POSITIONS REPORT – 3/6/23

Posted on March 7, 2023June 30, 2026 by io-fund

Regarding the charts below, the vertical tan shades represent time factors. These are inflection points where we have high odds of something significant happening. More times than not, (3/4 of the time), they mark a turning point in the trend. So, what matters is the direction we are trending into these periods. Regarding the vertical lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.

Elliott Wave count are meant to provide context. There is a pattern unfolding in real-time, one of which will play out. By monitoring price levels that are held/broken, it will help us figure out which one is in play

Broad Market

Last week we saw the market in extreme oversold conditions. As a result, we were expecting a short covering rally to target 4040 SPX, which is what we saw. However, what we were not expecting was a 125 point rally in two days that exceeded our target. Furthermore, the structure of the rally is a rather clean 5 wave move, which has added an interesting layer of complication into where this market can go.

As a result, I’m adding an alternative scenario to the larger picture, which we will start game planning for in this report. Before I dive into these scenarios, I want to be clear. Short of the FED starting a new liquidity cycle, which I see very unlikely considering the inflation data, coupled with the bullish posture in various food/energy commodities, I simply do not see the necessary support needed for a new multi-year bull market playing out. Long-term risk (6 months+), we are still quite defensive and will remain this way until new data changes this view. However, intermediate term risk (1-3 months) is quite different. There is now a potential +300 point move that could play out over the coming weeks-months, which we will likely position for, if confirmed.

– Primary (Blue) – we have either topped or are within 200 points away from topping. This will lead to a fresh leg in the bear market with a downward target towards SPX 3000.

– Alternative (Red) – We have just completed the 2nd leg within a larger B wave (bear market rally). This will lead to the final 3rd leg of the bear market rally, which is targeting +4400 SPX.

If we zoom into the structure of the bounce off the October 13th low, you can see on multiple time frames 3 wave moves in all directions. We assumed that the January rally was the C wave, which appeared to collapse into a weak diagonal pattern. However, the 5 wave rally off of last week’s low has opened the door to this alternative scenario potentially playing out. Over the next 2 weeks, I expect one of the 3 scenarios below to be confirmed. This wil define the intermediate-term risk. What will matter most of all will be HOW the market retraces in the coming days – 3 waves down or 5 waves?

If we retrace in 5 waves down, and take out last week’s low, then either blue or green is playing out.

– Blue – we have topped, and will continue to trend down until the selling pressure gives way to a strong trend.

– Green – we bottom before breaking below 3765, then turn back up in a 5 wave pattern. This will imply that we are going to the 4200 region before a bigger top triggers.

If we retrace in 3 waves down, then red will start moving into position.

– Red – The overlapping mess of a market we have experienced since the December top has been part of a very complex B wave pattern. B waves (and 4th waves) are treacherous, as they tend to whipsaw emotions, grind down investment plans and wear down investors. We typically do not see B waves take such a complicated form, but considering that sentiment is in the basement, as well as the resilient credit cycle in the economy (more below), this scenario should be taken seriously.

Let’s zoom in a little more to a 15 minute chart. This will help us set up parameters and expectations for the week.

Note how the 5 wave move off the low started from a slightly lower low than the previous drop. This could easily be an expanded flat correction, which would support the blue/green above. However, because it started from a fresh low, we have to consider red, and the potential for a large push higher before we see a bigger top.

We topped today right into our minor time factor (6-7). We were trending up into it, and so far, the drop is only 3 waves. This can easily morph into a 4th and 5th down, which should be settled tomorrow/Wednesday. If this 3 wave pullback holds, and we push to make another high, the red count will then become my primary, as we set up a buying plan for the following 2ndwave pullback.

Our Updated Game Plan

We currently have about 30% cash and are 100% hedged. If we see this 3 wave drop hold, we will look to remove some of our hedge for a gain. Also, if the odds start favoring the red count, we will look to deploy some of our cash. As of now, ~ 2.5% in NFLX, ~ 2.5% in TSLA, 1.5% in ENPH, and ~10% in QLD once we close our hedge, and the rest in cash. For long-term investors who do not want to be this nimble, nothing has changed. Whether we see a top already in, or one that happens within the next +300 points, we believe that this bear market is not over. This will remain our outlook until we see evidence to the contrary.

Macro

The Liquidity Cycle

The phrase, “wall of worry,” continues to get thrown around in 2023. The new bull market, like all bull markets, is climbing a wall of worry. This phrase was golden in the last 12 year bull cycle, as stocks shrugged off countless events that pundits were certain would end it all – Downgrading US debt, Brexit, Grexit, Global Slowdown, China Collapse (1 and 2), Taper Tantrum, The 2016 Presidential Election, COVID, etc. Nothing serious manifested, as all drops were quickly brought back to new highs, leaving bears in the dust.

However, the one common thread within all of these events that allowed for equities to shrug off the news and continue higher was that we were either in the expansive part of a liquidity cycle (2011, 2015-2016), or the FED started a fresh liquidity cycle (2019, 2020), which saved equities.

How important is the liquidity cycle for stocks? After the COVID collapse, we saw some of the most abysmal economic data on record. Literally, high frequency data was off the chart, and appeared to only be getting worse as we entered a recession. In response, the FOMC started one of the most aggressive liquidity cycles on record. In 2020, stocks went on to have a record year, while economic data continued to shock investors. Without a new liquidity cycle, I simply do not see a new bull market starting up, which is why this is so important to track.

The below chart compares liquidity to the S&P 500 over the last 15 years. When liquidity is being pumped into the economy, stocks are able to shrug off terrible events, even contractions within the economy. On the other hand, when liquidity is being drained, we tend to go through periods of volatility – 2018-2020, 2022-present – until a new liquidity cycle starts back up.

The Credit Cycle

Recessions happen when banks shut the credit window. As the FED increases rates to slow inflation, the cost to buy homes, cars, business expansions, remodels, etc. all go up as well. This is why manufacturing sees a relatively quick reaction to rate increases. Like dominoes, layoffs lead to less spending, which leads to more layoffs. Banks increase their standards for loans, making it more difficult for struggling businesses and consumers to stay afloat. This eventually gives way to a recession, which destroys inflation, allowing the FED to lower rates. We then start a new credit cycle.

The question we have to address today is – how close are we to a recession? Manufacturing is clearly in a deep contraction and has been for several months. However, 85% of our GDP comes from Non-Manufacturing (Services). Unlike Manufacturing, this segment of the economy is continuing to expand.

If we dive down into Non-Manufacturing reading from last week, it did tick down to 55.1, beating the consensus expectation of 54.5 (any reading above 50 marks expansion, while below 50 marks contraction). New orders, which measures future demand, increased to 62.6 from 60.4 a month prior. Within the report, inflation concerns continued to be the predominate theme. This can be seen clearly in the prices index, which ticked down to 65.6. This is clearly off the peak, but still very elevated.

A basic metric that I use is measuring the trend in ISM numbers to their 12 month exponential average (in blue below). The below chart blends the ISM number along with the new orders number. Note how Services is back above this moving average for the first time since later 2021. This is great news for those worried about an imminent recession, as the credit cycle appears to be more resilient than most expect.

