Over the past two months, I've continued to notice how bearish sentiment has gotten. You just can't seem to find many bulls wherever you look. Take AAII for instance. Sentiment has gotten so bad, that it is currently worst than it was during the COVID-19 bear market!
Everyone seems to be calling for some sort of economic collapse at this point. Take a look of some of the YouTube videos that have appeared on my homepage recently:
Now, I have nothing personal against any of these YouTubers, but here's what I'm trying to get after: when something seems blatantly obvious it may often be too late, and the majority is often radically wrong at major market turning points. While sentiment is bearish, we have yet to see a strong move higher in the Put/Call ratio or the VIX. This is something I would like to see to bring panic to the market as I believe it would ultimately lead to capitulation.
Stocks: Solar, China, and Medical Stocks Are Showing Strength
Bearish sentiment on its' own is not a standalone indicator. I like to see accumulation in individual stocks and on the indexes before I get aggressive. I've started to notice strength building in three areas in particular: China, solar, and biotech / medical stocks.
PDD, LI, BABA, and JKS are all Chinese stocks that have showed impressive action this week. PDD and LI have doubled in a very short amount of time-a very important clue considering the general market conditions.
Solar stocks are really heating up as well. DQ, JKS, and ENPH are three that stand out the most to me. At a fourth of July barbeque last weekend, I spoke to some friends who just had Enphase solar panels installed on their property. It's something that is become more and more attractive to homeowners when they realize the potential benefits.
Medical stocks like VRTX, LNTH, LLY, MCK, CNC, and BLTE have also been an area of interest for me. Anytime I see a stock trading near 52-week highs during a bear market, I'm going to make a note to keep watch for a buy point.
So where does this all leave us? Firstly, I think it is important to note that sometimes stocks will move PRIOR to a general index making a low. In addition, even if an index does indeed bottom, if the following months are choppy or volatile, it's still best to proceed with caution. That's where I think we are now. I currently own some of the stocks mentioned in this post, but am not in a hurry to get fully invested. It's best to buy some stocks and see how they act instead of plunging in recklessly. When we look at the market cycle chart below, clearly we are at the lower end of the cycle, but we may just need to get the VIX higher to get send panic and capitulation into the market. This could happen sometime between August and October, which are often volatile times for the market.
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Full Disclosure: I currently own some of the stocks mentioned in this blog post.
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