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The Bear Market Is Back With a Vengeance

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https://realmoney.thestreet.com/investing/stocks/the-bear-market-is-back-with-a-vengeance-16111389
 
The Bear Market Is Back With a Vengeance
 
Hope that the Fed will turn less hawkish essentially was dashed on Wednesday and the market is reacting accordingly.
 
By JAMES "REV SHARK" DEPORRE
 
December 16, 2022 | 06:37 AM EST
 
The market suffered a significant change in character on Thursday as market players lost hope that the Fed was about to ride to the rescue. The Fed raised rates by one-half percentage point on Wednesday as expected, but the message from Chairman Jerome Powell and his cohorts was that the battle against inflation was far from over.
 
Although CPI has been trending down and raised expectations that the Fed would soften its hawkishness, there are two significant problems that still persist. The first is that employment remains very strong and there are few signs that inflation in wages is going to slow.
 
The second problem is that concerns about a recession are building. On Wednesday, there were no comments from Powell about being optimistic that a recession could be avoided. The Fed seems to be indicating that its battle will not be won until it slows economic activity sufficiently to drive the economy into a recession.
 
Market players gave up hope on Thursday as the Nasdaq plunged 3.2% and broke below its 50-day simple moving average. Chatter about a potential rally into the year was quickly forgotten as key support levels fell and downside momentum started to build.
 
The main question on the minds of many market players is whether the lows that were hit back in October will be tested before this bear market eventually comes to an end. We have yet to see a substantial spike in new 12-month lows, but nearly 500 stocks hit that level on Thursday.
 
What to do now?
 
The most important thing to do is to tighten up stops and not let losses expand. It is extremely important to maintain high levels of cash. It is better to raise more cash than worry that you may have poor timing with sales.
 
The good news is that this action eventually will set up another powerful counter-trend bounce. There is no way to predict when that might happen, but it is the nature of bear markets to produce big upside moves soon after the big downside moves. The biggest rallies almost always occur in the worst markets.
 
I have been writing for quite some time that this is not a market for building long-term positions. That remains the same. There is no great benefit to trying to catch the bottom when there is a downtrend in a bear market. We must wait for signs of strength before we can start putting more cash to work.
 
We have another poor start on the way here on Friday morning. Stay cautious but be optimistic that good trading opportunities are developing.