This is not only a US story, as recent global PMIs show the exact same scenarios playing out. All major countries are showing a contraction in manufacturing; however, the only major country that is showing a contraction in services is in Brazil. In other words, the likelihood of a H12023 global recession is unlikely. Why this matters for equities is because equities tend to bottom while in the middle of a recession. This further supports the red or green counts from above.

Why This Time is Different

The credit cycle is ready to extend, while the liquidity cycle continues to contract. Without the liquidity cycle, it is only a matter of time before credit, equities and the economy continue to contract into a recession. Why we think it is a pipe dream to assume the FED will pivot and start a new liquidity cycle to support equities? In one word – inflation.

We’ve been conditioned to expect the FED to save equities when they go down too much. Many, including myself, were shocked to see the most dovish FOMC in history pivot into becoming one of the more hawkish in recent history. This is because of how harmful inflation is to an economy. There is a reason that inflation pressures are more important to fix over decreasing asset prices.

Most investors have never experienced inflationary environments, while very few have experienced inflation of this caliber. We have entered a new macro regime where systemic global inflation is at odds with one of the most indebted global economies on record – global debt-to-GDP ratio of 338%.

As inflation builds, the fixed yield on bonds becomes less attractive. So, yields go up until buyers are satisfied with the new fixed yield relative to inflation. This will increase the cost to service debts, which is bad news for countries with a debt-to GDP ratio over 100%. If this cost goes too high, the bond market fails to believe that the debt will ever get paid back, which can cause a fiscal spiral. This is what we saw in England in late 2022, and this is what we want to avoid in Japan in 2023.

Furthermore, while a bear market in equities affects some members of a society, inflation affects all members of a society, especially the middle and lower classes. And, if the 1970s taught us (and the FED) any lesson about inflation, it is that once the genie is out of the bottle, it is very hard to get it back in. So, addressing inflation is the primary concern of this FED. They have stated this time and time again, and we do not believe the story with inflation is over, yet.

The below chart shows the 5 year breakeven rate. This is the difference in yield between the inflation projections 5 years out and the 5 year nominal yield. In other words, it’s a market-based gauge of where inflation will be in 5 years. Since January of this year, the 5 year breakeven is up 60 bps.

This is further backed up by the breakout in the 10 year yield. The bond market is diverging from equities, which will require a resolution.

This makes sense considering that the Services segment of the economy continues to expand in light of an aggressive FED. It also makes sense considering the “Super Core” segment of the economy, which we discussed last week, has been barely affected by the current rate cycle. What concerns me is that the 5 year breakeven is up this much while energy and food prices remain subdued. This, in my opinion, is not being priced into the markets, except maybe the bond market, which is very bearish right now.

The below charts are the price action in crude and gasoline. They are weekly charts, and appear to be consolidating just before a bigger breakout.

Gas

Crude

Furthermore, food prices appear to be setting up a fresh push higher. Cattle prices have been in a sharp uptrend and not far away from making new highs. Anecdotally, most carnivores have probably noticed the increased price of steaks, hamburgers, etc., as a result. This has been offset by wheat prices going down. Wheat appears to be putting in a bottom, as we trend down on decreased momentum, and into a major cycle cluster this week.

So, my concern is where will the breakeven go if energy and food make a new leg higher? What will the odds be that the FED starts a new liquidity cycle if the above futures do breakout? Can the rally ignore a higher terminal rate and continued draining of liquidity from the markets? How likely will the consumer be to increase discretionary spending if we do see another leg higher with inflation, and another leg lower in equities?

We are seeing a resilient credit cycle at odds with a decreasing liquidity cycle. It is my belief that the liquidity cycle is the most important element to justifying a new bull market. Without it, the current uptrend is on shaky ground. The FED has more than enough data without energy and food prices to continue draining liquidity from the system. It has to get inflation from 6.5% down to 2%, and the Services sector is making this goal very difficult with the current rate in place. This is without food and energy prices breaking out.

Hedge

The hedge is trending close to a flipping to a buy. We will likely close some of the hedge for a gain after we see weakness into this week. There has been a stark difference between the signal’s performance in 2023 and my manual performance. We continue to believe the signal, though will drag on returns in choppy markets, will help any that follow it avoid deep draw downs like we saw in 2022. This signal will help us to invest for a shorter time period and still find the necessary protection from another drop – whenever that happens. We plan to close some of our hedge in the coming weeks for a gain, and the remainder when the signal flips.

I/O Fund Portfolio

We are still holding about 30% cash, which we will likely deploy half if the coming pullback is 3 waves. These will be temporary allocations, until the market can prove to us that a new bull cycle is starting.

NVDA

The divergences are quite strong on the larger time frames. However, when you look at the daily chart, note how the Composite Index found support above the moving averages, that are starting to point up. This supports another push higher, but a limited one. No matter what, we still only have 3 waves up off the low, so any breakout should be bought with a stop that increases with price. This is not where a LTBH portfolio goes in.

NFLX

This chart is the most supportive of the OMH red count. A move to $300 will trigger a buy from our end. A push to new highs will also more than confirm NFLX has put in a major low back in May of 2022.

AMD

AMD is not as strong as NFLX. If we do see another leg in the bear market, we will likely see a fresh low here, but not in NVDA. The upper targets are listed as we complete 3 waves up off the October low.

ENPH

This one continues to trade like an energy commodity. If energy breaks out, I expect ENPH to have another stellar year. We will likely add to this position, as its posture is much more bullish than many of the other names we track.

MSFT

This stock is key for me. Some FAANGs have topped – GOOGL, AMZN. MSFT is the 2nd largest weighting in the S&P 500, and the jury is still out on whether it has topped. As of now, it is about 7.5% away from making new highs. Also, this rally is giving a strong sell signal. If we break below last week’s low, then we can see this market get ugly.

Now, if we compare this chart to APPL, you can see more divergences. AAPL is currently 2.5% away from a new high. So, if in the coming (potential) rally, we see AAPL make a new high without MSFT, this is a big warning. But, if MSFT can breakout to new highs with AAPL, this supports the larger red count where we can push towards 4400+ SPX.

AEHR

For AEHR to get another high, it cannot break this channel to the downside. That’s a lot of room to drop, and could set up a great buying opportunity.

TSM

TSM is 12% away from new highs. The same divergences with the FAANGs should show up in semis if/when we do top out in a larger B wave.

TSLA

TSLA could be in a 4th wave that’s targeting $180. This will be one of the places we park cash if we get more confirmation.

MGNI

Crypto

Can we get one more high? The setup is there as long as we hold $20K

In conclusion, I remain in the long-term bear camp based on my technical and macro analysis. I simply do not see a FED chair who is so obviously concerned about his legacy starting up a fresh liquidity cycle in light of the recent inflationary data just released. If energy and food do breakout, this will likely be the catalyst to push the 10 year yield to new highs, and finally align the equity market with the bond market.

However, this does not mean the equity market is seeing something 9 months in advance that I am not. Maybe the recession will be shallow, maybe energy does not breakout and continues lower? Or, maybe sentiment needs to be fully reset before we drop to new lows. This is why I always say, “price is king.” It is the only metric that makes you money, and if it is running counter to a great macro thesis, I will abandon that thesis to follow price.

The set-up is there in the stocks presented for another push, some to new highs and some not. If the red count is confirmed, or looks like it is getting confirmed, we will close some of our hedge (wait for the signal on the rest), and deploy some of our cash for this move. If not, we are hedged and will continue looking down for better buying opportunities.

