foreign

guys so something interesting happened

on Friday's trading day we had a

significant shift in Market sentiment

let's take a look at what happened let's

zoom in right here so during the week

the market was actually looking like it

was really bearish right we had this I

mean we are on a clear downtrend you can

see that wave down that wave up to

resistance and we've down again then we

had that rebound but it looked like it

couldn't break through that that

resistance it looked it was breaking

through came back down again and it

looked like the market was heading back

down but then something happened on

Friday halfway through the trading day

the market reverse sentiment and we

closed really bullish almost every stock

closed up right we had this huge bullish

engulfing Candle on the daily charts so

what the heck happened something

happened well like Bruce brings you can

say is you can start a five without a

spot so what was the spot well nowhere

this fat official fat daily came out and

said it is important that we slow down

our rate hikes

and we'll perform a step down not a

pause yet but to maybe 50 to 25 basis

points increments because the market is

expecting the FED to raise interest

rates by against 75 basis points twice

so what this lady is saying is that hey

you know what maybe you should slow down

the moment that news came out Boom the

10-year yield started to come back down

and the market started really rallying

like crazy okay and that really goes to

show you how crazy this Market is this

this market right now is not based on

fundamentals it is not based on freaking

fundamentals a lot of companies are

doing well profits are growing markets

going down why purely sentiment because

everyone is kind of like kind of like

fixated on the fat raising interest

rates too fast and a 10-year you going

up like crazy so the moment the Fed

kind of like saying that hey you know

what maybe we're gonna slow down Boom

the sentiment shifts the market starts

to go up now this is not the only

capitalist another thing that was

brewing was that hey

corporate earnings are now coming in a

lot better than expected I mean what

were all the profits of Doom saying

you're saying all earnings are gonna be

terrible when corporate earnings are

released they're gonna crush the S P 500

you know what quarter one earnings were

good

Quarter Two earnings were good and they

said quarter three is going to be

terrible hey it's looking pretty good

right now so far out of the S P 500

companies that have reported earnings

for quarter three which just started a

couple of weeks ago

seventy percent of these companies have

beaten Revenue estimates

which is above the five-year average of

69 percent and above the 10-year average

of 62 percent in other words there are

more companies beating their revenue and

earnings estimates then the last five to

ten years for example JP Morgan Bank of

America came out with great earnings the

stocks went up Boston beer came up with

great earnings Johnson Johnson great

earnings they're all showing great

earnings of course there were some

companies like Snap reporting lousy

earnings but then against snap is a

lousy company but solid companies are

reporting great earnings

and again that is another pop the

Catalyst that kind of like drove the

market up strongly on Friday showing

people that dude where's my recession

what recession right yeah we could be on

a recession but companies are still

growing their profits now let me tell

you something really interesting

this bear Market is the first bear

Market in 120 years

to happen without corporate earnings

Contracting now think about it in all

the past bear markets in 2020 the covet

recession in 2009 the great financial

crisis in 2000 the.com crash in all

those bear markets corporate earnings

contracted companies profits fell by 20

30 40 this is the only bear Market where

company profits are not going down they

are going up

so the only thing that's causing the

market to come down

is the contraction of the PE multiple

because of the FED raising rates too

fast and I'm gonna again talk about this

later on that

the FED funds rate it's not that it's

too high it's been higher before the

10-year yield is not that it's too high

it's been even higher before but the

fact is that it's been going up too fast

it's kind of like a scuba diver

you know deep down going up to the

surface too fast as far as if you go up

too fast what happens you get

decompression sickness your your lungs

can explode and that's what what's

happening right now

so the good news is this the FED does

not have to cut interest rates in order

for the market to go up they don't have

to do that

all they got to do is to not raise it so

fast

all they got to do is to slow down the

rate hikes and a 10-year use slows down

that alone will spark an explosive rally

because again corporate earnings are

doing well corporate earnings are

growing I mean they of course they could

decline next year I'm not saying they

can't but right now they are growing and

the only thing that's causing the market

to go down again is the 10-year yield so

once the 10-year yield begins to kind of

like flatten or starts to retrace Boom

the Market's going to explode and that

Spa could be happening right now now

let's go back and look at the charts

I like to approach the approach things

in a few ways first I like to look at

the technicals and back up the

technicals with fundamentals now if you

look at the daily charts

do I see a change in the trend

not really I don't really see that right

because I mean the 20 EMA is still below

the 40 EMA okay the 50 moving average is

still below the 150 moving average so on

The Daily time frame it looks like it's

still a downtrend I don't see any change

in the uptrend

but if you go to the weekly candles you

can see that on the weekly candle time

frame we do have a very very uh

interesting reversal setup and I call

