Trader who nailed the 2022 selloff says set aside some cash to buy a looming 10% stock pullback

Date:

Share post:


When Nvidia
NVDA,
+0.35%
tripped a rip-roaring rally for the S&P 500
SPX
last week, it marked the first time in a year for a 2% market move in either direction.

Trader Simon Ree recalls the “insane” days of 1999 and 2000. “You’d get 20% moves in certain tech stocks after market, and then…the Nasdaq would open up or down 2%,” the founder of Tao of Trading options academy school and author of the book by the same name told MarketWatch in an interview on Tuesday.

He expects another sizeable pullback in the short term, and while not of that magnitude, says many have probably forgotten what that feels like. “If the S&P 500 drops back 10%, there will be 1000s of people calling for the end of the world on Twitter,” he jokes.

Why listen to Ree? In July 2022, he accurately predicted that stocks were “setting up for a rally that will destroy shorts and get bulls nice and comfortable, before destroying bulls with a subsequent huge flush lower.” He also told clients to “get long in April 2020,” though admits he wrongly called for a U.S. recession by early 2024.

The Singapore-based trader, who spent 25 years in private and investment banking with Citigroup and Goldman Sachs stints, believes investors will continue to see a bifurcation in the market of companies like Nvidia
NVDA,
+0.35%
that are achieving hyper growth versus the rest. And while that may be a “bumpy road,” he says for “those types of stocks you probably want to be buying the dip until things really start to get crazy.”

And we’re nowhere near the 1999-2000 days of “ridiculous” analyst forecasts. “They were modeling up every person owning two mobile phones, they were modeling people spending 50% of their disposable income on their internet..but that’s how crazy things got to justify the valuations,” he says.

“When you look at the fundamentals of companies like Nvidia, they actually seem to be keeping up,” said Ree, who adds he’s got no current exposure to AI stocks as they are “extended in the short term. I’m not looking to short them because I’m not expecting huge moves on the downside from here.”

Read: Nvidia is now the king of the U.S. options market

Ree describes himself as a “trend follower,” and says usually he’s looking for a pullback or reversion to the mean. “That’s when I’ll buy with the expectation that the dominant trend will continue,” he said.

And that next opportunity will likely come as a 5% to 10% pullback, even if the stock market is likely to end the year higher than it started. “I think you buy that dip. We’ve still got a dovish Fed and a very resilient U.S. economy, and they are bullish macro tailwinds.” And betting against the Fed “hasn’t really been a winning strategy this last couple of years.”

He says the average investor should “have some cash on hand to be able to buy that [dip] and I think there is merit in releasing profits in things that have become overextended,” he said. “They may go higher, but nothing moves in one direction forever.”

“Even for a typical investor, raising a small amount of cash into a market that is looking a little extended gives you dry powder to deploy when the market has pulled back,” he says.

Ree is less sure the S&P 500 will be higher is 10 years out. “I think there will be a lot of sideways volatile chop over the next decade,” he said, adding that he’s also not convinced the job is done on inflation or that the U.S. will avoid a recession in the next year or two.

That leads Ree to some last words about blind spots he’s seeing among investors right now. “The market is pricing in with I would say 100% certainty that the job is done on inflation, and the U.S. economy will experience no landing. And I’m not saying that’s wrong, I’m just saying I think there’s a significant margin for error there that isn’t priced,” he said.

He says economic data that suggests inflation is picking up or that which shows economic resilience losing momentum will also be a red flag. “I think for the market to continue to justify current pricing and further gains from here. There’s no room for error,” said Ree.

Read: The five charts that show tech stock momentum is starting to fade.

The markets

“While the two are in completely different industries, one thing they have in common is their penchant for reporting earnings triple plays,” says Bespoke. That is, forecast-beating earnings per share and sales and a forward-guidance raise. E.l.f. has seven triple plays in a row dating back to August 2022, versus five for Nvidia, say the analysts.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker

Security name

NVDA,
+0.35%
Nvidia

TSLA,
+3.87%
Tesla

SOUN,
+46.68%
SoundHound

MARA,
+21.68%
Marathon Digital

NIO,
+4.63%
Nio

SMCI,
+1.90%
Super Micro Computer

COIN,
+16.85%
Coinbase

LUNR,
-34.62%
Intuitive Machines

ARM,
+9.64%
Arm Holdings

AAPL,
-0.75%
Apple

Random reads

A $2,000 pie fiasco has apparently been sorted by Elon Musk.

This tiny fish sounds like a jackhammer.

Peppa Pig is just a ‘brat,’ say fed up American parents.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Check out On Watch by MarketWatch, a weekly podcast about the financial news we’re all watching — and how that’s affecting the economy and your wallet.



Source link

Alexandra Williams
Alexandra Williams
Alexandra Williams is a writer and editor. Angeles. She writes about politics, art, and culture for LinkDaddy News.

Recent posts

Related articles

Equifax says weaker mortgage demand is weighing on its business

Shares of Equifax fell after hours on Wednesday after the credit-scoring giant reported first-quarter revenue that missed...

Biden calls for tripling tariffs on Chinese steel, probing Beijing’s potential unfair trade practices in shipbuilding

President Joe Biden’s administration on Wednesday rolled out new measures that aim to protect U.S. industries and...

ASML orders miss estimates as CFO says it’s still on track to meet 2025 goal

ASML Holding, the Dutch microchip equipment maker whose machines are so high tech that the U.S. limits...

Crude oil reverses most of April gains as traders shrug off Middle East tensions

A brief overnight bump in crude-oil prices reversed early Tuesday as traders bet that the White House’s...

Novavax failed to capitalize on fears surrounding mRNA vaccines, activist investor says

In a letter seen by MarketWatch, the activist fund blamed the sharp drop in Novavax’s sales on...

Fresh uncertainty around Fed rate cuts exposes the stock market’s winners and losers

Higher U.S. inflation is dashing investors’ hopes for multiple Federal Reserve rate cuts this year, while opening...

Shohei Ohtani not involved in gambling, prosecutors say, as they charge translator with stealing $16 million

Baseball star Shohei Ohtani was not involved in gambling and had no knowledge of payments being made...

Stocks, bonds slump as traders shift Fed rate-cut expectations to September

Markets were rattled Wednesday by a stronger-than-expected inflation report, with stocks and bonds selling off as investors...