Market Signals Warrant Caution

Posted on March 3, 2023June 30, 2026 by io-fund

We shot right out of the gate in 2023 on hopes of peaking inflation, China reopening and defensive positioning at the beginning of the year. The market ended February by giving back some of those gains. We have grown more bearish as time has progressed and remain rather cautious until we get better confirmation of a new bull cycle starting. This has been prompted by technical indicators that point to lower market index levels as the Fed’s fight against “supercore inflation” has proved difficult. In this article we outline some of the technical and macro analysis that has us cautious.

SPX

The major US markets continue to trace the complex corrective pattern we outlined weeks ago in our premium service. What this pattern calls for is a final 5 wave drop to new lows. For SPX, the downward targets are 3295, 3150, 2940. If we get confirmation of this pattern playing out, we will look to remove our hedges and commence buying around these key price targets.

From an Elliott wave perspective, the structure of the bounce from the October 13th low warrants caution. Anytime we see a 3 wave bounce, the odds favor this pattern being a correction within the larger trend, which is down. The above chart is clearly 3 waves up.

This trend is supported by other important markets I’m following. Typically, for a major bull market reversal to occur these markets have to participate. Instead, they seem to be confirming the bearish setup.

Financials (XLF)

The Banks have been very strong since the October low. However, the structure of XLF off the low is also an overlapping 3 wave structure. Note how this 3 wave bounce has retraced the majority of the 2022 drop. Also, note the weakening momentum as price moves higher. This pattern may have one more high in it, but it is clearly a B wave/bear pennant until proven otherwise.

Transports

The Transportation sector is also flashing similar warnings.

Canada

The Canadian TSX is an important market to track for US equities. More times than not, it leads the US. When these markets diverge, it is a big warning of an imminent trend change. This is not what we are seeing. Note the bear pennant forming. This triangle pattern is common with B waves, which the TSX appears to be tracing.

Taking these markets into consideration and looking back at the S&P 500. If we zoom in on the bounce off the October lows, the S&P 500 appears to have an incomplete uptrend. The 3 wave bounce is marked by an A wave up, B wave down, and C wave up, which completes the 3 wave pattern. The C wave always plays out in a 5 wave pattern, and it appears that we only have 4 waves in place. This suggests that we will see a final run towards a double top, or 4225 SPX in the coming weeks, but this is not guaranteed.

The above blue count has been my base case scenario for several weeks. In fact, we removed some of our hedge and have gone net long (25%) in an attempt to capture some of this potential move. This move needs to manifest this week, or it is in danger of not playing out.

If it does not, I will have to consider the red count as the new base case scenario. In this scenario, SPX already topped and is almost done with the 1st wave down in the final move towards the 3000 SPX level. If we push towards 3905 before breaking out over 4040, then this will become the base case scenario and will we look to fully hedge on the 2nd wave retrace. In both cases, we should see a larger bounce before the wheels fall off.

What are the Commodity futures telling us?

As technology investors, the Fed’s actions have raised the cost of capital for firms and impacted the valuation for technology companies. Hence, I believe it’s important to monitor those markets that are shaping the Fed’s inflation outlook for clues so that we can properly position. The most important to monitor is food and energy, both of which are suggesting higher prices into the near future.

Wheat

Wheat prices look to be completing the 5th wave in this large correction. It is trending down into major support with a cluster of cycles coming into play between Feb 28-Mar 3. Once we see a bottom, a large degree bounce should follow. This means food prices are likely going up.

Energy

Gasoline looks very similar to oil prices below. This very much looks like a consolidation before the next move higher. The next major cycle is in late April (this is a very big time frame to monitor). I doubt that we consolidate above the 1×2 line for that long. Look for energy prices to move higher in 2023, which will only put pressure on inflation.

Macro Analysis

Recent data growth has opened the door to the prospect of a “soft landing” or “no landing.” We discussed what a soft landing looks like last week – manufacturing contracts while services does not contract too much more. This last happened in 2014-2016, and most famously in the mid-90s. The idea of no landing means that we just continue to expand from here, avoiding a recession all together.

We would be onboard with this rosy outlook if it wasn’t for one key data point – inflation. All prior soft landings going back to the 80s had one factor in common – a supportive liquidity cycle. With inflation under control, the FED was able to allow the continuation of a supportive liquidity cycle (2014-2016), or start up a new liquidity (mid-1990s).

With talking heads focusing on stronger than expected growth metrics in the economy, they fail to acknowledge what this means for inflation. In short, inflation may have peaked, but the real battle will be getting it from 6.4% to 2%.

If you pay attention to what the FED is saying, they are now tracking something they are calling “Super Core” Inflation. This metric excludes food and energy, like regular core inflation, but goes one step further to exclude all other goods as well as shelter. Because the US GDP is ~85% tied to services, this gives the FED a look into how their policies are affecting the largest segment of the US economy.

In January, the Super Core prices rose at a 7.4% annualized rate. This is the fastest increase for any month since 2021. These prices are up 4.6%, which is just off its peak at 5%.

It is alarming how little effect the current aggressive rate campaign by the FED is having on services. While manufacturing remains in an on-going contraction, services continues to expand, proving that the economy is much more resilient than expected. This also means the FED will likely have to hike higher and for longer than the equity markets are pricing in.

So, the only questions an investor needs to ask – is it more likely or less likely that the FED will start up a new liquidity cycle soon, based on the overly resilient services segment of the economy? Will starting a new liquidity cycle hurt or help their primary goal to get inflation back to 2%?

Where could I be wrong?

Dow Jones Industrial Index (DJI)

The consolidation pattern in DJI broke to the downside, as it suggests a continuation of selling before a low takes hold. I’ve stated before, and will repeat, as long as the DJI holds its October low, no matter what else happens, it will set up a great buying opportunity. This still holds. However, for me to reverse course, the Dow needs to reclaim its December high.

Financials (XLF)

I’m adding XLF to the mix. Like the Dow, it needs to reclaim its February high.

Bonds

I’ll also want to see TLT take out its December high.

It point out these markets because if we are entering a new bull market, all of these markets will confirm it in unison.

Conclusion

Given the macro backdrop, Winners and Losers will emerge within the technology sector. From a fundamental stock perspective, the team has been focusing on companies exposed to secular rather cyclical growth with strong competitive moats. However, given the warnings and uncertainty within the macro backdrop, we prefer to be cautious right now, as we believe that the market will provide us with better entry points. Regarding our 3 stock portfolio of NVDA, AMD, NFLX, we will go into detail about these positions next week.

The Best of I/O Fund’s Newsletter in 2022

Posted on March 3, 2023June 30, 2026 by io-fund

The world today was engineered to be ephemeral and noisy. This is a terrible combination for an investor.

On Twitter alone, there are 456,000 messages sent every minute. On Facebook, there are 510,000 comments posted every minute and 293,000 status updates. Outside of social media, there are 16 million text messages sent every minute and 156 million emails.

For an investor, the antidote to noise is quality stock analysis. Due diligence requires dozens of hours per equity, and it takes hundreds of hours every year to produce a free newsletter with quality analysis. I/O Fund strives to offer some of the team’s best analysis for free, and we believe the consistency and depth of what we provide for free is hard to replicate.

