 Hey everyone, this is Dan with another episode of my market analysis. Since the beginning of the year, SPY is down 19%. The market has been generally trending down in the last 10 months. From June to August of this year, there was a rebound of 16%. Most recently, starting from October 13, the year has been a rebound of about 9%. Has the market reached bottom and is now recovering? Or maybe if we are seeing yet another bear rally, how far will this rally go before the market drops again? I looked into 3 historical market rallies that happened during the times when the Fed was raising interest rates. They are from 2018, 2005 and 1979. There are similarities and differences between those rallies and what we have today. I believe we can learn from those historical lessons to help us navigate what will happen in the next few months so that we can make some profits instead of losing our shirts. Let's get into the details. First, let's see how the broad market has been trending yet today. This chart shows SPY, the ETF representing the movements of S&P 500. We also see QQQ, the ETF representing the movements of NASDAQ 100. As you can see, both SPY and QQQ have been trending down. 2022 has been a bearish year so far. Since October 13 of this year, however, there has been a 9% rebound with SPY and a similar rebound with QQQ. The question is how far will this rebound go? I will talk about that in the next few minutes. Let's see what has caused the market drop this year. First of all, there has been a Ukraine war since February 24, which is still going on. Because of the war, we see surging prices for oil, natural gas and other commodities, which in turn drive up the inflation rates for other goods and services. And because of the high inflation rates worldwide, the US Federal Reserve banks as well as other central banks around the world have been raising interest rates and have been implementing quantitative tightening. Since June of this year, the various cities in China have been going through COVID shutdowns, which disrupted the supply chains for many goods. And that in turn aggravated the problems with inflation. And then most recently in September, there was a UK pension crisis which might spread to other countries. Then of course, we have the ongoing multiple compression and earnings compression. We'll talk more about those later on. If we focus on the SPY, we can see that the lower highs here and here have been following this yellow trend line. Just looking at the chart, you might say the current rebound can possibly reach 400 to 410. If SPY gets to 410, it'll be an 18% rebound from the most recent bottom of October 13. How likely will SPY bounce 18% or more in the next few weeks? To get to our answers, we can look at what happened historically when the Fed was raising rates to find inflation. If you think what you've seen so far is interesting, I'd like to suggest that you click the like subscribe and notification button. That way you'll receive notification. When I post my next video, it'll also encourage me to make more videos like this in the future. Thank you very much. Let's continue. We have a lot of interesting stuff to cover. In the YouTube videos that I posted in the last 3-4 months, I have been showing this chart with data from 1973 to today. I demonstrated that unless the Fed stops the rate hikes and stops QT, the market is not likely to recover or to make new all-time highs. But how about the little bear rallies that popped more than 5-10% from the most recent bottom? If we can ride these small bear rallies on a timely basis, maybe we can still swing trade effectively to increase our profits. This is a chart showing the market from January 2017 to January 2020. The orange line is CPI, the green line is the Fed funds rate, the black line is unemployment rate, and the blue line is S&P 500. The Fed funds rate went up by about 2% from May 2017 to November 2018. Interestingly, S&P also went up during that period with 2 dips in the middle of 2018. S&P went up by 13% from here to here and was up for about 15% from the beginning of 2017 to here. S&P actually made an all-time high in early October of 2018. It then came down because of the continual Fed rate hikes and because of the increased trade tension between US and China. The bullish trend of 2018 here might have been due to, number one, that the CPI decreased by more than 1% here and decreased by another 0.75% here, and also the unemployment rate decreased by 1% during this period. This is from the year 2000 to 2008. From January 2004 to January 2006, S&P went up 18% while the Fed funds rate was going up. What might have caused the bull market was probably number one, that unemployment rate decreased from 6% to 5%, and the CPI showed 3 drops of about 1% each. Now in 1978 and 1979, S&P went up by 32% while the Fed was raising interest rate. Note that the unemployment rate went down from 9% to 6% during this period, which is a very dramatic improvement. A 32% market rally was certainly very impressive, but that only came after the market has dropped more than 42% during the famous energy crisis back in the early 1970s. Since the market today has not dropped more than 25% to 30% since the beginning of the year, I don't think we will likely have a 32% recovery anytime soon. This is the picture from January 2019 to today. The Fed fund rate has been going up since March of this year. CPI has been going up since January of last year. Unemployment has been flat at 3.5% to 4% since October of last year, as we know CPI has