this a slingshot pattern Allison calls

this the downtrend reversal pattern

right it's basically the same thing so

this pattern shows you that we have a

high probability that a market is going

to rebound at this level

okay now whether or not this is the

bottom of the bear Market I can't say

for sure

right now okay because there is a strong

level of resistance right here so the

market has to break Above This

resistance level in order to proceed a

lot higher okay but for now I would say

that there is

a pretty good probability that where we

are right now we have some upside at

least to this resistance level which is

quite a bit of profits to take if you

are swing Trader uh that is okay

so why is this a reversal pattern meets

a few criterias number one if you look

at stochastics it is way oversold

you can see this is a classic double

bottom pattern so it made a low here

made a double low here and then closed

back above that first low within five uh

candles in this case the weekly candles

you can see as well as the Bollinger

Bands it

broke below or rather it tested below

the lower Bollinger band so basically

this is what we call a

reversal setup okay and we're looking at

a possible bounce again

possibly to this level of resistance

again is this the absolute bottom it may

but I can't say for sure but what I'm

saying right now is that we could see a

rally at least for the next couple of

weeks okay so again this is based on the

technical charts now whenever I say hey

the market has a probability of going up

or going down we don't just look at

technicals we have to look at

fundamentals we look at seasonal charts

as well so what do fundamentals and

seasonal charts tell us now I've said

this many many times at the beginning of

this year that this happens to be the

second year in the presidential election

cycle and also the U.S midterm election

year which is right here

2022 okay so you can see that so far uh

this year's stock market performance

looks pretty much like a typical second

presidential year cycle right where the

for the most of the year you can see a

downtrend and during the last quarter we

see a strong rally over here so right

now I've said this before that we should

expect a strong rally at the end of the

year because of many reasons one of them

is again the midterm election cycle so

why is that important because during

this midterm election cycle usually the

president's party which is which is the

Democrats right now they tend to lose

seats and lose power in the house and or

in the Senate and that's a good thing

for the markets because the markets like

the government to be gridlocked to be

divided because for example if the if

the Democrats they hold the White House

they hold the house and the Senate they

can pass through a lot of legislations

easily which the market doesn't like

because this creates a lot more

regulations on the market

so if the Democrats kind of like lose

the house or lose a senate then it's

harder for Biden to pass through any

legislations because whatever he wants

to do he may be blocked by the

Republicans so they block each other and

this causes gridlock in Washington and

markets love this because whenever the

government is kind of like tied up they

can't interfere with businesses and

businesses will then tend to invest more

spend more and the market goes up okay

so anyway that's how it works I'm not

saying that I agree with it but it just

works all right so based on this

seasonality again we can expect a strong

rally uh for the end of the year now how

does next year look look in terms of

this presidential election year cycle

looks in fact the best so the third year

in the U.S presidential election year

cycle tends to be the strongest year of

the four years right so next year we

could expect a very strong year and even

to 2024 all right again this is based on

this election year cycle is it a

guarantee is it 100 of cost or there's

no such thing okay all we can do is we

can look at technical charts we look at

economics we look at cycles and do they

all tell us the same story they're all

telling us the same story it just

increases the probability right but

again there's no guarantee it's

probability so it's important that

whether you're a trade or investor you

follow your trading plan and investing

plan

um and you just look at this as a bit of

a confirmation uh but of course managing

your risk throughout the entire

um process because again

even if a 90 probability it can still go

the other way always remember that so

never ever think that it's infallible

right everything uh can go the other way

uh it's it's possible as well now

what is also interesting is this as you

guys know the market is extremely

bearish okay if you ask retail investors

they're all very bearish institutions

are very very bearish and

investors cash levels are now at more

than two decades High

as bearish sentiment reaches maximum

levels and markets are at high

capitulation according to the latest

Global fund management survey by Bank of

America so in other words if you look at

fund managers now a lot of them have a

lot of cash on the sidelines it's a

record amount of cash again historically

you see that whenever they've got a lot

of cash on the sidelines it tends to

coincide near Market bottoms the moment

it looks like the market is going up

fund managers they don't want to lose

out so they'll start to put in all their

cash into the markets in order to not

miss on a rally and because there's so

much cash on the sidelines when they all

rush in boom you're gonna have this huge

explosion to the upside

it's kind of like a lot of dry wood

around so the moment you have a spark

you'll have a huge explosion to the

upside and a lot of

um

Traders are also net short the put call

ratio is also at a maximum right now a

lot of puts versus calls okay so again

the market tends to go the opposite of

what everyone expects but everyone's

