot-com bust of 2000 or the lending debacle of 2008.
The Fed raised interest rates 75 basis points, as expected, with more to come, leading most investors to assume an economic recession is inevitable (the important housing market is already drying up – who’s going to sell a home with a 2.75% mortgage and buy another one with a 6.25% mortgage?). With regard to stocks, the recession is already here, reflected in deeply depressed prices.
As a result of downward price bias, Level 2 and 3 editions are providing significant gains for subscribers, with the majority of positions being short. Level 1 edition continues to uncharacteristically under-perform owing to most stocks being long and recent buys not having any staying power.
Market pundits are divided on where prices are headed this summer. Some think the bottom is near and we’ll see a rebound soon, while others are pessimistic for the long-term. Either way, we will continue to trade as the institutions do, based on analytics constantly re-adjusted in response to historically high daily volatility causing the most challenging investing conditions in recent decades.