How We Timed the Bottom
Welcome to MktContext! I am a professional money manager, trader, and investor who has been timing and beating the market for over a decade. We specialize in predicting market direction by studying the economy and market signals. Join 12,000 subscribers at MktContext.com for our weekly deep dives and analysis!
We correctly called the oversold conditions and Trump's off-ramp (all posted in our newsletter). We BOUGHT stocks near the lows when uncertainty was highest. The vicious short squeeze is now playing out and we are riding it fully in IWM and SPX.
If you are still holding cash waiting for a dip... You'll be waiting a while. This is why we preach having a stop-buy to re-enter the market.
Having timed the market for over a decade, we can confidently say: It's not easy. But if done well, you can amplify your portfolio returns. Avoid the selloff, buy the lows. Sounds simple. Hard to execute.
We first clued in about Trump's off-ramp from the war. Just when the fog of war was darkest, we predicted that the conflict was entering its End Phase and Trump was rapidly setting up the off-ramp.
Combined with oversold technical conditions, this setup the squeeze we are seeing now. Below is what we posted on Mar 22:
Oversold Conditions (from Mar. 22)
Even as SPX made new lows this week, the volatility index (using VOLI instead of VIX to remove the effects of Skew) has kept under the panic levels from earlier in March. This is a sign that fear is not escalating, and therefore selling pressure is not cascading.
Similarly, VIX term structure, which is also a gauge of fear, has actually normalized a bit since the sharp gap-up event two weeks ago.
When VIX is elevated and term structure is inverted, as they are now, subsequent returns for equities tend to be positive. As volatility-sellers return to the market and depress VIX levels, this mechanically engages re-levering from systematic investors… potentially igniting a short squeeze.
Many of our equity market indicators are now flashing “oversold”:
Put/call ratio > 1
Stocks above 20-day average: 12%
SPX RSI < 30
Stocks making new lows: spiking
Selling volume in stocks: oversold
SPX futures positioning: oversold
Equity fund flows: large outflows
Fund manager cash levels: spiking
Forced liquidation in gold
Lastly, options expiry dates often act as major reversal points in SPX. A notable case was the March 2020 Covid selloff. In an unstable environment, market makers were forced to sell heading into Friday expiry. This dynamic happened this past Friday. Once those options expire, the selling pressure dissipates, leading to a V-shaped bounce.
Join us in timing the market at MktContext.com
Join 12,000+ macro investors who get these insights before the mainstream media catches on!
