Yahoo Finance Zacks Investment Ideas feature highlights: Nasdaq 100 Index ETF and S&P 500 Index ETF
For Immediate Release
Chicago, IL – January 25, 2024 – Today, Zacks Investment Ideas feature highlights Nasdaq 100 Index ETF QQQ and S&P 500 Index ETF SPY.
Stocks May Pause: 5 Reasons to Be "Strategically Inactive"
Jesse Livermore and Paul Tudor Jones are two of the most successful investors of their time. Livermore rose to prominence in the early 20th century while Paul Tudor Jones made his fortune in the infamous “Black Monday” crash of 1987. Though both investors hail from completely different eras, interestingly, they both share the same view of markets on respect – adaptability.
“You adapt, evolve, compete, or die.” ~Paul Tudor Jones
“There’s a time to go long, a time to go short, and a time to go fishing.”~Jesse Livermore
Both of the above quotes encapsulate the essence of market timing in trading, suggesting that in the dynamic world of financial markets, savvy traders discern the most opportune moments to be bullish, bearish, or sit on the sideline. In a world of instant gratification, it’s the latter that is the most difficult for amateur investors.
“A time to go fishing” underscores the importance of patience and refraining from active trading during certain market conditions. In studying these successful investors, I have found that strategic inactivity is one of the most integral components of a well-rounded approach to navigating the complexities of financial markets. Below are five reasons investors should take their foot off the gas pedal at this juncture:
Interest Rates May Not Decrease as Fast as Anticipated
Interest rate policy can significantly impact market liquidity and thus returns. Though the CME FedWatch Tool and the market has been discounting multiple interest rate cuts in 2024, it appears that they will not come as soon as investors initially thought. For example, in December, there was an 85% chance that the Fed would start cutting rates in March. Now, the odds favor a 40% chance of a cut.
Fib Extension Hit
Fibonacci retracement levels help traders identify potential support or resistance levels in a price trend. The 1.618 Fibonacci extension level often acts as resistance in financial markets as traders use the level to sell or take profits. This week the Nasdaq 100 Index ETF reached its 1.618 Fib level – an area where markets tend to stall.
Sentiment Is Red Hot Again
The CNN Fear & Greed Index is flashing “Extreme Greed” levels. The past three times extreme greed signals flashed, the S&P 500 Index ETF and the entire market experienced multi-week pullbacks.
Election Year Seasonality
Historically, Presidential Election Seasonality trends tell us that stocks tend to have a choppy first half of the year before rallying into year-end.
Extreme Tick Reading
Tick measures the minimum price movement of a security or basket of securities, either up or down. The indicator represents a change in the last traded price of a stock and is used to gauge the intensity and direction of market movements. This morning the NYSE Tick flashed a +1500 tick, the highest reading in more than a month. An abnormally high signal means the market may need to take a breather or consolidate.
Bottom Line
Though stocks are in a raging bull market, 5 data points suggest that it may not be the best time to aggressively chase stocks. Instead, investors should take on a stance of strategic inactivity and wait for a “fat pitch.”
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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