We offer this in the most challenging sector for investors, which is hands-down the tech sector. The tech sector is unusually challenging because it involves many different verticals – consumer, media, cloud, artificial intelligence, electric vehicles, and more. It’s also the highest risk and highest reward sector in the market. Due to sudden price movements in both directions, the stakes are high. Perhaps we are biased, but quality analysis particularly in the tech sector can be hard to come by.

Below are highlights from our free newsletter during the grueling year that was 2022. Due to the broad market being in the driver’s seat, our first few highlights review the free broad market analysis we published followed by a few strong fundamental calls.

For more information on our premium services, please click here.

Top Broad Market Highlights from I/O Fund’s Free Newsletter

The August to September Pullback:

Portfolio Manager, Knox Ridley, warned our free readers in August in the article, “Levels to Monitor in the Coming Pullback,” that the broad market failed to make a new low despite bad news and that a pullback was on the horizon. He also detailed why weakness in the bond market was coinciding with the pullback he was forecasting.

The analysis stated, “In last week’s broad market webinar, we warned our readers that a pullback was imminent. We also laid out what levels need to hold in order to confirm a new uptrend is forming. We also showed that the bond market is simply not buying what the equity market is, and that the USD pushing to new highs along with equities. These markets are simply not aligned with the current uptrend in equities, and until they are, we will remain cautious.”we warned our readers that a pullback was imminent. We also laid out what levels need to hold in order to confirm a new uptrend is forming. We also showed that the bond market is simply not buying what the equity market is, and that the USD pushing to new highs along with equities. These markets are simply not aligned with the current uptrend in equities, and until they are, we will remain cautious.”

Despite a level of exuberance in the markets following a bear market rally that formed in July, our analysis clearly stated now was not the time to buy – rather it was better to wait for the coming pullback: “These markets are warning investors that are paying attention to not get too excited, yet. No matter what scenario plays out, we do believe there will be a better opportunity to get aggressive on the long side.”

Note: For a Limited Time, I/O Fund is offering a $99/year Premium Newsletter plan that provides one actionable stock tip per month and analysis from a top performing, audited team. Click here for more detailsNote: For a Limited Time, I/O Fund is offering a $99/year Premium Newsletter plan that provides one actionable stock tip per month and analysis from a top performing, audited team. Click here for more detailsClick here for more details

Perhaps most importantly, to help with risk management, the analysis provided a long-term prediction for investors. The analysis stated: “No matter what scenario plays out, we expect around a ~10% pullback in the coming weeks, which should be followed by one more large push above SPX 4400 before the next leg lower begins.”

Carefully Timing the October Bottom:

Knox followed up with another article, “The Pullback is in Effect – Broad Market Levels – 08/26/2022”, to reiterate to our free newsletter readers that the pullback we have been warning about is in effect. The analysis provided two long term bullish scenarios. In the bullish scenario, we advised investors to buy on the second wave retrace, sometime in October.sometime in October.

Knox provided a macro update in September and discussed the key economic data points in the article “Broad Market Update: The FED versus Inflation.” The analysis points out how the FED team of experts completely missed the warning signs of data from The NAHB Index, The Case-Shiller Home Price Index, The Bloomberg Commodity Index, Crude Oil, and M2 Money Supply, pointing that inflation was a concern in 2021.

The analysis stated, “Despite the numerous market indicators pointing towards growing inflation pressures in September of 2021, the FOMC ignored the signs, and instead continue to press their loose monetary policies. They ultimately waited a year after inflation showed up to begin addressing it, putting them much farther behind the curve than investors are used to.” The aggressive increase in interest rates led to the worst stock market on record in nearly 50 years.

The analysis pointed out the similarities seen during 2021 and we hedged most of September last year to protect the portfolio from the downside risk with real-time alerts sent to members. Knox also provides regular macro updates to our premium members.

In October, the article "Divergences Point Toward Market Moving Higher" discussed how a bigger bounce was unfolding and this would take many investors off guard.

He stated: “I do believe many stocks and some markets have bottomed, and those are the ones that tend to lead going into the next uptrend […] In conclusion, we are seeing the types of extreme sentiment readings as well as divergences that mark a reversal. We are also seeing the market shrug off horrible inflation data. Since the PPI and CPI numbers came in hotter than expected, the market is up 6.5%. The last time we saw these patterns was in mid-June, just before the market moved up 18% in less than 2 months.”

Since then, we have seen a 3-month plus bounce where some stocks in our portfolio are up over 100% since we bought them around those lows. The I/O Fund portfolio manager put cash to work based on the analysis he provided at the free level. He also used more advanced analysis that he provides to our premium subscribers to help guide entries.

For example, after raising cash in mid-late August, on October 13th, we went on a buying spree within the first hour of the market open, while removing half of our hedge. We followed this up with various buys between October 14th, 18th, 21st, November 4th, 7th and 9th.

Every trade the I/O Fund makes is done through real-time trade alerts. Learn More.Every trade the I/O Fund makes is done through real-time trade alerts. Learn More.Learn More.

In detailing the October low, the I/O Fund free newsletter stressed the importance of tracking divergences.

The analysis pointed out, “We are seeing [divergences] now across bellwether stocks, varying sectors, and global markets. Many risk assets as well as global markets did not follow the S&P 500 (SPY) to new lows last week. Instead, they are signaling that a new push higher is likely to follow.”

This was partly determined by the fact transportation stocks, high beta, and small caps have been leading the markets since 2021, and when the S&P 500 made a new low, these markets made a new high. This was unique analysis that informed a critical turning point in the tough market of 2022.

There’s more — the above article was followed up with more evidence in the article – “The Bear Market Rally has Much Further to Go.” when Knox stressed that the market was ignoring the fact that small caps, financials, and industrials are in notable uptrends. Even within tech, there was new leadership developing and these new leaders tend to be stocks that outperform in new uptrends.

Knox talks about patterns of major indices like the Canadian S&P/TSX Composite Index, the Japanese Nikkei 225 Index, and the Australian S&P/ASX 200 Index. The Canadian Index has a history of leading the S&P 500 Index. He stated that if all the major global markets are moving in the same direction, you are in a very powerful trend. Knox also points to some of the key levels that he monitored to confirm an uptrend for the S&P 500 Index. He said three markets, namely the Canadian Index, the Japanese Index, and the Australian Index need one more move to go higher. This pattern is very bullish for equities.

Below is a chart that shows the I/O Fund’s accurate broad market calls, particularly the prediction of a market drop in August and the bottoming in October. These calls were used alongside an automated hedge signal developed by Vincent Duchaine of The Wealth Umbrella, who is an A.I. and Machine Learning engineer.

Bitcoin:

We announced that we were buyers of Bitcoin around $16,000 and gave in-depth analysis on why a major low was likely from these levels in the article, “Bitcoin is Going to Rally Again – Here’s What You Need to Know.”

Per the article, “We are seeing more and more institutional investors, economies and businesses adopting Bitcoin. Though we are in the 4th bear cycle in Bitcoins history, the prior 3 cycles suggest where we are is a rare buying opportunity. There is ample evidence to support the $15,500 level is either a major either a major lovelow or very close to a major low. Both the technical and on-chain analysis support this.”

Bitcoin is up 36% since the article was published in December, and is just shy of the initial price target discussed in the article of $25,600. Here is what was stated: “our multifaceted analysis into Bitcoin is supporting the likelihood of a larger trend reversal. This is not confirmed from our end until we see price make that last high in the coming weeks towards the $25,600 region.”

