Carlsquare weekly market letter: How to deal with a stormy market

• The current pullback should come as no surprise to our readers, as we have warned of it on several occasions. Now that we are here, we have been asked how long it can last and what is the right strategy in a rough market
• We will try to answer both questions below
• We are in choppy waters as September is historically the worst period of the year. Right now, gold is trending higher while the USD and interest rates are trending lower. If the USD finds support here, this could create another leg lower. In the medium and longer term, we are still positive, but we need to ride out this shaky period and weather the storm as best we can

In sailing, despite the silly questions about packing rain gear on sunny days, you must always be prepared for the worst. The simple answer is that when the going gets tough, you are alone out there alone in the deep sea.

Heavy weather sailing techniques for sailboats:

1. Point one end of the boat towards the waves.
2. If you haven’t already done so, switch to storm sail and jib. …
3. Use a sea anchor from the bow to prevent the sailboat from tipping over.
4. If the storm becomes too heavy to ride out or you need physical rest, consider “heaving to”.

These are the four most common rules for dealing with a storm, and they also apply to the stock market. It is all about being prepared, being active and staying calm. As a trader, you can always cash out (sell) as cash is also a position. It is never too late to get back into the market.

As we see this as a temporary negative period, it is more constructive to try to find interesting stocks than to focus on the red lines in the portfolio.

The S&P500 is still in a long bullish trend on the weekly chart. Watch for a potential break of the blue line and the 50 weekly moving average, as a break of these lines could provide another leg to the downside.

Looking at the daily chart of the S&P 500, there is now room to the upside now. We believe that a new higher low can be made, giving those who want to reduce their positions the opportunity to do so. It is too early to say that the worst is over for the market.

One very positive development is that the junk bond market is still positive. This market is represented here by the HYG ETF.

On the other hand, we are a little nervous that the USD sell-off, which is creating positive momentum in the equity market, may have run its course.

Now we are in the market with some interesting cases where many people say, to our surprise, that they are too heavily invested in multiple projects and need to be prepared to make follow-on investments. So, they don’t have the bandwidth to look for new projects, no matter how interesting they are.

Liquidity seems to be a scarce resource in the market. This may be the simple reason why we can see the big difference between small and large caps.

We don’t see an end to this any time soon. There are a lot of bond buyers in the market again, obviously selling stocks and other assets and putting them into the more “risk-free” market with bonds.

Gold remains in positive territory. Market rumours suggest that China and Russia are still big buyers. As Russia is increasingly blocked from the financial market, gold is one of the new currencies for Russia.

We are also pleased to see that oil is trading lower and lower as people fear less demand as the outlook for global GDP becomes more negative and speculation about an oversupply of oil increases. A lower oil price means less revenue for Russia, which is good for Ukraine in its war with Russia.

All in all, this is still a traders’ market. Let’s focus on what’s most important in the market, have a plan and adjust accordingly.

Happy trading!

Disclaimer:

The information in this presentation is based on what the publisher, Carlsquare, believes to be reliable sources. However, we cannot guarantee its content. Nothing in the presentation should be construed as a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the presentation are for the recipient’s use only. The contents may not be copied, reproduced, quoted, or distributed to anyone else. Carlsquare shall not be liable for any loss arising from any decision taken based on the information contained in this presentation. Past performance should not be taken as an indication of future results. Changes in foreign exchange rates may affect the value, price or income of an investment made abroad or in a foreign currency.

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