Romulus Report: Clarity amidst noise

MARKET Watch

Ancient mystics and monks removed themselves from the general population, instead seeking isolation and solitude. They believed a simple, quiet lifestyle was a path to enlightenment.

We, by contrast, live in the loudest period in history. An endless avalanche of noise vies for our attention. This Herculean effort to grab us shows up in the markets also.

Bear markets, by their nature, are more volatile than bull markets. Bull markets, by their nature, capture most of the history. During its 230-year track record, the American stock market has spent almost 70% of its time in an uptrend. This fact keeps investors wondering if they should stay in the market. At the same time, the everyday news of wars, inflation, droughts and slower growth keeps investors thinking about selling.

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The mixture of these leads to lots of actions and reactions and steeper swings in trading. Each new headline seems to contradict the previous announcement. A "dog-pile in, dog pile out" trading environment results. Throw in a mid-term election and dictators with their fingers on the nuclear button and investors have too much to figure out. 

As an antidote, I have cultivated a lifestyle of minimalism, simplicity, and quiet. It is basic living by modern standards. I don’t have a fancy car, lots of clothes, or many material possessions. A bicycle is my main mode of transportation, weather permitting. I eat according to a strict but easy to follow plan. I maintain a consistent exercise regimen. There is not enough time for meditation and prayer, but they are still part of my daily routine. 

The life I choose gives me clarity to see and hear the markets for what they really are. Most of the noise is filtered out and only the proper amount of light is allowed in. One solution to the pursuit of better trading results is to simplify your life. Turn down the noise. Avoid the daily distractions and pitfalls. Stay focused on your plan. 

In 2020, in a piece circulated privately among my trading group, before the launch of this column, I predicted that the age of the tech titan was over. Tech will continue to lead the markets, but the era of the great titans has ended.

Apple isn’t the only big technology stock giving investors a sour taste these days. Despite last week's bounce in the markets, the losses people have suffered in MSFT, GOOG and AMZN are breathtaking. As of the close of Friday, Nov. 18, APPL and MSFT are still down just over 30%. GOOG is down 35%, and AMZN is down 50% from its all time high. Except for META (Facebook), which is down an extraordinary 70%, these companies are still ridiculously overvalued.

There is a lot of talk today about buying the dips in these long-time favorites. Old habits die hard, and the habit of buying big tech is demonstrating the hardest death. 

Probably a few short-term trading opportunities will develop in this space, but the evidence for anything more than a quick trade is simply not around. Whereas the longest running bull market in history led to several benefits for these firms, the positive feedback loop will now work in reverse. Layoffs across the sector will lead to slowing growth, which will lead to more layoffs, etc. 

In addition to valuation problems, the charts for the big tech stocks do not look like bottoming formations. Starting with QQQ, is still well below its 200-day moving average (red). AMZN broke down from a massive long-term top several months ago, but it could keep suffering for months to come. GOOG looks gutted. AAPL is struggling. Short-term bounces aside, these stocks look sick.  

META is the worst performing stock in the S&P 500 for the year so far. There is one point of almost absolute certainty that can be taken from this fact. META will not be the worst performing stock in 2023. MRNA held that title in 2021, and it is only down 35% so far this year. Something to think about. 

As the bulls are rambling on about catching falling knives in tech land, they are raving about China coming off covid lockdowns and what that will do to Chinese stocks. Look back at this entire bear market. There is always something that is about to happen that will bring the sun back out. The war is going to end. Inflation will cool. Earnings will get better. Election results will prove bullish. There is always something. And yet, stocks keep probing new lows every few months. 

We are in a bear market. Block out the noise. Filter the light.

After the coming selling climax, buyers will return. That is when it will be safe to go back into the water. 

Wealth, like Rome, cannot be built in a day. But, like Rome, it can be lost in a day. Watch for future announcements from Romulus about profitable market moves, important indicators, and major market swings. For trading education, mentoring, or to beat the markets with Romulus’ trading group, contact romulusteaches@yahoo.com.

About the author: In his real-life existence, Romulus started on Wall Street in 1994 and traded for a hedge fund for 13 years. Since 1994, he has called every major market top ahead of time and profited from them, including the break of the Dot-com bubble in 2000, the market crashes of 2008 and 2009, and the Covid crash of 2020. Since 2020 he has been working with investors and traders to actively manage their portfolios by growing wealth, not risk, as a teacher and mentor working with Backpack Trader, a stock trading educational company.