As of now, it appears to be setting up for one more push before we see a deeper pullback. Knox updates our premium members in real-time on Bitcoin and all other portfolio positions the I/O Fund owns.

Source: YCharts

Top Fundamentals Highlights from I/O Fund’s Free Newsletter

Nvidia Stock:

The I/O Fund has an unusually strong track record on Nvidia. In fact, Beth Kindig began covering Nvidia’s product strength on artificial intelligence nearly five years agonearly five years ago. Considering it’s the best performing mega cap stock in the tech sector since the team initiated coverage – beating all FAANGs on returns — we think this is an important accomplishment.

In 2022, Beth Kindig encouraged her followers to stay long on Nvidia in August during an interview with Charles Payne on Fox Business News. Nvidia had pre-announced a Q2 2022 revenue miss of $2.5 billion due to gaming and crypto mining related weakness and the stock was tanking. The revenue miss caused the stock to sell off (8%) in one day on already weak price action of (40%) YTD.

Many pundits were questioning if Nvidia could overcome the gaming segment weakness, given Ethereum’s Merge to Proof of Stake would permanently reduce demand for gaming GPUs.

Charles Payne asked Beth Kindig if she still plans to hold the stock given the crypto mining surprise. Her answer was fairly simple: “It’s a tough day for Nvidia investors but in the long run it’s not going to matter. We hold the stock for its lead in artificial intelligence. Anything outside of that thesis is not important to us. To be contrarian, data center is going to be up 61%, so for AI investors such as myself, we are right on track.” AI investors such as myself, we are right on track.”

At the time of writing, the stock is up 39% since the interview compared to the negative (6%) for the Nasdaq-100 Index. However, most importantly, this conviction coupled with Knox Ridley’s broad market analysis caused the I/O Fund to enter Nvidia on the very day the stock bottomed for a price of $108 with a real-time alert sent to Premium customers. Below is the I/O Fund trading history on Nvidia which shows why it’s important to have conviction in tech stocks.

The Gaming Bottom:

Many thought it would take Nvidia a long time to recover from gaming, however, our analysis in September stated the company was “Ready to Rumble” and would stage a quick comeback. The free analysis stated: “Nvidia’s GeForce RTX 40 Series is perfectly timed” Nvidia’s GeForce RTX 40 Series is perfectly timed” and that the “timing of these releases is no coincidence as it’s a rapid two months following the crypto/gaming revenue miss. Suffice to say, Nvidia’s management team is prepared to rumble —- putting its very best release in gaming and its most powerful AI chip to-date up against the crypto mining selloff.”

This was important because it helped the team time the Nvidia entry at bottom, and it was this exact analysis the team depended to feel confident that the crypto mining sell-off would not take as long to absorb as many critics had forecast. Fast forward, and the most recent earnings report in February of 2023 confirmed that gaming had bottomed and was up 16% sequentially, which is what Beth’s analysis had called for a few months prior.

Notably, all of this analysis was provided for free in the I/O Fund newsletter.

Netflix:

Netflix is another hidden gem that Beth wrote about for her free newsletter readers in June. She highlighted that the market was focusing on the loss of subscribers for the stock selloff, which was a mistake, and that it was more important to look at Netflix’s plan to monetize the 100 million viewers who are sharing passwords.

Beth said, “I would argue the day that Netflix’s stock price dropped 35% was consequently one of the most important days in the company’s history in terms of its chances for a boost in revenue and a renewed uptrend. Patience, though, will be required, as Netflix has work to do (minimum one to two years for full global roll-out). Yet the path to adding more subscribers is finally clear for Netflix and will pay off long-term especially during times of inflation or muted consumer confidence as it drives down household costs across fragmented subscriptions.”

The company’s decision to start an ad-supported tier was a key highlight in the article that would drive the share price higher. “We think Netflix could set a new record on ad-supported ARPU due to its premium content and captive audience.”

The stock was down YTD 71% at the time the article was written in June for free newsletter subscribers. The stock is currently up 70% since the article was published.

Source: YCharts

While reviewing the financials of the company, Beth also noted to her readers to keep an eye on improving free cash flow as management was expecting $1 billion free cash flow in 2022 and
“substantial” free cash flow in 2023.

In a premium note to I/O Fund subscribers, the team stated said the free cash flow for 2023 would likely be in the $2 to $3 billion range. Months later, the company beat its guidance by reporting a $1.6 billion free cash flow in 2022 and also provided a strong guide of a $3 billion free cash flow in 2023. This also contributed to Netflix’s strong price action of the 2022 low.

Cloud:

During the podcast Barron’s Live, Beth highlighted to her readers that cloud valuations were still trading higher than they did prior to Covid. She also pointed out that the Enterprise sector could be the next shoe to drop after the consumer sector due to budget constraints.

About two months later, this exact scenario was echoed in cloud earnings. In December, our free analysis highlighted that cloud growth rates were slowing very quickly. On average, analysts expected the top cloud companies to only grow 5% sequentially QoQ compared to 17% QoQ last year. The analysis was quite clear this was a red flag because Q4 is typically quite strong for cloud, and that this deceleration likely foreshadowed more slowing growth for 2023 once annual budgets were set in January.

Below is a chart that the I/O Fund published to premium members, however, there was coverage on the free side that pointed toward the same conclusion.

Using this analysis, the I/O Fund prudently decided to reduce the firm’s exposure to cloud. The Q1 guides would later report one of the slowest growth rates in the Cloud segment in the past decade.

Conclusion:

Last year marked the biggest destruction of wealth on record, and the tech sector was not immune to this. However, by dedicating to due diligence, the I/O Fund team was able to mitigate some of those losses with a few strong calls – not only in tech stocks – but also strong calls on where the broad market might go next.

Certainly, there were many lessons learned last year and this write-up is not intended to forego the puts and takes that all investors experienced in 2022. Rather, it’s a spotlight on how the I/O Fund strives to provide quality analysis to the community for free.

In addition, this write-up helps illustrate how the team operates behind the paywall. The team is proficient at not only product and fundamentals, but most importantly during a bear market, the team is capable of making accurate calls on what the broad market might do next. To raise the bar, the team partnered with The Wealth Umbrella on an automated hedge signal for their Premium Members. The hedge combined with buying a few high-allocation stocks near or at the lows last year is how the I/O Fund was able to mitigate losses in 2022.

The I/O Fund is a publishing company. The analysis, strategies, reports, activity and all other features of our service is provided for informational and educational purposes only, and should not be construed as personalized investment advice. Hedging is an advanced method of trading stocks, sudden losses can occur, and hedging should only be pursued under the supervision of your personal financial advisor.

POSITIONS REPORT (2/27/23)

Posted on February 28, 2023June 30, 2026 by io-fund

For reference to terminology used, please look at technical analysis under our resources section here. Regarding the charts below, the vertical tan shades represent time factors. These are inflection points where we have high odds of something significant happening. More times than not, (3/4 of the time), they mark a turning point in the trend. So, what matters is the direction we are trending into these periods. Regarding the vertical lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.here. Regarding the charts below, the vertical tan shades represent time factors. These are inflection points where we have high odds of something significant happening. More times than not, (3/4 of the time), they mark a turning point in the trend. So, what matters is the direction we are trending into these periods. Regarding the vertical lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.

