Market Update (yet again)

Uncategorized May 15, 2022

Hello members,

Here's yet another update on the volatile markets that we currently are dealing with.

First, no, we are not ready to re-enter the market. I've been asked this question a lot so this post will explain a bit more of the "why not".

So, why not re-enter the market? I mean Friday saw the Nasdaq jump 3.8% and the S&P 500 (NYSE) jump 2.4%. Some of you have correctly pointed out that these increases are 2x to 3x the increase that we look for in our all important elements that we look for in our big institutional buying day - aka. follow-through day. Others have added that they are concerned that we may miss the bottom of this correction. These are all valid questions. One of our goals at IES is to make all of you better, more profitable traders. For that reason, I'm going to answer these and other questions individually. I apologize in advance to those who already know the answers!

Friday's BIG jump - Why not re-enter?

Yes, Friday's index gains were impressive! BUT, Friday's gains were missing a key element - VOLUME! On Friday the Nasdaq daily volume was 12% below its average. And the S&P 500 was 18% below!

What does that mean?

It means that the core of the market, the big money, didn't create this jump. Instead, it means that the big mutual fund managers were watching from the sidelines and weren't tempted to participate. This is very dangerous. Because the big fund money wasn't participating, they didn't believe in this rally yet. Because they may not believe that the rally is real, they may well sell into these gains on Monday and drive the indexes back down and lower.

All of this is why a big institutional buying day on increasing volume aka. a follow through day is so important as a market signal. Its also the signal we wait for before re-entering from a RED market - in correction.

Missing the bottom of this correction

Please understand, we aren't EVER going to predict the bottom of a correction! This is because at IES we don't predict anything. Its too dangerous.

Predictions are sometimes right and sometimes wrong! We don't like those odds. We want to be right most of the time. That's the way you make money in the markets.

Look, IES got you out of the market BEFORE it took a -32% correction in March 2019 due to the Covid-19 market crash. We got you out of this market BEFORE it corrected almost 20% recently. We did this by reacting not predicting. We reacted to a number of dangerous market conditions such as:

  • an accumulation of a higher than normal institutional selling days, meaning that the institutions were slowly exiting the markets.
  • losses in our own portfolio which triggered our exit. Then, upon reassessment of market conditions we decided that was prudent to remain on the sidelines and await a GREEN market for re-entry.

Tools like these allow us to react quickly to poor market conditions rather than trying to guess (aka "predict") future market direction.

This is all to say that we NEVER try to predict a market bottom. Instead, we play it safe. We wait for a confirmed market uptrend (GREEN) before re-entering markets previously - In Correction - RED.

I hope this answers all of your market direction questions.

Please don't hesitate to continue asking your questions. That's how everyone learns.

Duncan Campbell

d[email protected]




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