been dropping since the beginning of the year. From the three historical charts that we saw in the last few minutes, we learned that decreasing unemployment and decreasing CPI numbers were the two major enablers for a rising market while the Fed funds rate was going up. Today unemployment has been flat since January and CPI has been flat at about 8% since April. CPI has not shown any sign of coming down in the last 3-4 months. In other words, today's conditions do not warrant a significant market rally, especially when the Fed is expected to raise rates for another 1-2% points in the next few months. The recent bear rallies of being up 9-16% were probably as good as they will ever get while the Fed is tightening. Let's sum up what we have learned so far. First of all, the Fed is aggressively raising rates and when the Fed is doing that, S&P and the market usually goes down with the following exceptions. Number one, when the CPI starts to drop significantly, in other words, more than 1% drop or when unemployment is decreasing significantly, in other words, more than 1% decrease in unemployment rate. The recent rally might have stopped or may stop soon because we don't see the above conditions. In other words, the market will drop soon, in my opinion. The November 2nd rate hike, which will happen in a couple days and Jerome Powell's words in the FOMC press conference that day will very much determine the market direction for the next few weeks and .75% rate hike is expected by most economists. The Fed will pause QT if the all-item CPI is less than 5-6% or if unemployment is greater than 5-6%. Currently, CPI is at 8.2% and unemployment is at 3.5%. If the Ukraine will end, the market will rebound quickly regardless of the rate hikes. And then after the market has rebounded for a couple months, then the Fed will have to continue to deal with inflation if the inflation is still high, then we have to worry about the market dropping again. But the ending of the Ukraine war is definitely a game changer. We got to be mindful of that, and hopefully that will happen soon. To reinforce the argument that the market will continue to be bearish for the near future, while the Ukraine war is going on, I'd like to show the 2022 Q3 earnings of the Big Tech companies. And as you know, the Big Tech companies tend to be the market movers. The EPS numbers for Alphabet, Microsoft, Meta, Apple, and Amazon went down the average of 21% compared to the third quarter of last year. This is a clear sign that earnings compression has started. In a video I posted on October 25th, I talked about the prediction of Michael Berry who said that we're only halfway there as far as market drop and that we can expect earnings compression to happen after multiple compression which already happened during the first and second quarters of this year. Earnings compression is exactly what we saw with the Big Tech EPS numbers in the last slide. It's happening. In the October 25th video, I also mentioned that Jamie Dimon, the CEO of JP Morgan Chase, said that we could easily see another 20% drop of the market. Definitely that's a very bearish prediction. So what are my investment strategies in light of what we've just heard? Number one, I will be monitoring the Q3 earnings reports as they continue to come out in the next couple of weeks. And I will monitor the market reactions to those earnings reports. I'll monitor whether SPY can break above the resistance of 390. If it does break above 390, the next resistance levels will be 407. And I will take profits by selling long positions when the bear rally has been up more than 10% to 12%. I'm not going to try to be too greedy. If the SPY drops below 380, that can lead to further drop and possibly retest of the September 30th low or the interday October 13th low. I will continue to monitor the month to month CPI changes. I talked in more detail about the CPI changes in this particular video. You can look it up in my YouTube channel. If the market drops again, I will sell long positions or selectively buy short positions, such as S-TRIPQ, SPXS, or S-O-XS. I'll continue to swing trade oil and gas related ETFs such as UCO and UNG, which are influenced more by geopolitical events and not so much by inflation rate. If you want to learn more about these ETFs, you can check out this video that I posted a few weeks ago. At this point, I'd like to remind you to subscribe to my Twitter account, which is DanMarketL, in addition to subscribing to my YouTube channel. By way of my Twitter account, I inform my subscribers almost on a daily basis any important news developments, as well as some of my trades. For example, on October 7th, I tweeted that I sold UCO shares that I bought on August 29th, October 3rd, and October 5th, with an average return of 5.8%. On October 14th, I tweeted that I sold S-TRIPQ at 4.1% gain. Thank you for watching all the way here. I'd like to remind you to click the like, subscribe, and notification buttons. As usual, I would very much appreciate your comments, questions, and suggestions. I'd like to remind you that I'm not a financial advisor. I share my stock trading strategies and analyses for educational and entertainment purposes only. If you want to buy or sell stocks, you should make your own decisions, and you should definitely consult with your financial advisors before you do so. This wraps up my video for now. I will chat with you again in the next few days. In the meanwhile, I'd like to wish you the very best of luck with your financial investments.