Broad Market

The major US markets continue to trace the complex corrective pattern we outlined weeks ago. What this pattern calls for is a final 5 wave drop to new lows. For SPX, the downward targets are 3295, 3150, 2940. If we get confirmation of this pattern playing out, we will look to remove our hedges and commence buying around these key price targets.

This is backed up by various supporting markets that are important. In short, for a major bull market reversal to be underway, we need the below markets to participate. Instead, they seem to be confirming the bearish setup.

Financials (XLF)

Transports

The Transportation sector is also flashing similar warnings.

Canada

If we zoom in on the bounce off the October lows, the S&P 500 appears to have an incomplete uptrend. The 3 wave bounce is marked by an A wave up, B wave down, and C wave up, which completes the 3 wave pattern. The C wave always plays out in a 5 wave pattern, and it appears that we only have 4 waves in place. This suggests that we see a final run towards a double top, or 4225 SPX in the coming weeks, but this is not guaranteed.

The above blue count has been my primary analysis for several weeks. In fact, we removed some of our hedge and have gone net long (25%) in an attempt to capture some of this potential move. This move needs to manifest this week, or it is in danger of not playing out.

My alternative count (red), which is quickly becoming my primary. This suggests that we already topped and are almost done with the 1stwave down in the final move towards the 3000 SPX level. If we push towards 3920 before breaking out over 4040, then this will become my primary, as we look to fully hedge on the 2nd wave retrace. In both cases, we should see a larger bounce before the wheels fall off.

Futures

It may seem odd that a tech service covers futures; however, I am always looking for clues in many markets so that we can properly position. Futures are very important right now because they track commodity prices, which is the underlying pressure within inflation. The most important to monitor is food and energy, both of which are suggesting higher prices into the near future.

Wheat

Energy

Macro Analysis

In January, the Super Core prices rose at a 7.4% annualized rate. This is the fastest increase for any month since 2021. These prices are up 4.6%, which is just off its peak at 5%.

Counter Analysis/Bail Out Levels

My current outlook for 2023 has evolved (or devolved) since the start of the year. I have grown more bearish as time has progressed, and would rather remain cautious until we get evidence that the above analysis is being shrugged off. The levels I need to see reverse, which would have me reverse my analysis is below.

Dow Jones Industrial Index (DJI)

Financials (XLF)

I’m adding XLF to the mix. Like the Dow, it needs to reclaim its February high.

Caterpillar (CAT)

I’m also adding CAT to the mix. CAT is a key stock to track for early signals. It put in a major top according to Gann – multiple time clusters coming together at the 1×1 line off the 2016 low. If it can reclaim its February high, then I will start looking to buy.

Bonds

I’ll also want to see TLT take out its December high.

It may seem like I’m adding more criteria to my reversal pivot; however, if we are entering new bull markets, all of these markets will confirm it in unison.

Hedge Signal

Our signal nailed this swing in both directions. We remain in the basement, and a long way from turning back to a buy.

Time Analysis

These are the dates to monitor for a trend reversal/big break put. The most important aspect of these dates is how the market is trending into them. These dates will be inflection points that can help determine swings.

Small Cycles in March: 6-7, 15-17
Medium/large Cycles: February 27 – Mar 3. Note how we are trending down into these dates. It should mark a low in red 1 or blue 4.
Notable Events: March 22-23 is the next FOMC meeting.
Late April will be one of the biggest time factors of the year.

I/O Fund Portfolio

Though it may seem that we are heavily concentrated, as of now, our biggest position is really cash, which nearly double the percentage of NVDA.

NVDA (17%)

NVDA tagged the 100% extension (this is where the length of the C wave is identical to the length of the A wave). This is the most common spot that a 3 wave bounce terminates. It is now struggling to break above this level, while momentum continues to fade at these heights. This is not where you buy a stock. After this 3 wave pattern is complete, we should see a drop back towards our target region. We plan to make NVDA a larger position, so expect buys in the coming months.

NFLX (14%)

I’m starting to question the below bullish count. I’m looking for a big drop in equities, while NFLX is close to the lower trend line. Another 16% drop towards $270 is as far as I would give NFLX. If we do see a more bullish outcome in the markets (my red count, where SPX tags 4225), then NFLX can complete the large degree diagonal for wave 1. That would make more sense, but that’s a big ask. Long-term, I believe NFLX has put in a major low, but we could see a deeper pullback in the coming months than previously expected.

AMD (13%)

The top is in for AMD. One more low and we have 5 waves down from the high. There should be a larger bounce that follows, for anyone looking to hedge/unload. We will plan to buy more at lower levels.

TSM (9%)

A crash scenario for TSM would likely be due to geo-political tensions. This would create a great buying opportunity, as this company is likely not going anywhere. Like all semis, it has completed a 3 wave bounce up, and now we get to see how deep the pullback takes us.

AEHR (9%)

Look for us to take more gains in AEHR on the next bounce. My confidence in the chart is fading.

ENPH (9%)

Without question the most interesting chart we track is Enphase. It continues to trade like an energy commodity. In other words, it appears to be bottoming while NDX/SPX appear to be topping. If correct, we could see a repeat of 2022.

MSFT (8%)

Regarding the FAANGs, first Google topped, then AMZN, NFLX, MSFT, and AAPL is now hanging on by a thread. MSFT is the key, right now. It looks like it has a 4th wave then one more drop to complete the larger 1st wave of the larger C down. We should see a corrective 2ndwave bounce before the wheels fall off.

TSLA (5%)

The 1st buy zone will be between $160-$140. My primary is that we visit $92, but we will begin layering in based on the red count. When technicals are calling for a drop that appears to be dramatic, especially when it runs counter to a recent positive earnings report, I prefer to set up buying plans based on both scenarios playing out.

MGNI (2%)

The top is likely in for MGNI. We need to get back over $14.30 to change my mind.

Crypto (14%)

One more swing high is possible from here, but that should be it. Then we have a very full pattern, which should lead to a deep retrace that holds the lows, at minimum. The next deep pullback should set up the buying opportunity we have been waiting for. Late March and late April will be the time cycles to monitor for Bitcoin.

POSITIONS REPORT – 2/21/23

Posted on February 22, 2023June 30, 2026 by io-fund

Broad MarketBroad Market

I am updating the current counts to fit the most likely interpretation of the price action of the 2022 bear market. The blue count is the same, and I consider to be a low probability, while the red count is favored for several reasons. For those that have not seen my most recent webinar, I encourage you to listen, as I go into detail why the macro and technical information that we have supports this thesis. You can listen here for I/O Premium, and here for Seeking Alpha.

The NASDAQ-100 (NDX) offers the most pronounced version of this structure in red below. In fact, it was the only structure that accounts for the price data, while the blue count feels forced.

Red – The reason I’m moving away from the standard A,B,C structure is because the current 3 wave bounce would have to be the B wave. B waves tend to retrace the majority of the first leg down. This would mean that we make a run to new highs well above 4400 SPX. This is simply not true in this case. The B wave is making a lower high in price, while extending longer in time than prior attempts at a bounce.

The only structure that accounts for this type of behavior is a complex corrective pattern called a W,X,Y pattern. This is characterized by downward trending 3 wave patterns in all directions (sound familiar?), where the structure gets more extended towards the end. If true, we should drop in a 5 wave pattern into the 9000 NDX region to complete the bear market. This level would be around 3000 SPX.

