Is this a bear market or a bull market?

Musings: No one knows and I don't care

Since the lows of June 16th 2022, the SP 500 has risen about 13% and the NDX has climbed about 21%. Risk-on seems to be gaining favor while market fear is subsiding. Even crypto has shaken off it’s winter doldrums and is attracting buyers and speculators (of course!).

Morever, there are some Wall Street analysts declaring that we are at the start of a “new bull market”. Do I hear FOMO setting in?

The reality is that no one knows. Every one and their uncle is guessing based on three factors:

1. Market and macro indicators

2. Their personal biases

3. Their financial motivations

#1 we can read ourselves and make up our own minds.

#2 and #3 are difficult to judge. So here is where we need to be careful and take every prediction with a pinch of salt.

My take? I believe we are still in a bear market and the answer to “whether we have bottomed” is different from company to company, from sector to sector, from region to region. And that is where I am focused.

Here are some examples:

AAPL - I believe AAPL has bottomed. Looking at its chart below, it has regained all its moving averages, including the 200day SMA (orange). Sure it can drop lower from here, however the recent strong earnings report along with it’s consistent rise from the bottom of mid-June makes it difficult to secure another new low this year.

NVDA - NVDA has also shown steady upwards movement, however it still has a long way to go before it can breathe easy. It’s Q2 earnings report is coming up later in August and it is expected to be a challenging quarter, based on guidance provided in Q1. And semiconductors are not getting the respect they deserve…the good ones like AMD are being lumped with the bad ones like INTC . NVDA could see the $140s or $150s again this year.

NET - NET Cloudflare is just about peeping above the 55day EMA (yellow line). Markets are unsure about its upcoming earnings report this evening. I am also on the fence about what to expect. This stock will get punished if growth has slowed, if cash flows are anemic and most certainly if forward guidance is weak. Hey $30s…good to see you again.

Bottomline

It is easy to get caught up in the FOMO, especially as we get anxious to recover some of our YTD losses. I am guilty of succumbing to this temptation as well. I try my best to ignore the bull vs bear “noise” around me and pay more attention to earnings reports and macro indicators. I still believe that growth stocks will bottom in Q3 2022 and I plan to be as close to fully invested by Oktoberfest.

For long term investors, patience is the key to success. Bear markets take time to heal and they give us many false signals along the way. This chart from Refinitiv underscores this reality.

This roller coaster is not over and we do not know what’s around the next bend.