Welcome to the latest edition of “Weekend Reading For Traders”. We kick things off this week with a couple of articles that examine the big reversal that the market put in last week following the CPI data… one which looks at similar instances and what that might mean as we move forward, while the other considers if we might have seen a true capitulatory event. 

From there, we highlight another can’t-miss episode of the Fill The Gap podcast, produced by the CMT Association, about implementing technically-driven global allocation strategies, and then move on to an article that examines the recently-launched single-stock leveraged ETFs.

We wrap things up with a pair of articles around the theme of focus. The first offers some specific strategies that we can use to help us gain better focus throughout our days, and the other shares insights and advice on getting more and better sleep.

And with that, we hope you enjoy this latest installment of Weekend Reading For Traders.

Why Stocks Likely Just Bottomed

(Ryan Detrick | Carson Group)

October has a history of being volatile, and so far, the action this month has lived up to its reputation. However, something even more pertinent given current market conditions is the fact that 6 of the 17 bear markets since 1947 have bottomed in October (3 of the 17 bottomed in March, while May, June, August, and December can each claim two bottoms apiece). Notably, two of those October lows came in the two years that had a worse start to the year than 2022. In this article, Detrick notes that the massive hammer off fresh 52-week lows that the indices put in last Thursday after gapping sharply lower on the heels of the CPI data suggests capitulatory action, thus creating a possible springboard for stocks to establish a lasting low. Similar reversals (which also came amid extremely negative sentiment readings) came in March 2009, December 2018, and March 2020. So, while there’s still work to do and there’s yet to be any evidence that a new uptrend has been established, active investors should (as we’ve been arguing for a while now) be mentally prepared to shift gears should history begin rhyming once again.

How Do You Measure Capitulation?

(Ramp Capital | The Ramp Report)

Investors who were active during the great financial crisis a little over 10 years ago can recall waking many mornings to news that the entire global financial system had come to a screeching halt overnight. Those days were truly gut-wrenching, and it felt as if the systems that are essential to keep the world running were irreparably broken. With that lovely thought, while the current bear market has been brutal (and the major indices still don’t really reflect the damage that’s been done to wide swaths of individual stocks), up until last week, there’s yet to be the sort action that gives rise to serious consideration of loading up on canned food and water purification systems. However, while the initial reaction to last week’s CPI data was concerning, to say the least, the reversal off lows prompted the venerable Ramp to wonder if we’d finally seen the sort of capitulatory action needed for this market to establish a real low. Accordingly, Mr. Ramp shares several indicators of capitulation, which include high volume declines followed by a strong reversal, hammer candlesticks, high levels of cash holdings, outlier spikes in the VIX, and a low percentage of stocks that are over their 200-day moving averages. And while we won’t know until much later if last Thursday was indeed a bottom, we can at least consider the evidence as it stands.

Fill The Gap Episode Twenty-Two, with John Lewis, CMT

(Tyler Wood & David Lundgren | CMT Assoc.)

Recently, we highlighted a can’t-miss episode of Fill The Gap with Julien Timmer, and Tyler and David followed up with another fantastic interview, this time with John Lewis, CMT, a Senior Portfolio Manager at Nasdaq Dorsey Wright. What’s unique about John, though, is that he implements relative strength and momentum methodologies as the main factors behind several of the firm’s global asset allocation strategies. The interview is chock-full of amazing insights about how John systematically uses technical analysis to identify opportunities and manage portfolios. Specifically, he points out that it’s not just what you own that’s important, it’s what you don’t own that will often determine how successful you are, and that while no strategy will outperform in every market, the most important thing to do during challenging times is to stick with your process and keep plugging away, especially when it’s uncomfortable to do so!

New E.T.F.s Turn the Funds’ Virtue of Low Risk on Its Head

(Brian J. O’Connor | New York Times)

First introduced in the early 90s, ETFs were created as a way to give investors a more-liquid and lower-cost alternative mutual funds. These funds took off, and 30 years later, there are over 7,000 ETFs globally and over 160 issuers. Along the way, ETFs have offered smaller firms the ability to bring their strategies to a wider audience, and leveraged long and short index ETFs have given traders the ability to amp up their daily volatility. More recently, a number of issuers have introduced leveraged ETFs designed to replicate leverage long or short positions in several popular individual stocks. Notably, these funds give the sort of leverage that traders have typically used options for, but at a lower cost and (according to this article) without the exposure to short-term capital gains (although we’re not sure this last point is entirely accurate, as these funds are designed specifically for day trading). Regardless, while O’Conner’s main point seems to be that investors are better off avoiding these funds and should instead stick with a “broadly diversified portfolios of low-expense funds”, the key here is that active investors and traders have a new and useful tool with which to battle the market beast.

The Two Things Killing Your Ability to Focus

(William Treseder | Harvard Business Review)

That the world continued to become increasingly noisy and full of endless distractions isn’t news to anyone, but perhaps one silver lining to the incessant drumbeat of pings, dings, and popups is the fact that many folks seem to be increasingly proactive about regaining control over their attention and their ability to focus on what matters most as they navigate their daily schedules and work towards bigger goals. Accordingly, in this article, Treseder shares some specific things we can do to increase the odds that we’ll be successful as we fight for focus, including starting your day with a simple mindfulness practice, dedicating time in the morning to creative and “deep” work (while leaving the more “tasky” stuff for the afternoon), cleaning up both your physical and digital workspaces, and setting “buffers” before and after events during the day in order to create some breathing space so you’re not jumping from one thing to the other.

The Last Resource On Sleep You’ll Ever Need

(Ben Greenfield | Ben Greenfield Life)

Riffing off the last article on focus, one key ingredient to a more focused and successful day is a good night’s sleep. Yet it seems that more of us suffer from insomnia in a post-pandemic world and are searching for ways to get more and better zzzzz’s. Accordingly, Greenfield has written an absolute monster of an article on how to do just that. Clocking in at over 14,000 words, he explains why getting a good night’s sleep is so important, the various stages of sleep (and what they accomplish), how exercise, food, and supplements help (or harm) our slumber, the ins and outs of chronobiology, how to get sleep on a plane (and overcome jetlag), and how to nap like a rockstar. In total, Greenfield offers some great advice and insight on sleep optimization, and also points to some additional (even deeper!) resources available on the topic.