Blue – this scenario has us bottoming in a rather exotic structure. The C wave plays out as a very extended diagonal pattern, while the A and B waves are rather short. It fits, but is more rare to see a correction unfold with such disproportionate waves than a W,X,Y pattern. To make this scenario more improbable, the fact that we only have a 3 wave bounce off the October low means that if this is a new bull market, it would have to unfold as a diagonal pattern. More times than not, 3 waves tends to be a correction than the start of a new trend.

Daily Chart SPX

Shifting back to SPX, which has the same W,X,Y pattern unfolding, if we analyze the 3 wave bounce off the October low, it appear to be incomplete. C waves are always 5 wave patterns, and this one only appears to have 4 waves in place. This would imply a run to new highs in the coming weeks, which will target 4225 – 4275.

15 Minute Chart15 Minute Chart

If we zoom in on the ongoing 4th wave of the larger C wave, it also appears to be incomplete. I suspect we will see early weakness into this week, which would be a buyable low for anyone trying to play the ~200 point bounce that the coming 5th wave implies.

The lower support region is 4025 SPX and must hold 3985. We will likely remove half of our hedge and go net long to play this move. The R/R levels are quite attractive – stop below 3985 with a target of 4225. However, please keep in mind, the odds favor that we will be picking up quarters in front of a steamroller, so being nimble is crucial. For this reason, if we break back below 3985 and sustain below this region, any hedge that we log a gain on, will be put back on.

MacroMacro

The blue count would imply a soft landing is more than possible, as the FED maintains a terminal rate of around 5%. The February FOMC meeting had a tone that implied this was possible, and that after a few more hikes, we would hold ~5% Fed Funds rate into 2024. Though cautious, the market seemed to agree that peak inflation was behind us and that the actions taken by the FED are working. The problem with this narrative is that equities bought it and bonds did not. In fact, the February FOMC meeting marked the high in bonds, as the downtrend continues into this week.

What the bond market is likely picking up on is that the economy is quite durable, and declaring victory over inflation is not a probable outcome at this point. The recent CPI and PPI readings confirmed that inflation is re-accelerating, proving that the battle against inflation is not over. Peak inflation is likely behind us, but the real battle will be getting it back to the 2% target. Considering the extraordinary actions taken to quell inflation, it is concerning that we are starting to see inflation re-accelerate, even slightly.

This is further shown in the recent PMIs. Regarding the PMI readings, anything above 50 indicates an expansion, while below 50 indicates a contraction.

For one, manufacturing is currently at lower levels than just before the February high in 2020. This is a notable reading, as prices are much higher than in the 2019 downturn. Manufacturing is in a recession, and due to its sensitivity to interest rates, it is always a leading indicator of a slowing economy. However, if you look at services PMIs, which accounts for about 86% of the GDP in the U.S., it has re-accelerated into expansion territory.

This is ultimately what a soft landing looks like in the US, where manufacturing contracts while services stays resilient. We saw similar soft landings in the mid-80s, mid-90s and most recently in the 2014-2016 slowdown. So, it seems plausible that this could be playing out again, and all the recession talk is overblown.

The one common thread between all the prior soft landings was the liquidity cycle. The FED was either still in the expansion part of a liquidity cycle, or started up a new one, which diverted services from following manufacturing into a contraction. The current liquidity cycle is below in black and put up against the S&P 500 for reference.

There is a stark divergence between liquidity continuing to trend down and equities trying to recover. The bet that the bulls have to make, which would bolster the trend in equities (blue count), is that the FOMC is about to start a new liquidity cycle, or at the very least, stop QT and allow liquidity to stay flat to trending slightly up based on other metrics. So, the question one has to ask is – with the current new data in CPI and PPI, with pockets of strength in non-manufacturing and employment, is the FED more likely to start a new liquidity cycle, which would push asset prices higher, along with wealth and discretionary spending power? The bond market has answered with a resounding no. In fact, for the first time in this cycle, the bond market as well as institutional analysts are projecting a higher terminal rate than the FED, which is concerning.

Bail Out LevelsBail Out Levels

I have stated before, and will continue to state that my bearish outlook has an expiration. If TLT and the DOW can break back above their December highs, I will abandon our bearish thesis and flip back into the bull camp. I will also want to see DXY (the US Dollar) commence its downtrend. Short of this, I consider the current rally in equities to be running on fumes.

Hedge SignalHedge Signal

We will continue to lean into our hedge signal to tell us when to hedge/not hedge. Our cash raises are determined by our tech/macro outlook. As of now, the hedge signal is not close to flipping back into a risk-on mode. We are in bear market mode, which uses 3 data points to capture bear market bounces (compared to the normal signal that uses ~ 7 data points).

I/O Fund PositionsI/O Fund Positions

NVDA

NFLX

MSFT

MSFT is pennies away from closing the 3rd wave gap. Below $255.40 and it gets closed, as does the hopes of another 5th wave run higher. MSFT has clearly only given us 3 waves up off the low, and this wave, maybe, has one more high in it. As of now, NFLX, AMZN, GOOGL have likely topped. MSFT looks to be next.

TSLA

Here’s a big picture view of TSLA. Technically, it appears to have an incomplete correction. One more wave towards $92 would set up a phenomenal buying opportunity. However, if we get there, the fear surrounding that move would make one not want to buy. The coming pullback needs to hold $138 or this becomes the likely scenario. We will likely buy assuming both scenarios are playing out, and buy in layers.

AMD

My guess is that AMD has one more run to new highs in it. However, this drop needs to reverse soon. Below $75 and the odds start shifting towards the top being in.

TSM

Only 3 waves up, and right at the symmetrical price level (A=C). This type of pattern is usually bearish. The coming pullback needs to hold $70, or we could be in for new lows.

AEHR

MGNI

ENPH

I continue to signs of bottoming while NDX shows signs of topping. We’ll take a shot with some of our cash that the best ER of the year is holding its inverse correlation to NDX.

Crypto

Be open to this count. Bitcoin is completing 5 waves up off the low. How can it continue higher while risk assets push lower? Either the red count thesis is wrong above (we are very open to this), or Bitcoin is tracing a 4th wave. that would mean we are in a nasty, expanded flat correction with $13K on deck. Like with every position, the coming pullback will tell us everything.

Time AnalysisTime Analysis

We have many stocks and indexes showing a time factor coming up this week/next (Feb 20 – March 2). As always, depending on how we trend into it will be the most important piece of information. The NDX shows 2 cycles coming together in the chart below (20th-28th). If we see a sharp drop and reversal early in the week, it could signal the 4th wave low. If we see a move back towards 4200+ by next week, it will be a big warning.

VIDEO: January Stock Market Correction Explained

Posted on January 20, 2023June 30, 2026 by io-fund

In late November, we warned our readers that December could be a volatile month. The recent bounce in January also provided some warning signs, which we used to get defensive.

Now that the market has pulled back, some expect a quick bottom to resume the uptrend. However, based on what various markets are telling us, we think that this pullback has the potential to continue into February.

As we stated before, as long as the Dow holds its October 13th low, we view any additional weakness to be a tremendous buying opportunity as we setup for a push towards 4400 SPX later in the year.

For more updates, follow the I/O Fund on YouTube.