really bearish the market tends to go

the other way so

um there is a lot of potential for this

rally to go up because once it goes up

shots get killed they have to buy back

their shots and by buying back their

shorts covering their shots that feels

even stronger games in the market

now some people would argue that hey the

stock market cannot go up because the

FED is reducing the money supply the FED

is going through quantitative tightening

so what that means is that the FED is

with withdrawing liquidity by selling

bonds and they're withdrawing 95 billion

dollars of liquidity per month or 1.14

trillion of liquidity a year from the

market so what they're saying is that if

the fat is kind of like reducing the

money supply the stock market cannot go

up but what they're not telling you is

that while the fat is taking our money

from the from the system money's coming

into the system from overseas

why

check this out U.S net private foreign

Capital inflows total a record

1.6 trillion over the last 12 months

and out of that one trillion is pouring

into U.S bonds so in other words the FED

is taking out money withdrawing

liquidity but new liquidity is coming in

from foreign capital from Saudi Arabia

from Asia from all around the world why

because

think about it for foreigners the U.S

market is the best place to park their

money because number one

um

U.S bonds are giving the highest

interest rates now think about it

imagine you're from a European country

um and you or you're from Japan for

example and you invested in the NASDAQ

or you invested in the S P 500 say a

year ago now you may say that hey

I'm down 25 on the S P 500 I'm down 30

on the NASDAQ right yes but although

they are down on the stocks but they

actually gain on the currency

because the US dollar has gained

versus the Japanese yen versus the Euro

so net net they are not down that much

and they are better off putting their

money in the U.S than investing in their

own country which is Japan and UK which

is even worse

okay so because of the strong dollar

versus the foreign currencies and high

interest rates foreign capital is

pouring into the U.S which offsets the

fed's withdrawal of liquidity so in

other words there's more enough

liquidity coming in to support stock

prices and the ongoing strength of the

dollars suggests that these inflows

remain huge so do better in mind that is

something a lot of people don't tell you

now again some people also think that

the okay by the way currently the p e

ratio of the S P 500 is 19 times

earnings which is historically low we

are about one standard deviation below

the 10-year average okay now some people

are saying that hey the S P 500 PE ratio

it can't go up

because of high interest rates which is

either the 10-year yield

or the FED funds rate wrong

again let me reiterate this what is

causing the PE to go down which is the P

contraction is not the high interest

rates because in the past interest rates

have been even higher but what's causing

the PE to go down is the fact that

interest rates have gone up too fast

so the moment it now so in other words

the fat doesn't have to cut interest

rates they just have to ensure it

doesn't go up so fast as long as they

slow down their rate height or they

pause it that's all that's needed for PE

multiples to expand again take a look at

this chart over here

the blue line

is the tenure treasury yield so right

now the tenure treasury yield has gone

up significantly you can see that in one

year it went from you know 0.5 percent

to now 4.22 it's gonna again too fast

that's what's freaking the market out

but historically you can see that the

10-year yield has been above four

percent

very often right you can see here it was

about four percent over here above four

percent over here above four percent

over here in fact the tenure you was as

high as freaking eight percent back in

the 1990s

and you can see that even when the

10-year yield was above four percent the

p e ratio of the S P 500 which is the

green line was a lot higher than where

it is today right in fact you can see

the p e ratio was 46 times here when the

10-year yield was above four percent the

P was 28 times over there 34 times 23

times

so what does this mean it means that the

10-year yield doesn't have to come down

for PE to expand

so once PE expands the stock market will

be readjusted a lot higher which I

explained in my previous video now this

is the 10-year yield next let's look at

the FED funds rate

which is the interest rate set by the

Federal Reserve so again what's freaking

the market out is that a Fed raised

interest rates really fast from zero to

3.25 percent in one year then that's

freaking the market out but again it's

not the rate itself is that it's gone up

too fast

now does the FED have to cut interest

rates for the stock market to go up no

because again historically there were

many times when the FED funds rate was

above 3.25 look over here above 3.25

above 3.25 above 3.25 and historically

you can see that even when the FED funds

rate

was going up

but not too fast okay the FED funds rate

went up from 3.25 to 5 what happened the

stock market rallied over that

the FED funds rate again

way above 3.25 here and the stock market

rallied all the way there

so again lesson

the FED doesn't have to cut interest

rates for the market to Rally it just

has to not

High

so fast and that's why when the FED

official daily said hey you know we're

going to slow down the Fed rate high

boom that Catalyst that spark is what is

setting the market on fire right now so

people ask me Adam if this is a current

reversal on the market does it make

sense to buy stocks right now so in my

opinion the answer is yes it depends now

if you are an investor in a high quality

company

or you're investor in the index ETF as

long as the market or the stock is

undervalued as long as it's at a support

level it makes sense to add shares now

