The market goes down, jumps back up a bit and continues on its downward path. Some analysts say there will be a recovery reasonably soon and others, like Top Gun Options, believe that there is more trouble ahead. So, can we see the end of the bear market yet or is it still time to go long on the VIX and keep buying puts on the SPX and more? Factors at play include the worst inflation in four decades, an unending war in Ukraine, continual supply chain disruptions, and the prospect of the Fed driving the economy into a prolonged recession as they keep raising interest rates.
Where Will the Market Bottom Be?
When will the market hit bottom and turn back around? The better question is where will the market bottom be? When implies that changes will happen in the war in Ukraine in the near future which is unlikely. It implies that the Fed will quickly cure inflation without causing a recession and an extended period of unemployment. This is also unlikely. When we have written about the stock market crash that brought on the Great Depression, we noted that the crash actually lasted from 1929 to 1932 and did not bottom out until all of the excess value had been wrung out of the market. At that time one could buy stocks by putting down 10% with the broker and borrowing the rest. It is noteworthy that the market fell to 10% of its former value until it stopped falling. Where the market bottom will be could well be when all of the excess value caused by abnormally low interest rates has been wrung out of this market. Where the bottom will be will depend on the intrinsic value of stocks like Walmart which has fallen despite being a stock that typically does better when the economy is weak and Amazon.com which has driven so many other retailers out of business has fallen thirty percent due to weakening demand, supply chain issues, and increased costs of doing business.
How to Anticipate the End of a Bear Market
At Top Gun Options we spend a fair amount of time keeping track of what we call the DRINCs. That is our acronym for Democrats, Russia, Iran, North Korea, and China. The point is that the market is eventually driven by macro events like war, social and political unrest, recessions, misdirected economic policy, and recoveries. When all of the stars are aligned against the market such as at the start of the Covid crash any price recovery is an illusion and when the Fed steps in and the economy with money any belief that the market will not go up is misplaced. Unless Putin suddenly repents and removes his forces from Ukraine, China forgets about their zero tolerance Covid policy and fixes their real estate crisis, Iran gives up trying to build nuclear weapons and delivery systems, and the Fed magically threads the needle and conquers inflation without causing a deep recession we are likely to see the market continue to “correct” down to values that fit the times and fundamental economic conditions. When that has happened and many investors have fled the market thinking that all hope is gone is likely when the market will start to recover and make millionaires out of the likes of Top Gun Options where we potentially print money no matter which way the market is heading. Until then it is not a good time to trade alone. Sign up to work with a trading squadron at Top Gun Options and join the ranks of traders who have taken control of their financial lives and futures.