Chart of the Day: Placing Our Bets

JC Parets
October 10, 2022

In bear markets you'll find that the majority of stocks are making lower lows and lower highs in price.

With basic arithmetic, we can call those downtrends.

Using that same math, in order for stocks to be in uptrends, they first need to stop making lower lows.

"They need to stop going down before they can start to go up", is how I learned it.

Going through my charts this weekend, I found this chart right here pretty interesting.

The last time Mid-caps, Small-caps and even Micro-caps made lower lows was almost 4 months ago:

Broadening things out a bit, on this retest of those former lows, we've seen fewer stocks making new lows (just a fraction of what we saw 4 months ago).

This is a "market of stocks" after all.

Meanwhile, volatility is much more subdued on the recent decline compared to earlier this year.

And Credit Spreads stand out too. Credit spreads are NOT blowing out. We've actually seen contraction in credit spreads.

Defensive sectors are NOT breaking out relative to the rest of the market, like they were in Q2.

And Low Volatility Stocks are NOT breaking out relative to the rest of the market, or more specifically High Beta Stocks, which is certainly something we saw when stocks were under pressure earlier this year.

Why are there so many divergences?

I mean, it's not just one or two. We're talking about a lot of divergences adding up.

Was June the washout? And this last decline is that lower intensity retest that we've seen at so many bottoms in the past?

You tell me?

How are you seeing broader markets?

For me, the approach remains the same: We want to own stocks that are above their Q2 lows. I especially like the ones that are no where near those lows.

This strategy has been working.

Premium Members can find entire list here. And we walked through each trade on last week's Live Conference Call.

BTW if you don't have our NEW Rangefinder App yet, this is by far the best way to organize our trade ideas - both longs and short.

Email me if you still don't have Rangefinder.

Or call Mary: +1 (323) 421-7910 and she'll get you set up.

So what do you think?

Is it smart to be buying stocks, particularly if they are above their Q2 lows?

Or short everything and burn it all down?

Which way are you moving as we make our way into the heart of Q4?

Let's hear it.

- JC

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