Education - Member Q&A

This website offers three (3) user-driven Question & Answer features. One is exclusively focused on questions related to our flagship newsletter product and only for subscribers. The FAQ (Frequently Asked Questions) feature also available in the Education menu is mostly for website use and general customer service questions. But THIS one is for ALL followers -- subscribers or not -- and is focused on investor-driven educational topics.


Our followers ask questions. We differ from many competitors by LISTENING and trying to answer up to every question. Sometimes the answers are better suited for delivery in an existing or future special report, webinar of investing insight topic. Sometimes the questions better fit in one of the other Q&A features. However, when we are asked a question that -- if answered well (which is the only way we do it) -- will be of interest to our followers as a whole, it very well may be posted here as soon as we can. Below find a batch of recently-asked questions and well-developed, all-original answers. Click the question bar to reveal the answer. Click another question bar to close one question and open another. 


Is this stock market rally the beginning of a new bull market?

As we have always said, anything is possible with financial market prices, since they are ultimately driven by investors shifting between optimism and pessimism en masse due to herding behavior, which is an ancient survival mechanism for humans. 

But at this point, the recent rise in stock prices appears to be another bear market rally until proven otherwise, since the weight of the evidence of our fundamental and technical indicators remains decidedly negative.


Short Covering Rally?

So far, stock market volume has been subdued, suggesting this rally is being driven more by “short covering” (short sellers “covering their shorts” by buying the stock back that they have borrowed and shorted) rather than real long-term buying. Also, the leadership in this rally has been the most beaten-down sectors and stocks, such as Tech and Consumer Discretionary stocks. 

For example, Tesla (ticker: TSLA) had fallen 75% from its late 2021 high through early January. But in the past three weeks, it has rallied 50%. It is expensive at 45x forward EPS (Earnings Per Share) now, up from 30x three weeks ago, and the earnings outlook is not one that makes for a great stock. EPS is expected to decline 3.2% this year and 100% of EPS estimate revisions have been negative over the past three months. EPS estimates for 2023 have been cut by 32% since October. This is not the typical foundation to drive an expensive “growth stock” like TSLA to new highs.

The chart below of the NASDAQ 100 ETF (ticker: QQQ) shows this rally has now brought this tech-heavy index back to overbought levels, per the Stochastics and RSI. We placed red vertical lines on the three previous times the QQQ was overbought like this. All three times were followed by significant price declines. The same is true for the S&P 500 and most other major stock indexes.


QQQ



Financial Conditions Have Eased…

Related to the rally in stocks, financial conditions have eased significantly in the past three months, as shown in the chart below of the Chicago Fed National Financial Conditions Index (blue line) and the Wilshire 5000 stock index (red line). Typically, easing financial conditions (falling blue line) coincide with rising stock prices (rising red line), although that did not happen in the early 2000s stock bear market.


Financial Conditions​​​​​​​


And Commodity Prices Have Risen…

One important aspect of easing financial conditions is that many commodity prices have been rising lately, which will add upward pressure on inflation going forward. That is the opposite of what the Fed has been trying to achieve with their tighter monetary policy.

Here are some key commodities that have increased by double-digit percentages from their lows of the past year:

  • Oil +14%
  • Gasoline +28%
  • Agriculture +11%
  • Lumber +37%
  • Copper +35%
  • Gold +19%
  • SIlver +34%
  • Bitcoin +48%


Which Forces The Fed To Keep Rates “Higher For Longer”

The next Fed decision and Fed Chair Jay Powell’s press conference is this Wednesday, February 1. The Fed is widely expected to raise the Federal Funds rate by 0.25%.

With the recent easing in financial conditions and rise in commodity prices, Powell will likely try to talk down financial market prices by emphasizing that they remain focused on lowering inflation toward their 2% goal and will keep monetary policy tight until that goal is achieved. With the unemployment rate at the lowest level since May 1969 at 3.5%, the Fed is solely focused on the inflation part of their “dual mandate” of maintaining stable prices and high employment. 

Bill Dudley, who knows a thing or two about Fed policy since he is a former President of the New York Fed and Vice Chairman of the Fed’s Federal Open Market Committee, recently wrote that “for monetary policy to bite, financial conditions need to stay tight. If financial conditions ease, this just puts a greater burden on the Fed to keep rates higher for longer.”

This may be received negatively by investors, particularly with the market having rallied to overbought conditions, as has happened repeatedly when Powell has talked tough on inflation.





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A new Members-only webinar is now available titled “BULL AND BEAR PROFITS STEP 2: FORECASTING THE ECONOMY". This is the second of four webinars where we discuss in detail our four key steps for profiting in bull and bear markets. This webinar focuses on the most important leading economic indicators for predicting the boom and bust business cycle.

Understanding how to forecast the economy, which even the Fed and most professional investors do not know how to do, will be incredibly powerful in helping you build conviction to prepare for and profit from bull and bear trends in all assets. It is on the “BULL & BEAR WEBINARS” page here: https://bullandbearprofits.com/Education/Bull-and-Bear-Webinars.aspx


How are investment opportunities different between bull and bear markets?

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What are the implications of the December employment report?

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Is Apple stock a good buy after its recent pullback?

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What is the current outlook for US home prices?

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What are some low-risk investment alternatives with a decent return?

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What do you think of the market’s reaction to Powell’s recent comments?

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Are there any signs a US recession has ALREADY started?

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What is the best indicator for anticipating and trading bear market rallies?

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When do you expect the Fed to “pivot” and cut interest rates?

