Free Trading Resources<\/strong><\/p>\n Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n As Jeff Clark said this week<\/a>, “we’re probably not too far away from the start of a rally.”<\/p>\n Yet everyone is still afraid to pull the trigger and buy.<\/p>\n That’s because 2021 was the year of “buying the dip.” This year, it’s all about “selling the rip,” meaning every market bounce has been sold hard.<\/p>\n Although things are looking brutal, there’s some reason for hope.<\/p>\n Let me explain…<\/p>\n The S&P 500 already dropped over 10% from its highs to its lows this week. It’s currently bouncing around in the 4220-4450 range. We called for these levels on December 3<\/a>, stating:<\/p>\n The big support level I’m eyeing is 4350. That’s also near the current 200-day moving average<\/a> (MA).<\/p>\n We haven’t hit the 200-day MA since June 2020. Historically, the index touches that average much more frequently than every 18 months!<\/p>\n So, let’s just say it’s been a while. And a hawkish Fed policy shift could be the trigger to get it there.<\/p>\n<\/blockquote>\n And that’s exactly what got us there…<\/p>\n But now that the market corrected, valuations have become much<\/em> more reasonable.<\/p>\n You see, whenever the Fed policy shifts, valuations become important for investors again.<\/p>\n A higher rate environment – or at least the perception of it – forces valuations down like it did this month.<\/p>\n So let’s take a look at this chart of the S&P 500’s 12-month forward price-to-earnings (P\/E) ratio…<\/p>\n This chart shows the market’s 12-month forward P\/E ratio since 1996. You can see how we were trading at the same valuations at the beginning of the year that we were during the “dot-com” bubble from 1999 to 2000 – around a 25 P\/E.<\/p>\n Meaning, the market was actually willing to pay 25 times per dollar of earnings on a broad market basis.<\/p>\n Frankly, that’s ridiculous… Which is exactly why we’re in this position.<\/p>\n But right now, the S&P 500’s P\/E multiple is sitting at its 5-year average – a level that might attract some buyers even though it’s going to be very choppy.<\/p>\n These levels will attract buyers because there are<\/em> stocks that have been actually hitting all-time highs<\/em> during this market rout.<\/p>\n For example, stocks like Archer-Daniels-Midland (ADM) is now up 33% since we recommended it back in February last year<\/a>.<\/p>\n That’s not to say that the bottom is in though… The chart shows that the average P\/E during this time period has been around 17.75 (blue dotted line in the chart above), or about 11% cheaper than where we are now.<\/p>\n Given how aggressive the Fed is right now, we will trade at that multiple sometime this year.<\/p>\n It’ll either come as a result of earnings catching up to prices – which would mean the market spends a lot of time trading around current levels – or prices dropping to meet earnings.<\/p>\n But before all that happens, risk is to the upside.<\/p>\n Regards,<\/p>\nThe Market Is Due For a Relief Rally Soon<\/h2>\n
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