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Oversold Markets Can Turn Into Market Crashes

Kurt S. Altrichter, CRPS®
Kurt S. Altrichter, CRPS®
  • Last week, the Fed raised the target of the Fed Funds rate from 2.25% to 3%, pretty much what was expected.
  • It’s getting pretty ugly in the markets.
  • The fear might actually be setting in.
  • But the $VIX is still moving sluggishly.

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Click HERE for the full analysis.
Oversold Markets Can Turn Into Market Crashes
The Ivory Hill RiskSIGNAL is still red (since January) and we are sitting on roughly 80%-85% cash. We got stopped out of a few positions last week, so that is why our cash position increased. I would not be surprised to see additional stops hit this week as well. There are not a lot of ways to make money in this market right now unless you are running a very quick and disciplined long/short intraday trading strategy focused on full cycle investing.
Unfortunately for many people, the Fed’s insistence upon tightening into a global recession is eviscerating the historic capital market bubbles they created. Millions of investors’ portfolios (who were not proactively positioned for this epic drawdown) are getting pummeled.
Making matters worse, 85% of countries are expected to be in a recession over the next 3 quarters, meaning your global economy is increasing rates into a slowdown. I won’t sugar coat this. It’s getting pretty ugly.
Here’s a quick look at some key numbers from the market havoc:
Let’s take a step back for a moment and review what’s happened so far this year.
Like everyone else, we experienced a sharp decline in January of this year. We were long value stocks, mega-cap tech, and low beta defensive stocks, which is exactly where we should have been considering the value over growth trade started in late 2020 and all of 2021.
On January 21, the Ivory Hill RiskSIGNAL fired off a sell signal to reduce exposure to stocks, which we raised 60%-70% cash. This was the first time our signal flipped red since March 4, 2020.
It’s important to remember that the Ivory Hill RiskSIGNAL is a proprietary, math-based indicator specifically designed to mitigate downside risk. It is driven by mathematical market-based price ratios and trend indicators that attempt to avoid significant market selloffs by moving out of stocks during periods of high volatility and then aggressively deploying that capital back into the market once the storm is over.
We do not try to predict market direction. Volatility is predictable and can be positioned for in advance. I focus on volatility because it is often associated with down markets.
Kurt S. Altrichter, CRPS®
Volatility is predictable, market direction is not.
It is also important to know that our signals are rules-based, which means we follow them regardless of what we think is going to happen. The very essence of why I invented the signal was to completely eliminate emotions from the equation.
Investing with emotions, in my opinion, destroys long-term returns.
I will be the first to say it is not a perfect system and, by design, it is not predictive of market direction. The only person I know who had a perfect indicator that predicted market direction was Bernie Madoff, and we all know that story.
And Now, Back to Our Regularly Scheduled Programming.
The S&P 500 has wiped-out all gains from 2021.
This might sound like an exaggerated statement, but something looks seriously broken in this market. Both the large cap and small cap indices are retesting the June lows.
Last week’s market action was the second week in a row that the S&P 500 and Russell 2000 were down at least 4%, while longer-term Treasuries dropped at least 1%. This looks less like a reaction to inflation concerns and more like one to the idea that something is fundamentally broken here.
Long-term Treasuries are down 28% on the year. Bond yields continue to push higher even in the face of a deteriorating economy.
The 2-year Treasury yield topped 4% for the first time since 2007. The housing market crash is likely to accelerate from here.
China and Japan have begun manipulating their currencies. The Fed tightened conditions again last week and indicated they will continue to do so for the foreseeable future. Jerome Powell confirmed that a recession in the U.S. is probably unavoidable and won’t do anything to stop it. Is anyone paying attention to this?
Click HERE for the full analysis.
Outperformance is achieved through the avoidance of major market crashes.
Best regards,
-Kurt
Schedule a call with me by clicking HERE
Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President
8400 Normandale Lake Blvd, Suite 920, Bloomington, MN 55437
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Kurt S. Altrichter, CRPS®
Kurt S. Altrichter, CRPS® @kurtsaltrichter

Macro Insights, Actionable Investment Ideas, and Education. From the desk of Ivory Hill's CIO, Kurt S. Altrichter, CRPS® directly to your inbox. Long-term outperformance is achieved through the avoidance of major market crashes.

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8400 Normandale Lake Blvd, Suite 920, Bloomington, MN 55437