The Correction Continues

by JDH on February 25, 2023

Last week I discussed whether the bear market was over, or if there was more pain to come.

The answer: more pain.

The down channel that started in January 2022 on the SPX appeared to have been broken in February, but the decline of this past week shows that it was likely a false breakout.  I expect the market to return to it’s previous support level around 3,800, and I expect it to happen in the next two weeks.

I’m playing it by shorting the market through SH – PROSHARES SHORT SP500-NEW, a very risky, short term security.  SH is NOT a long term hold.  It’s value degrades over time, so I expect to sell my shares before mid-March, hopefully at a profit.  We shall see.

My other investment is in bonds, on the assumption that interest rates have peaked, and will be trending down.

It appears that I may be earlier on that trade.  While the Bank of Canada has indicated a “pause”, persistent high inflation and low unemployment may encourage the Fed to raise one or two more times.

My current fixed income investments (a series of low cost ETFs) are down between 0.5% and 1.0% since I purchased them a month ago.  They do pay interest each month, so my losses are less than that.  For now, I will hold, and deploy more cash after the next round of hikes.

That’s the plan.

Fun times.  See you next week.