do remember that as an investor you

never buy at one goal you always dollar

cost averaging in your position you

always buy in three to four tranches so

given the fact that the market is now

undervalued

and individual companies are undervalued

and if it's at a support level

especially there are size of reversals

it makes sense to add shares in my

opinion but then people say about Adam

what if this is not the bottom what if I

add shares and you know the market goes

up for a few days but then goes lower

then what well here's the thing it

doesn't matter if it goes lower it

doesn't matter if there is another

border why

because as an investor if you're buying

high quality companies it doesn't matter

if this is the bottom or another five

percent is the bottom or another seven

percent is important because ultimately

it will go up in the next one to three

years if you're investing the index or

you're investing in high quality

companies now people always think that

to be a successful investor I must buy

it right at the bottom of the crash or

right at the bottom of the bear market

and that's

well first of all it's almost impossible

to always call the bottom sometimes I

can but I can't all the time as you guys

can see I caught few bottoms and it went

lower right so no one can predict for

sure but again the good news is you

don't have to buy at the bottom to build

your wealth over time you just have to

buy

as long as it's undervalued because

people are afraid that you know if I buy

it keeps going lower it's going to take

a long time to break even it may take

years to break even they go back to the

70s or the financial crisis they say you

know some people took decades to break

even now is that really true

well not really let's take a look at

some charts so if you go back to the

great financial crisis of 2008 219 by

the way this is not the great financial

crisis there's nothing close to that

that was horrendous because uh banks

will over leverage households over

leverage and the whole system just

collapsed this is nothing to do with

that in fact right now like I mentioned

companies are still growing their

earnings but in the great financial

crisis companies earnings drop by 40 50

so even in that major crisis would you

have taken many years to break even so

let's take a look at the charts

this was the top of the market before

the financial crisis so people say that

hey if I were in the market over there

um it would have taken me let's see

all the way to here

to get back to break even and this is

the total of about five years so people

say you know what five years to break

even well that is if you bought all your

shares at the absolute top now if you

are a value investor you will never buy

all your shares at the top because it

was overvalued as a value investor you

only buy the index or you buy high

quality companies when they are

undervalued so again what I teach my

students is you buy when they are for

example uh 15 under value you start

buying

and again you buy in trenches which

means a 15 undervalued you buy one

trench right if it goes like 20 under

value buy another trench goes 25 you buy

another trade so you keep averaging your

position you call that dollar cost

averaging so if you are typical value

investor and you're averaging your

position would you buy

everything right at the bottom okay

unless you have a crystal ball no one

can buy right at the bottom but again

like I said you don't have to buy right

at the bottom if you average down

consistently then your average cost

should be somewhere in the middle over

here right so again you don't have to

have your average cost at the bottom as

long as it's somewhere in the middle of

a bear Market

you do pretty well why check it out if

this is your average cost it will take

you

from here to here that's about a year it

takes you a year to break even let me

say what that's still very long right

but you know as an investor one year is

nothing right and if you had the

patience to continue to stay in the

markets with your Investments you can

see that three years later you'll be up

to about

46.75

and if you held on uh for say five years

after that period you'll be up somewhere

about

110 percent

so it pays to be an investor because

it's investor like I said you will never

lose money as long as you buy the index

or high quality companies they may go

down the short term but if you're

patient they will always go higher now

this is if you bought the index

you get roughly these returns right now

but if you bought the highest quality

companies in the index so remember that

in the S P 500 these are the 500 biggest

companies and not all the companies are

profitable not all of them are great

companies so if you just focus on the

great companies the ones that pass my

criteria for example recently I

mentioned Amazon one of the best

companies in the world so if you

invested in Amazon or Microsoft or apple

or McDonald's or one of these great

companies you would in fact bring even a

lot faster

and get a lot higher returns so for

example during this time if you invested

in let's say Amazon would you have in

fact broken even even broken even even

faster and gotten high returns well

let's take a look right so let's add

Amazon in

and uh let's see how Amazon

We compare Amazon to the S P 500 right

so

the chart in Orange

represents uh Amazon so you can see that

Amazon actually bottomed here way before

the S P 500 so like I mentioned when you

buy high quality companies they tend to

bore them a lot earlier than the index

itself and they tend to start the uh

Rally or the Abu Market even before the

s p begins their bull market rally so

again

if you invested in Amazon and you bought

everything at the top

here

which you shouldn't right because you

want to buy when it's undervalued you

average in your position but even if you

bought right at the top

um how long would it would it have taken

