💵 The Rise Is Mightier Than The Fall

In association with DarwinexZero. Allocating real capital to successful traders 👇

Nasdaq had one of its best 6 months ever in the first half of 2023. In fact, according to Deutsche Bank’s macro researchers it was the best performance over H1 for 40 years.

As we can see below the only problem is that 2022 saw the index rack up one of its biggest ever losses.

Despite those gains, the index remains -9.82% below its all-time high posted on November 1st 2022 at 16764.86. The 52-week high of 15284.65 is just over 1.0% away at the time of writing.

The following quote is taken from an article in Fortune magazine that examined the performance of equities during the lockdown and the period immediately after:

So what’s immediately clear is that the last three years have been extraordinary as far as markets are concerned. Can we expect this mini boom and bust cycle to continue and should we be looking for a sell-off into year-end?

It’s tempting to think that might be the case. After all we have had plenty of doom-laden headlines and tweets forecasting recession and impending stock market meltdown because only a handful of stocks have led the market higher in 2023.

In reality, only 181 S&P 500 stocks are still down YTD and 67% of the index is trading above their respective 200-Day MA lines.

What's more, the US economy (grey line below) is surprising on the upside in sharp contrast to many peers.

Wednesday’s better-than-expected CPI data bolsters the bullish case, although of course, one swallow does not a summer make.

We are now entering Q2 earnings season which will provide us with an insight as to how USA Inc is trading and what expectations are for the balance of 2023 and perhaps beyond.

Looking at the data about how the wider market performs post a large sell-off or drawdown, the omens look good.

Though looking at the chart below, note that the recovery post the bursting of the dot-com bubble was relatively muted when compared to prior crisis and recoveries. 👇

The post-financial crisis gains were stoked by QE and monetary easing. It's hard to imagine either of those making an appearance in the current environment when central banks are trying to squeeze out inflation and reduce their bloated balance sheets.

That said, if we look ahead to year-end and the space on the right-hand side of the chart, beyond the inflation-led sell-off,  I don't have a problem imagining a one-year column showing double-digit returns and probably one with a 20 handle.

The chart above and the one below are poster boys for time spent invested in the markets. That may not mean much to short-term traders except to confirm the natural upside bias of the market over time and suggesting that it's a lot harder to be short than long and probably more profitable too.

As a trader what you are trying to do is slant probabilities in your favour in other words, put yourself in front of as many opportunities with a positive risk-reward ratio and a chance of success as possible...

You do that by being pragmatic, stop worrying about why and start focusing on how and if instead. Sensible risk management should ensure that you don't overtrade and don't blow up.

A practical attitude towards profit-taking and cutting losses should ensure that your capital grows.

If the chart above tells us one thing is that making money in the markets is not a sprint. It's more like a long-distance race over a circuit that’s set out as an obstacle course but if you pace yourself and get familiar with the hazards then you will have a lot less difficulty navigating them.