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Vanguard will only allow me to profit from bear markets by trading options. Suggestions? Can you manage my money?

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Is it a good time to invest in real estate if higher inflation and interest rates cause a higher demand for renting?

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Given OPEC’s recent oil production cut, do you still believe oil markets have more bear market downside to come?

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What do you think about buying Palantir Technologies (PLTR) stock right now?

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What do ETF investors need to know about K-1 tax forms?

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What caused the current high inflation and what did the Fed do wrong?

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What does the European energy crisis mean for investors?

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What do you think about investing in Gold Mining stocks now?

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Do you think Bitcoin is likely to fall to new lows?

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What is Quantitative Tightening and how will it impact financial markets?

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What are the best and worst stock sectors in a bear market?

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How have your forecasts worked out over the past year? (Part 2)

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How have your forecasts worked out over the past year? (Part 1)

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How can you use volume as a technical indicator for investing?

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What problems are caused when banks create money out of thin air?

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Are dividend growth funds a good long-term investment at the moment?

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What do you think of Yellen’s comments that we will not have a recession?

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Do stocks always outperform T-bills and inflation in the long run?

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Are inverse ETFs worth considering as investment vehicles?

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Any thoughts on Bernanke’s recent inflation and recession comments?

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Is Bitcoin or gold a better inflation hedge now?

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Does the negative GDP report mean we’re already in a recession?

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Will the next bear market be one big disaster or a series of crises? And what will the Fed do about it?

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Is the Fed really trying to crash the housing, bond and stock markets?

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Given inflation and bear market risks and opportunities, how can those of us with 401k retirement accounts invest, given our limited alternatives?

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What is different between now and the 2020 stock market crash?

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In your “Stocks & Commodities” article, there were 4 times since 2009 that met your “sell short” criteria but were not major bear markets. Thoughts?

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Inverse ETFs providers say the holding period should be no longer than a single day. How long do you hold these?

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What are credit markets telling us now about stocks and ETFs?

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What impact will the Russia/Ukraine war have and is the stock market correction over?

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How are major ETF asset classes looking on your Trend and Trade analysis?

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What does the latest inflation report mean for interest rates and the economy?

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Is the stock market rally over?

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What do your measures of stock market sentiment and internals tell us about the outlook for stocks and ETFs?

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What are technical trend lines telling us now about stocks and ETFs?

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Is it better to invest in Growth or Value stocks now?

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What is the best indicator to determine if a stock or ETF is “overbought” or “oversold”?

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What can the “Santa Claus rally” and “January Barometer” tell us about the outlook for the stock market in 2022?

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How will the latest Fed announcement to fight inflation impact stocks and ETFs?

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What is the VIX, why is it important and what is it telling us now?

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How will new Covid variants impact the economy and stock market?

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What do you think about investing in TIPS versus traditional Treasury bond ETFs given high inflation?

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What are the implications of high inflation for stocks, ETFs and the economy?

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Are we in another housing bubble?

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Why is EPS growth so important in stock investing?

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What can stock and ETF investors learn from the fact that Japan’s stock market is still well below its highs of 30+ years ago?

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Do you think the economy is heading towards “stagflation”?

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Your MarketWatch.com interview seemed very bearish. Are there any stocks or ETFs you recommend buying right now?

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Shouldn’t stock and ETF investors focus on current money supply growth, since it drives the economy and stock market?

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Why shouldn't investors just follow the simple Wall Street rule of “don’t fight the Fed”?

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How can you make money — instead of lose money — in a major bear market with ETFs?

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How important is stock market seasonality for stock and ETF investors, particularly in September and October?

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How concerned should stock and ETF investors be about margin debt levels?

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Are US Treasury Bond ETFs safe long-term investments?

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What are the key characteristics of winning stocks?

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What are the best and worst trending stock sector ETFs right now?

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What is the likelihood the next bear market and recession will be even worse than the Great Recession of 2008-2009?

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What impact will the US government’s stimulus package have on the economy and stocks?

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I've never invested before in my life. How do I start?

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How do you place a GTC and T-Stop order?

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What is wrong with a “buy and hold” or “asset allocation” investment strategy?

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Why is it so important to keep investment costs low on stocks and ETFs and how can that be done?

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What is the best way to invest to retire early?

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What are the best ways for investors to profit from stock bear markets, such as the 2008-2009 Global Financial Crisis?

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What are the historical long-term returns of stocks, bonds, bills, REITs, housing, gold, commodities and inflation?

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How can technical analysis be helpful to profit from bull and bear markets in stocks and ETFs?

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What is the primary cause of bull and bear markets in stocks and ETFs?

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How do you use economic indicators to determine the outlook for the economy, stocks and ETFs?

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How can you estimate the long-term returns of stocks, bonds, REITs and other financial assets?

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A CALL FOR MORE QUESTIONS

If you have a good question likely to be of interest to Bull And Bear Profits followers as a group, first check to see if the topic might be covered in any of the other educational features. If not or if you are unsure, don't be shy about scrolling back up to the top right of this page and clicking the orange "Ask a Question" button to submit a new one.


We try to cover EVERY single topic asked ASAP as long as it likely to be or broad interest to our followers as a group. As a publisher and not an investing advisor, we are not allowed to offer individualized advice specific to any one person. 


This Member Q&A feature is focused on investor education. We also have a separate Frequently Asked Questions section for customer service and website usage questions. Special Reports, Webinars and regularly-posted, Investing Insights are all places where many questions are covered in depth. And our own Stock & ETF Education Course covers rich information for less-to-moderately-experienced investors and traders too.


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