Many mixed signals remain, but bullish signals cannot be ignored | Exchange places with Tom Bowley

The public is confused by the strength of the current secular bull market. Too many people continue to bet against this and have sacrificed themselves huge profit opportunities as prices soar. I have pointed out several times that historically the biggest stock market gains have occurred a year or two after a bear market bottomed, and that is certainly happening again. In the previous 10 cyclical bear markets since 1950, the S&P 500 average It recorded a rise of 57.12%, with the largest rise coming in the two years since the 2020 pandemic low (+103.31%) and the lowest rise in the two years since the Persian Gulf War low (+36.49%).

Where are we now? Well, we’re less than a year and a half away from the October 2022 low, and the S&P 500 is up 45% since then. During the same period, the Nasdaq 100 ($NDX) rose nearly 70%. Gains here appear to be much more difficult, and history bears this out. The gains we have made after the bottom of a cyclical bear market in 2022 are unsustainable in the long term. As you can see below, there is still plenty of room for upside in our secular bull market channel.

One of the most important signals that most analysts, technicians and traders overlook is the most important. The combination of price and volume trumps all other indicators, PERIOD. But almost everyone wants to trust secondary indicators and (gasp!) fundamental news. Take 15 seconds to see how a long-term bull market unfolds. This channel doesn’t lie. Everything here is true. We can have discussions when we are on or just above the upper channel line. Expect higher prices at other times. This is a very simple and basic point of view that no one wants to talk about. It’s sexier to talk about inflation, inflation, and interest rates. Gone in May (get ready, there are only a few months left until this happens!) and the latest Hindenburg Omen signal, another breadth indicator, is wrong 75% of the time. However, if we can surprise traders one more time and use it as great clickbait, let’s do it.

Honestly, it’s no wonder why people are afraid of the stock market. Around every corner there is another expert pointing out a huge problem that will decimate the stock market and plunge us all into financial despair. What a great way to live life! Now take another 15 seconds to look at the chart above. great. Now turn off CNBC and continue looking at this chart. Your investing life just got a whole lot easier. you’re welcome.

Operation is BAAAACK!!!

One of the main reasons I became bullish near the bottom of the bear market in June 2022 was the manipulation I could see. QQQ (an ETF that tracks the Nasdaq 100) saw tremendous distribution during the April/May 2022 period. There was selling from the opening bell in the form of a gap down, morning selling, and afternoon selling right up to the closing price. It was clear that the bear market had gripped Wall Street. But in June 2022, everything began to change as the cycle from value to growth began to bring about an end to slaughter. Also, very clearly, distribution is starting to shift towards accumulation. Net gap and morning weakness continued to dominate, but there was heavy buying from 11 AM ET until the closing bell. It was still falling, but the decline widened and there was panic selling in the first 30 to 60 minutes. To confirm what I saw in terms of afternoon accumulation, the AD (Accumulation/Distribution) line moved higher.

Recently, we have been seeing similar manipulation in small-cap IWM (an ETF that tracks the Russell 2000). Check out this chart:

The past six weeks have opened my eyes to small-cap stocks. It appears to have gone nowhere and has clearly underperformed the S&P 500. However, the current continuation pattern, which is shaped like a cup with a handle, is very bullish after an uptrend. I wouldn’t be surprised to see some short-term weakness forming a handle before much larger upside in small-cap stocks. And if you look inside the IWM, it’s easy to see the accumulation taking place as there are a lot of buyers in the afternoon. One interesting statistic is that IWM has seen gains between 11 AM and 2 PM 14 times out of the last 15 days. Intraday buying is a reality.

Looking into the future

I am starting to focus more and more on small and mid-cap stocks and believe that they will be the leaders through the balanced period of 2024. Their role in our portfolio is likely to increase. We completed our most recent quarter’s portfolio performance with our flagship model portfolio returning 21.27%, more than double the S&P 500’s return of 10.08%. This is consistent with long-term performance, with the model portfolio up 182.59% since November 2018, while the S&P 500 is up 86.03%. This is again more than double the benchmark.

On Tuesday February 20th at 5:30 PM ET I will be hosting a Top 10 Stock Picks Webinar. Here I will reveal 10 equally weighted stocks that will represent my model portfolio over the next three months. The stock is included in our other two portfolios, Aggressive and Income. I like to think of this event as a draft where EarningsBeats.com has all of our top 10 draft picks! There are many factors involved in stock selection, but a very important factor is relative strength. We want leading stocks and look to them for a leadership role in maintaining our portfolio above the benchmark S&P 500. Click here to learn more and register for this free event!

Happy trading!

tom