One More Rally to End the Year
December 22, 2022
Knox Ridley
Portfolio Manager
Sentiment continues to show some of the most bearish readings we’ve seen since the 2022 bear market began. The AAII, which is a survey that asks investors if they are bullish, neutral or bearish 6 months out, just gave us the lowest reading of bulls since the October low.
Recently, only 24% of those surveyed are expecting bullish results over the next 6 months. Compared with the March low in 2009, this is not too far off that reading, which came in at around 19%.
When we look at the options market, we are seeing a similar rare pattern that has only occurred two times in the last 16 years. This is when we see an outsized ratio of puts being bought while the market is in an uptrend.
Regarding the put/call ratio, any reading over one signals that more puts are being bought over calls. A reading over 1.1 is reasonably rare, which I would consider a fear spike. What you’ll notice is that fear spikes occur mostly in downtrends, and culminate around the lows. The tan regions show multiple fear spikes occurring while the market is in an uptrend (2013, 2017, 2022). Each instance prior saw higher stock prices before a correction began.
Rarely do we see the market rewarding a crowded trade. Even when that trade makes the most sense. In order for a setup to go lower, we need to see sentiment reset. There is a high level of bearish bets right now, and these will likely need to unwind if we are going lower.
Interestingly, this lines up with what we have been saying for the last 3 weeks here, which is summarized in the most recent YouTube video below.
We have been raising large sums of cash throughout late November/early December in preparation for a volatile month. The volatility has only increased the number of bearish bets in the market as many stocks approach oversold conditions again. We believe that the market is setting up for another rally, which should last through early January.
Sign up for I/O Fund's free newsletter with gains of up to 221% - Click here
Whether we drop to new lows, or continue higher is yet to be seen. There are some markets in the US and abroad that have clean setups to new highs, which we’ve discussed here and here. This would certainly be the contrarian perspective going into 2023, which is worth acknowledging. However, the global central banks went on an aggressive rate hiking campaign while shifting global trade dynamics are exacerbating inflationary pressures worldwide. This is happening while we are experiencing drastic decelerations in key tech sectors, which we discussed here. So, we are not married to a thesis, and are ready to shift in either direction once we get clear signals. We believe the biggest risk that investors face going into 2023 is thinking they know what will happen and not considering there is more than one possibility.
In conclusion, we believe there will be a Christmas Rally of sorts as the probability favors a move higher as we enter 2023 into the first couple of weeks of January. Both the market internals and sentiment have reached a level of bearishness that rarely leads to a prolonged drop. Look for this to reset before we go lower.
Regarding the long-term narrative, instead of leaning into a thesis, we prefer to let price action determine whether we hedge, or leverage our portfolio to the long side. This neutral stance has been rewarding for us as an all-tech portfolio. As of now, we are leading our all-tech peers and our audited results will be out in Q1 of 2023.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Gains of up to 2,390% from our Free Newsletter.
Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!
+2,390% on Nvidia
+450% on Bitcoin
*as of Jun 25, 2024
Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.
If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 3,900% on Nvidia, 850% on Chainlink, and 695% on Bitcoin. The I/O Fund is audited annually to prove it’s one of the best-performing Funds on the market, with returns that beat Wall Street funds.
More To Explore
Newsletter
Nvidia Stock Is Selling Off: It’s Not Because Of Blackwell
Direct liquid cooling doesn’t lie as it’s intricately linked to the Blackwell launch, implying that Blackwell would indeed ship by Q4 – and Nvidia just confirmed that (multiple times) in Q2’s release.
Nvidia Stock: Blackwell Suppliers Shrug Off Delay Ahead Of Q2 Earnings
Bulletproof Nvidia showed an unusual bout of weakness this past month following a report from The Information that Nvidia’s new AI chips are delayed. The report asserts that Nvidia’s upcoming artifici
Arm Stock: Buy Its Customers, Not The Stock
Arm Holdings is the third-best performer of 2024 in AI-related semiconductor stocks with a 56% YTD return, behind only Nvidia and Taiwan Semiconductor.
Big Tech Battles On AI, Here’s The Winner
The major theme over the past month in Big Tech and AI semiconductors has been the durability of demand: essentially, what is Big Tech’s return on more than $150 billion in capex over the last twelve
Bitcoin Update: Next Stop $100,000
Bitcoin is the best performing asset in market history. There is no stock or asset that has come close to delivering the returns of this digital currency --- it has greatly outperformed all FAANGs, an
Mag 7 Stocks Should See One More High
Optimism around the Fed could spark a continuation of the relief rally in the Russell 2000 and further rotation out of the Mag 7. Below, we look at the pros and cons of a Mag 7 rotation and how we pla
Palantir’s Stock Is Priced For Perfection
Heading into 2024, Palantir was exhibiting “multiple signs of acceleration” stemming from strong growth in its US commercial segment, driven by AIP, Palantir’s Artificial Intelligence Platform that le
Tesla’s Q2 Deliveries Strong, But What’s To Come?
After months of being the lowest performing Mag 7 stocks, Tesla saw rapid gains — up 42% in a one month rally, with 37% of those gains in eight sessions — after it reported Q2 deliveries ahead of expe
How to Participate in Tech: The Million Dollar Question (Video Highlights)
With audited returns of 131% since inception, compared to the NASDAQ-100’s 82%, portfolio manager, Knox Ridley, lays out how we have successfully maintained an overexposure to the right tech stocks, w
This AI Stock Could Outpace Nvidia’s Returns by 2030
Lead Tech Analyst and CEO Beth Kindig recently joined Real Vision’s Nico Brugge to discuss her AI outlook on leading AI stock Nvidia, while sharing which AI stock she believes may outpace Nvidia’s ret