you to break even after that bear Market

let's take a look right so if you bought

that

okay so it went all the way down all the

way up and you would have broken even

broken even over there so this would

have taken about 1.4 years to break even

and that's why again as an investor you

never buy it once and you never buy at

the top all right you buy only when it's

undervalued and you average in your

position and again you don't have to buy

the bottom so if you had an average cost

of Amazon and let's say somewhere at the

middle

of this bear market crash okay

um how long will it have taken for you

to break even so again if this was your

average uh cost over here this was your

average cost you would have taken you

less than four months in just four

months to break even on your position

and if you held on to the position how

much money would you have made so we can

take a closer look by switching the main

chart to Amazon so this is the Amazon

chart you can see that after you break

even in about less than four months uh

in about two years

from there you can see your app about

200 percent

200 in about two and a half years so it

pays to again only invest in the highest

quality companies if you have the skill

to pick them within the markets now some

of you may say by Adam if I'm not an

investor I'm not a long-term investor

I'm a short-term Trader then does it

make sense to enter the market right now

given this potential reversal yes as a

Trader once you see a trading setup a

potential reversal you can enter the

trade but again as a Trader you always

have to put a stop loss to ensure that

if the trade fails you only risk a small

percentage of your capital and you put a

profit Target so that if it goes in your

direction you make more in your right

you lose less when you're wrong so again

let's take a look if you were for

example intending to trade the Spy ETF

and you say okay here's a potential

reversal uh there's a probability that

markets can go higher how could I take

advantage of this again what you could

do is when a Market's open on Monday

again you could trade on the weekly

candles or trade on The Daily candles is

really your preference so because the

pattern is appearing on the weekly

candles it makes sense to trade on the

weekly candles right so what you could

do for example as a Trader is you could

say okay when the Market's open

on Monday any trades higher I will enter

a buy position somewhere

here right if it if the market exceeds

the high of Friday's candle right I'm

gonna put a buy order over there so if I

buy over there

um where do I put my stop loss you can

put a stop loss right at this uh swing

low over there well actually this is a

swing low but if you put it over here

then your risk distance will be quite

large since these are weekly candles you

can also put your stop loss below this

candle over there so if you put a stop

loss over here

what is your one hour distance again R

represents your risk how many uh dollars

are you risking per share so for example

if you buy a 375 for example and your

stop loss is let's say at 355

then your one hour distance would be

twenty dollars so every one share you

buy of sby you're risking twenty dollars

so if you are risking twenty dollars one

hour then you wanna take profit at at

least more than one hour right you could

take profit at 1.5 r or even 2R for

example so if you put your profit Target

at 2R you're going for a 40 profit

Target so forty dollars above 375

okay or what you could also do is this

you could actually have your profit

Target at the resistance right at the

level of resistance that we talked about

let's let's zoom out

and the resistance level would be

somewhere

here

Okay so

The Profit Target would be about four

one eight okay so if you're targeting

418 as your

trade Target

you're going to take profit at say 418

over here

uh what's your potential return so 418

minus 375

that's about 43 dollars right

so you're risking twenty dollars to make

forty three dollars and that's a pretty

good trade so again in trading you have

to ensure a favorable risk reward ratio

when you risk a dollar to make two

dollars or more so this this seems like

a favorable trade and again you could

enter the trade directly if the stocks

or you could enter using options and

again there are many options strategies

that we use in our purana profits uh

training program now the most important

thing again in trading is to always

ensure that you risk a small percentage

of your Capital because every trade can

be a losing trade and every trade can be

a winning trade so again it's all about

risk management

for example if you have got a 10 a 10

000 account you're trading with and say

you want to risk three percent of that

all right so what's three percent of ten

thousand dollars

three hundred dollars okay so three

hundred dollars should be your maximum

risk on any trade so if this is your

total risk

and this is your risk per share you take

your total risk 300 divided by twenty

dollars

what does that give you that gives you

uh 15 shares

so this is how you size your position so

you buy 15 shares of spy

so your position size for this trade

would be 15 shares times uh 375 which is

your entry price right so 15 times 375

so you're entering a position of

5625 that's your position size now is

this your risk is that the risk you're

taking five grand no your risk is 300

that's your risk why because if you

enter the trade

it hits your stop loss you lose 20 bucks

per share

and since you buy 15 shares 15 shares

times 20 loss that's 300

risk all right so you're risking 300

bucks to make more than 600 if you're

using

or rather if you're taking this as a

trade and again you don't have to trade

the Spy you can trade a lot of other

stocks that are also showing a reversal

pattern or showing a breakout pattern

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cool and may the markets be with you