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Getting Ready for Another Possible Crash After the Bear Market Rally?

Forex Factory


I was looking at my GInvest funds and wondering, "Should I still be buying more?" Right now, what I'm doing is to value cost average. That is, it's best to invest a certain sum per month and buy more during a crash. Though, some people prefer to keep it safe by cost averaging. I was looking at my three recent investments (aside from AXA Chinese Tycoon Fund) are namely the ATRAM Philippine Equity Smart Index Fund, and the two feeder funds namely (1) ATRAM Consumer Trends Feeder Fund, and (2) ATRAM Global Technology Feeder Fund. So far, my invested amount has had a slight profit as technology stocks have rallied.

The Investopedia defines the bear market rally as:
Bear market rally refers to a sharp, short-term rebound in share prices amid a longer-term bear market decline. Bear market rallies are treacherous for investors who mistakenly come to believe they mark the end of an extended downturn. As the primary bearish trend reasserts itself, the disappointment of those who bought during a bear market rally helps to drive prices to new lows.

So, it's a good thing that I decided not to sell my feeder funds for a meager low profit. Besides, those feeder funds I mentioned will take eight days before they can be credited. What would be important is to plan on what to do next. I feel the rebound will come sooner or later. 

Forbes warns that the bear market rally is but a bear market rally. These are wise words from Forbes which I'd listen to over people who have a MARITES in management and economics (read here):

Though stocks have mounted a stunning comeback from June lows as investors grow more optimistic about cooling inflation and the Federal Reserve potentially scaling back interest rate hikes, the recent rebound is nothing more than a “classic bear” market rally which is likely to hit new lows, according to analysts at Bank of America.

The key facts (according to Forbes) to watch out for are as follows:

The summer stock market rally looks to be almost over, according to a recent note from Bank of America chief investment strategist Michael Hartnett, who points to data suggesting that recent gains are a “textbook” bear market rally which is poised to soon run out of steam.

The S&P 500 has jumped more than 15% since hitting a low point for the year in mid-June, in large part thanks to better-than-expected economic data—including a strong jobs report and cooling in consumer prices—in recent weeks.

Despite investor hopes that the worst has passed after a brutal selloff in the first half of 2022, analysts at Bank of America are among experts ramping up warnings in recent weeks that stocks still have further to fall.

“Everyone is bearish but no one has sold stocks,” Hartnett says, pointing to irrational trading activity in meme stocks and adding that after four straight weeks of gains, the market is showing many characteristics of what is likely to be a “self-defeating rally.”

The Bank of America analyst points to the fact that out of 43 bear market rallies since 1929 in which the S&P 500 gained over 10%, the average increase is roughly 17.2% over 39 trading days—meaning that the current rally appears to be maxed out, according to historical data.

What’s more, even after increasing the federal funds rate by 2.25% so far this year, the Federal Reserve is “nowhere near done” with rate hikes to combat inflation, he warns, which will likely put a ceiling on recent market gains. 

Chances are, I'm expecting the Philippine Stock Exchange index (PSEi) and the American stock market to crash any time soon. Is it a call to panic? I feel some people may have decided to buy more stocks during the bear market rally than the bear market itself (read here). I guess some people are probably now panic-selling again as the bear market rally is over. Somebody might've even jumped off the roof of the PSEi building because the bear market rally is over. 

Meanwhile, wise investors like Warren Edward Buffett (read here) would take advantage of these. As Buffett says, treat the fluctuations as a friend than an enemy and profit from folly than participate in it. I feel like some foolish investors will panic selling when the bear market rally is officially over. Chances are the NAVPU of equity funds will lower. If you're cost averaging, that sum will buy more units than it did during the bear market rally. If you do value cost averaging--it's probably time to get a lump sum ready to buy more units of stock either through direct trading or equity funds. As Buffett says, one could periodically invest in an index fund and might outperform the professionals (read here).

I believe the bear market is still continuing. I think it's time to reflect--are you gambling or investing during this bear market (read here)? It's because it'd be wiser to continue investing in AXA equity funds (which uses cost averaging) than withdrawing it to play Axie Infinity (read here). It would be best to buy and hold stocks (or index funds) for now instead of doing dangerous daily trading (read here). Investing can be boring but the returns can be better than the exciting world of gambling where pleasure is but fleeting. Right now, it's best to be ready with some money for investment than to whine that the bear market is far from over. 

References

Websites

"Bank Of America Warns Of ‘Textbook’ Bear Market Rally, Predicting New Lows For Stocks"  by Sergei Klebnikov (August 19, 2022) 

"Bear Market Rally" by Adam Hayes, reviewed by Gordon Scott, fact-checked by Kathy Munichiello (Updated May 17, 2022)

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