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Bull Market Shopping in a Bear? Why Not?

By Karen Riccio June 17, 2022 Facebook Logo Twitter Logo Email Logo LinkedIn Logo


I don’t know about you, but I’m so sick of hearing the gurus try to calm the angst of investors by playing the history card. 

The spiel goes something like this… “Well, it’s definitely a trying time for people, but if you look back at the performance of the S&P 500 over the blah, blah, blah, it’s returned blah, blah, blah, blah. So, this market is very resilient.”

Wow. I can just feel the tension melt away. I’ll just sit back, grab the Stock Traders’ Almanac and a bottle of wine, and drool over the pages that focus on how quickly and steeply the market bounced back after past bear markets.

Don’t get me wrong. It’s OK to look back at history; it tells us a lot about the market. 

But outside of TMI, I’m not hearing anyone say that preserving wealth must be your top priority and providing the appropriate steps to do so. 

After all, the Center for Retirement Research at Boston College just reported that the bear market–so far–has erased nearly $3 trillion from U.S. retirement accounts.

We’ve told you countless times to consider selling positions to raise cash, tighten stop losses, sell Puts, or whatever mirrors your risk tolerance.

The worst thing you can do is nothing. Heck. You might not even open your 401k statements or other investment accounts because you think “this too will pass.” 

Which of course it will, eventually.

But if you’re anything like me, the way I take my anxiety level down a notch or two is by making a specific plan for tomorrow.

I may do a little rehashing of market’s past here, but I will leave you with something worthwhile to do today.

Too Early to Buy, But … 

It’s way too early to buy stocks as though we’re in a Bull market again, which is not to be confused with the short-lived bear market rally we had the last couple of weeks. I’m talking about a shift in key technical indicators that show we’ve hit rock bottom.

We’re not there yet as you can see from the US Industry Bell Curve on TMI’s Sector Prophets Pro data platform.

(Click any image to enlarge.)

Those sectors in Red boxes means that Supply is in control and their BPI charts are in a column of O's. So, money continues to flow out of all 45 sectors we monitor. 

Plus, the granddaddy of all indicators, the NYSE BPI just reversed to a column of O’s and has been on a Sell signal since May.

This means the market should now be considered weak over the short term, as well as weak over the intermediate- to longer-term. 

Since the market is in the Declining stage, you need to keep that bearish long-term trend at the forefront of your mind.

But there’s nothing wrong with doing a little window shopping in the meantime. It’s kind of like the saying, “Just because I’m married doesn’t mean I can’t look at the menu.”

What Comes Down Must Go Up

When most sectors are decimated from a bear market (except Energy +47% year-to-date), it’s often those that fell the furthest (saw the most selling) that will lead the charge in the next bull market.

For example, After the dot-com crash wiped out more than 80% of the tech sector’s valuation, tech was the leading sector for two years from its October 2002 lows. 

The S&P Select Tech SPDR Fund (XLK) gave 91% returns during this period. After the Fed kept interest rates at 1% for a year, inflation faded away, and the energy and materials sectors were the big winners.

During the 2008-2009 Financial debacle, the Select Sector SPDR ETF Financials (XLF) was slaughtered, falling more than 80%. 

However, after the Great Recession followed and the Fed began its very loose monetary policy that kept interest rates near zero for more than a decade, Financials led again, rising 121% and serving as the third-best-performing sector over the next 3.5 years. 

During this period, the Health Care sector care grew by about 150%, and Consumer Discretionary rose by 127%. (The Select Sector SPDR Industrials (XLI) and the Select Sector SPDR Materials (XLB) helped lead the way out – rising 63% and 58%, respectively.)

Let’s take a look at today’s leaders and losers in 2022.

During the current bear market Consumer Discretionary, Communication Services, and Information Technology, are down 31%, 29%, and 26% year-to-date, respectively.

So, Let’s Go Shopping

Although our technical indicators will provide guidance on which sectors to invest in and when to pull the trigger, you might want to look for those stocks that have fallen furthest from their highs as possible Bull market candidates. 

Below are the top 10 holdings and their 52-week performances in the Consumer Discretionary Select Sector SPDR ETF (XLY), the  Communication Services Select Sector SPDR ETF (XLC), and the Technology Select Sector SPDR Fund (XLK).

I’ve highlighted the three worst-performers in each ETF.

Some of the sectors and stocks above could be good places to start your shopping list.  Obviously, the market could go lower (or higher) but today, this is what it looks like.

A way to make this exercise a little more fun is to use an online stock market simulator to “paper trade.” We’ve written about this in the past, but it bears repeating.

When you paper trade, everything about your trades is real, except there’s no real money on the line. All you’re spending is time.

Remember, though, risk management first, then you can have a little fun.

Most of all, keep reading and listening to what Chris Rowe and company are saying. When the time comes to pull the trigger, we will let you know so you can invest confidently and successfully.

In the meantime, be patient and plan your potential roadmap for the next Bull market.

Chin up, and have a great weekend!