The Tools You Need to Profit from the “Everything Rally”

Shah Gilani|February 9, 2023

In case you haven’t noticed, almost everything’s been on an upward tear: most stocks for sure, especially meme stocks and zombie stocks, cryptos, junk bonds… just about everything’s going up.

It’s the “everything rally,” and it’s scary, because it doesn’t make a lot of sense to some investors. But for the “greed is good” crowd it makes sense, and they’re going to try and keep pushing everything higher.

But there’s a point where the “everything rally” can run into a brick wall.

Everyone knows the battle between the bulls and bears has been about how high the Fed will raise rates and how long they’ll keep them at whatever final level, or terminal rate, fed funds get to.

The bears believe we won’t see inflation down anywhere near the Fed’s 2% target and they’ll keep raising rates to some terminal rate (which now looks to be higher than the previously ordained 5.1% level because the labor market is just so darned strong), and the economy will fall into some kind of recession, company margins will come down, and earnings will start declining.

On the other hand, with the exact same information and data to analyze, bulls believe the Fed will hike once more in March, then pause, and if the economy starts to slip into a recession while inflation (which they see trending downwards) continues to retreat, the Fed will actually pivot and start cutting rates in the back half of 2023. So, they’re frontrunning the turnaround in rates they see as almost inevitable.

They both can’t be right – at least, not at the same time. So, what do you do?

The answer’s easy when there’s so much confusion over strong competing narratives. Follow the market. In simple terms, the trend is your friend.

The truth is, this situation presents a great opportunity for investors like you to make money, because you can play both sides of the fence here and win big.

Let me show you how.

This Is How the “Everything Rally” Came to Be

The set-up for our current circumstances came on the heels of a frightful 2022, with beaten-up investors making final tax loss sales in December, knocking the S&P 500 down again from its attempt to break above important resistance at the down-trending channel marker delineating the 2022 bear market.

While an ugly December frightened a lot of already shell-shocked investors, enough traders and bottom-fishers saw as hopeful that the S&P 500 fell back again after failing to break past the bear market buoy marker, but slipped back only so far and immediately started to consolidate towards the end of December.

With the S&P ending 2022 at 3,839 and the bear market marker only 4% higher at 4,000, with tax selling behind us and a hoped-for “January Effect” rally in front of us, it made sense to start buying stocks, especially beaten-up tech stocks.

And that’s what happened. Sellers had left the building, so buyers met little resistance. That’s what floated stocks and pretty much everything higher in January.

When the market as measured by the S&P 500 got above 4,000 in late January and didn’t falter, more traders stepped in and before anyone knew it, we were above 4,000, then above 4,100, and by February 2, 2023 we touched 4,195, making the move off the December 2022 bottom an almost 10% S&P 500 pop.

The Nasdaq Composite blew away that performance rising 19% from its December 2022 intraday low of 10,301 to its recent intraday high of 12,269 on February 2, 2023. The tech rally speaks to how hard beaten-up mega-cap tech high-fliers had fallen and how “cheap” they looked on any relative basis. That’s even if the Fed’s going to continue raising rates.

And that’s where the proverbial brick wall lies ahead.

The Case for Both Higher and Lower Markets

Since the new year began, the trend has been up, as in bullish. That doesn’t mean we’re in a bull market. It just means the trend is positive, we’re above resistance, out of the bear market, and that’s a green light.

The case for higher markets, maybe higher everything, rests not so much on what the Fed will do but more so on what the market will do.

Regardless of the Fed’s pronouncements or narrative interpretations, if markets go higher, sidelined money (and there’s a ton of it, more than $2 trillion) will start chasing the rally and could turn 2023 into a banner year.

The case for lower markets now rests on the perceived irrational exuberance of buyers not seeing that inflation is far more stubborn than transitory. Knowing that, the Fed will raise more and probably keep rates elevated throughout 2023 and probably into 2024, if inflation doesn’t get down to 2% and the labor market continues to show strength and wages keep rising.

Once again, both camps can be right, but because the trend’s up right now, it makes sense to take long positions and try and ride the upward momentum. If sidelined money keeps coming in, you’ll be thanking me all year that you got a little greedy.

But, because the Fed’s not done, because I don’t believe inflation is coming down to anywhere near the Fed’s 2% target, partly because wages keep rising, and the Fed holding rates higher for a lot longer will knock margins and earnings, we will hit that brick wall and could see a nasty reversal at some point.

How You’ll Make Money No Matter Which Way Things Go

The only thing that matters, besides trying to catch the momentum train higher, is always using trailing stops to protect your gains on the way up, because as the Wall Street saying goes, stocks take the stairs up and the elevator down.

But you can have it both ways. As I said, this is an “everything rally,” so buying indexed ETFs like Invesco QQQ Trust Series 1 (QQQ) or the SPDR S&P 500 ETF Trust (SPY) is the best way to ride upward momentum. Make sure you keep raising your trailing stops on the way up.

That way, if we hit that brick wall, you’ll know because you’ll be out of your long positions automatically, and then you’ll have a pile of capital ready to ride the elevator on the way down. When that happens, as always, you can come back here and I’ll show you what to do.