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Beware of FOMO and Bear Traps!

Bear Markets don’t happen the day that you need them to; you have to execute inside these OODA Loops. -Keith McCullough

The markets are VERY oversold, and a classic trader's rally looks like it is about to happen. I expect the S&P 500 to rip about 10-11%, maybe all the way to the 4500ish level in the short-term. Be cautious, because this looks like a classic TRADER'S RALLY. If you are dipping your toes in here, be quick and use very tight stop loss orders and make sure you ratchet your stop loss up as the market goes up so you protect your profit. Read that sentence again if you plan on getting back in tomorrow.

The VIX is back in the chop bucket. This is where traders (NOT INVESTORS) make money.

There are three buckets of the VIX that we monitor.

  1. The investable bucket VIX = 10-19, this is where you can buy every dip you want and make money in the S&P 500.

  2. The chop bucket VIX = 20-30, where you can get chopped up if you don't know how to trade. This is where we are today and this is where professional traders play their risk ranges and short sellers can wreck your day. Investors should generally do nothing when the VIX is in the chop bucket.

  3. The X-Bucket VIX > 30 going towards 100, where levered long dip buyers die. This is where you just let the market do what it is going to do. Professional and retail investors can get murdered when the VIX is above 30.

Source: Hedgeye Research | Chart created on Tradingview

To be crystal clear, we are not calling a bottom but this selloff has created some great buying opportunities, and we think they can get better. The Ivory Hill RiskSIGNAL is still red and until it flips green, we will sit on our cash until our signals tell us to get back into the market.

Some of the stocks we are monitoring are companies like Nvidia, Adobe, Amazon, and our list keeps going.

The S&P 500 raged into Friday's close, ending the day at 3,901. The VIX ended the day at 29. The S&P 500 has been down for seven straight weeks, which is the longest losing streak since Y2K. It got back up after falling into "bear market territory," but it's still 18% down this year. 2022 is a midterm election year, which means that on average the drop from the market's peak to trough is 17.1%. When market cycles are taken into account, this midterm year isn't our of the ordinary.

And remember – the one fact pertaining to all conditions is that they will change.

Feel free to reach out to me and use me as a sounding board.

Best regards,

Kurt S. Altrichter, CRPS®

Fiduciary Advisor | President

Direct: 952.828.5336

-Written 05.23.2022


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