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Have We Found the Bottom?

By Andrew Aziz  |  
Andrew's Newsletter  |  
May 11, 2022

Dear Traders,

Happy Inflation Report Day!

The market was gapping up significantly in the pre-market, but after the report of 8.4% inflation data YoY in April 2022, it lost all of its gains. Nevertheless, as the market digested the numbers better, it is currently trending higher. We need a day to see exactly how the market will treat the inflation numbers. I may be able to write to you later or Ardi will make a mention about it on Twitter.

As Brian and I are still traveling, Thor and Jarad have been doing some excellent trading at the Open, with some great results! You can watch their recap on our YouTube channel here.

Today’s Global News and Financial Recap

Economists forecasted the headline annual number moderated to 8.1% from 8.5% in March. With 8.4%, the Federal Reserve would still be on course to raise interest rates by 0.50% at their next meeting, since that would be well over where policy makers would like it to be. That is especially so in a backdrop where President Joe Biden remarked that fighting inflation is his top domestic priority. Higher prices aren’t just hitting the US. The UK is facing its own cost-of-living crisis.

All investors must accept some intermittent downside. After the stimulus-driven boom of 2020 and 2021, we’re stepping back at a rapid pace. The Nasdaq 100 ETF ($QQQ) and Russell 2000 Small Cap ETF ($IWM) have given back all of their gains from 2021 after declines of 26% and 29%, respectively. See their charts below.

The S&P 500 is holding up better with a 17.7% drawdown, but this is still the largest correction since February-March 2020 and the longest since 2015-2016 (126 days and counting). It is also the 2nd worst start to a year for the S&P 500 in history.

Shanghai reported a 51% drop in new coronavirus infections on Tuesday, with zero cases found in the community — a key metric for the city to end a punishing lockdown that’s snarled global supply chains and left tens of millions of people stuck inside their homes for about six weeks. Equities in China and Hong Kong gained as declining virus cases on the mainland boosted sentiment and triggered dip-buying in the region’s battered stock market.

Are we at the bottom yet? There’s no answer as the market is entirely driven by sentiment in the short run. And that sentiment can not only shift on a dime, but continue in the direction of greed or fear for much longer than you expect.

At Bear Bull Traders…

Tonight, for Wednesday Psychology, Créde will be heading up a discussion entitled: How to Neutralize Pressure While Trading. Pressure affects the nature and quality of your thinking in specific ways. From the dreaded “paralysis by analysis” to impulsive decision-making, pressure can make you deviate very far from your trading plan. This webinar will explore how pressure impacts your thinking and how you can use practical techniques to harness the power of your cognition and access the right thinking at the right time for peak performance. Créde’s presentation begins at 5pm ET.

Tomorrow, for Thursday Mentorship, John is leading his mentorship session starting at 11am ET, Ed’s mentorship session begins at 4:30pm ET (with 30 minutes of after-hours trading commencing at 4pm ET), and Thor is up at 8pm ET. These are excellent opportunities to learn from three exceptional traders.

And Finally…

Equities aren’t the only risky asset class feeling the pain of higher interest rates and tighter monetary policy. Crypto benefited more than anything else from the unprecedented era of easy money (Bitcoin ($BTC): +201% in 2020, +66% in 2021) and is unsurprisingly being hit harder on the way down. Bitcoin has now fallen 57% from its peak, its largest decline since 2017-18. TerraUSD, an algorithmic stablecoin, slumped today as crypto markets await a rescue led by primary backer Do Kwon. The token fell further from its intended 1-to-1 peg to the US dollar to trade at around 50 cents. Yesterday, Treasury Secretary Janet Yellen said the de-pegging of TerraUSD shows the urgency to have a regulatory framework on stablecoins. Crypto winter is continuing, and it threatens another round of financial instability. Meanwhile, Coinbase CEO Brian Armstrong said there is “no risk of bankruptcy” for the largest US cryptocurrency exchange, even amid a “black swan” event.

I will be back in the Vancouver office on Thursday and trading from the office on Friday. I hope everyone enjoys trading at the Open with Thor and Brian.

To your success,
Andrew

PS: If you have not already, I urge you to try out our free web-based trading simulator at stocktradingsimulator.com. It’s conveniently available 24/7, whenever you have time to practice honing your trading skills.