2022 Was Never A Bear Market

If there is one tip I have been driving home in 2022 is to let the charts dictate your investing/trading decisions, not the news. 

As we all know, our media channels are designed to paint a grim picture. The consequences are that people are unclear about how to manage their finances which means your financial future is on the line. 

I'd argue that happens every year, but 2022 was a particularly tough year with the declines in the stock market. Phrases such as bear market, recession, the worst year since were freely thrown around, so I am unsurprised if 2022 had you even more bamboozled. 

However, this state of apathy to your confusion can't go on forever. At some point, you have to accept that the system will never change. It is down to you to take the bull by the horns (or the bear by the claws) and regain control over your financial future.

What you don't want is to be having this same internal conversation a year from now. 2023 must be different. 

So why was 2022 never a bear market? 

Simple really. The S&P 500 SPY never broke below the weekly 200 simple moving average (w200sma).

Below I have the weekly timeframe

The last time price broke below the w200sma was in 2008, and before that, surprise surprise, was in 2000. Both are marked with red arrows above. These were confirmed bear markets, and when ideally you wanted to be short. In reality, most would have got stung, making the classic mistake of catching falling knives. You must learn to short the market. A skill few ever gain but is immensely rewarding when a bear market does happen. 

Once the S&P 500 worked its way back above the w200sma in 2010, the price has since been using the w200sma as a major level of support. All marked with green arrows above.

• 2011 followed by an 86% bounce 
• 2016 followed by a 61% bounce
• 2019 followed by 106% bounce (creating the current all-time high)

Given the strong bull run post-CV19, it is not surprising we have seen such an aggressive correction this year. Contrary to what has been spewed all over the internet, these corrections are healthy for the market. You just have to learn how to deal with them in a cool, calm and collected manner. 

(We can ignore the blue arrow above. That is the 35% drop in price caused by CV19. Black swan events almost always have a violent short-term impact before they are absorbed back into the market.)

This brings us to the orange arrow above, where the S&P 500 bounced off the w200sma in October. A 14% bounce followed this to the high of November, but the price is currently around 6% away from the w200sma. 

The price is in a very interesting position which takes us onto 2023...

If the S&P 500 works its way below the w200sma, we will likely see a repeat of 2000 and 2008. That is when we will be in a bear market officially and when we short. 

If the S&P 500 holds firm, we could see the next leg up and a revival of the bull market in play since 2009 and when we buy. 

Currently, we are in this grey area where we stand aside, apply patience, protect capital and wait for the market to dictate a direction. We can react accordingly, either long or short. 

But Zaheer, what about all those tech stocks that tanked in 2022? 

Tech is one sector. At the start of this year, we saw a rotation of money from tech into healthcare. 

(Regular readers will know I like stocks that are in trend and printing new all-time highs. They move the fastest. I typically hold for 12 to 24 months before moving to the next set of stocks.)

In 2022, whilst stocks like Tesla Inc TSLA and PayPal Holdings Inc PYPL were down 70%+, McKesson Corp MCK was up 50%+, a stock I have highlighted numerous times in 2022. Arch Capital Group Ltd. ACGL, a consumer discretionary stock, was up 50% since October. Financials is also looking interesting, with stocks like W R Berkley Corp WRB looking strong. It moved up 27% in 2022. These stocks are all potentially set to continue their climb in 2023.

Below is the monthly timeframe for MCK

Your job as an investor is to know when to let go of stocks that are turning, and replace them with the next set of strong stocks from the strongest sectors. This forms the foundation of portfolio management. 

If you are unsure how to do that, maybe that is where your priority lies at the start of 2023... 

My advice, block out the noise and ensure you position yourself to profit regardless of which direction the market goes. Regret is not an option. 

I bid you all a progressive, productive and profitable 2023. Out with the old and in with the new!

 

Featured image sourced from Shutterstock