Q1 Webinar Highlights

Posted on January 20, 2023June 30, 2026 by io-fund

Below is an excerpt from the I/O Fund team on what to expect for the upcoming earnings season. We discuss some trends we will watch during the earnings season. We do it every quarter, and it is not an earnings call or prediction, as anything can happen during an earnings season. It’s an opportunity for us to go over our fundamental research with our members.

Portfolio Manager Knox Ridley talks about the broad market. He compares ARKK, which includes innovators of the future companies, with the Dow Jones Industrial Average. ARKK has not even tested its bear market trendline and is only 5% off the October 13th low. On the other hand, the Dow has broken its bear market trendline and is 18% off the October 13th low. It suggests that the market is rewarding the value companies.
The semiconductor sector is outperforming all the sectors since the October 13th low. We are investing in this new trend. On the other hand, Crypto and other high-beta stocks are getting punished.
The two important themes for 2023 that we will closely watch is the weakening US Consumer and the Bank of Japan losing control of its bond market.

Lead Tech Analyst Beth Kindig says that in the current environment, we will give out fewer company names to our premium members this year as it is difficult to clear the high bar set to be considered quality companies. We would mainly look for companies in this quarter that are accelerating bottom line, and if we get potentially accelerating top line, that would be a nice combo.
On the trends, the ad-tech sector is not expected to do well in 2023. CTV ads will lead the market. We don’t want to front run ad-tech and want to wait for the evidence of a bottom.
The semiconductor companies are expecting a turnaround in the second half of 2023.

Equity Analyst Royston Roche says that most of the cloud companies have shown a notable sequential decline in growth from Q3 to Q4. So, we have been cautious until we get some concrete information, which is why we will remain on the sidelines and keep a watch on the earnings.
Solar stocks were the winners in 2022 as they will benefit from the Inflation Reduction Act of 2022 in the next few years. The expected revenue growth rate is over 30% for the major renewable companies for the full year 2023. Q1 revenue growth is also strong.

The Next Bull Market’s Leaders Are Being Decided Now

Posted on December 22, 2022June 30, 2026 by io-fund

On November 8th, 2008, the NASDAQ-100 put in a low in the largest bear market since the 1929 crash. On March 9th, 2008 the S&P 500 put in its low, as the tech heavy NASDAQ-100 made a higher low. This was the first indicator that the next bull cycle would be tech driven. More times than not, the new leadership will bottom first, and lead us out of the bear cycle.

The following bull cycle led to some of the greatest gains in tech’s history. At the time of the 2009 low, companies like Amazon, Google, Facebook, and Netflix were either not public companies, or obscure tech names with uncertain business models. These names came to provide some of the greatest gains over the last decade, as they rose to become some of the most valuable companies in the world.

Big Tech, as encompassed by the Nasdaq-100, was the most popular winner in the last bull market. From its 2008 low to the November 2022 high, it returned an astounding 1545%, compared to the S&P 500’s 622% returns within the same cycle.

However, few are aware that there was a sector within tech that not only performed better than the FAANG driven NASDAQ-100, but also led the market – semiconductors. Like the NASDAQ-100, the popular VanEck Semiconductor ETF (SMH) bottomed on November of 2008. However, during the same cycle it returned 2105%.

The FAANGs revolutionized the lives of the consumer, making them popular choices in most portfolios. Underneath these consumer products, was the need for semiconductors to drive forward smartphones and cloud data centers.

Leadership develops in two ways: 1) relative performance, or who is performing better than the others; 2) who bottoms first. Semis have been notable winners, and we believe are showing signs of continuing that leadership into 2023, along with the noticeable rotation into value stocks. Tech investors must be more discerning in this market, but the outsized gains are showing up for those that are watching the seismic shift within the markets.

Since the 2022 bear market began, semiconductors have been leading the broad market once again, except on the way down. When the leaders of a bull market continue to lead on the way down, it becomes a big warning that the predominant bull market is shifting. On November 22, 2021, SMH put in its high. On January 4th, 2022 the S&P 500 put in its high, as the semiconductors made a lower high. This was the same pattern we saw in 2008/2009, except in reverse.

Since then, we have seen 4 major bounces in this bear market. The above chart shows the VanEck Semiconductor Index (SMH) in the black bars, and the S&P 500 in blue. Each time, you’ll note how the SMH continued lower as the S&P 500 tried to rally. This was a warning of more downside to come.

On September 30th, new leadership emerged within the value sector, as many tech names continued lower. Darlings like TSLA, MSFT, AMZN, GOOGL continued to make new lows well into October. Meanwhile, many names in the boring Dow Jones Industrial Average (DJI) bottomed first, and have outperformed the S&P 500 since this recent bounce began.

As it appears that value is now leading, many have discarded tech, which is unfortunate. Though you must be discerning in this market, there are several tech names, like Netflix and Enphase, to name a few, that bottomed before the S&P 500, and are more than double the returns of the Dow Jones Industrial Average off the low.

What this rotation is signaling is twofold: 1) what the market wants to see is earnings, cash flow and stable profits. The old tech themes prior to 2021, which is growth at any cost, is over; 2) Even though it did not bottom before the broad market, one of the key leaders in this bounce is the semiconductor sector, which is a clue to what area of tech will likely lead in the next bull cycle.

Off the October 13th low, SMH climbed 40%, compared to the S&P 500 that climbed +17.45%. Even with the obvious rotation into value oriented names, SMH is still a leading sector off the October 13th low, where the Dow is up 21%.

As long as the October lows hold any additional weakness, it’s worth acknowledging that this trend could morph into semis being a (quiet) leader for when a bull market resumes. At the very least, SMH may not see new lows. If DJI and SMH, being notable leaders in this bounce, and do break their lows, I’d take this as a clear sign bear market will continue. This helps to illustrate the importance of SMH’s leadership.

In conclusion, with the information we have now, semis are most likely to lead the next bull cycle. Whether this bull cycle starts in 2023 or 2024 is unclear at this time. The catalyst within the burgeoning AI/Machine Learning tech trend, as well as the growth of EVs/automotive, and cloud, will cement their dominance. This also lines up with what the market is looking for in terms of profitability, as most semis are cash efficient companies with many offering dividends. Even though semiconductor stocks are not as exciting as owning a FAANG, we will look to add to our semiconductor positions on any weakness as we enter a new year.

One More Rally to End the Year

Posted on December 22, 2022June 30, 2026 by io-fund

Sentiment continues to show some of the most bearish readings we’ve seen since the 2022 bear market began. The AAII, which is a survey that asks investors if they are bullish, neutral or bearish 6 months out, just gave us the lowest reading of bulls since the October low.

Recently, only 24% of those surveyed are expecting bullish results over the next 6 months. Compared with the March low in 2009, this is not too far off that reading, which came in at around 19%.

When we look at the options market, we are seeing a similar rare pattern that has only occurred two times in the last 16 years. This is when we see an outsized ratio of puts being bought while the market is in an uptrend.

Regarding the put/call ratio, any reading over one signals that more puts are being bought over calls. A reading over 1.1 is reasonably rare, which I would consider a fear spike. What you’ll notice is that fear spikes occur mostly in downtrends, and culminate around the lows. The tan regions show multiple fear spikes occurring while the market is in an uptrend (2013, 2017, 2022). Each instance prior saw higher stock prices before a correction began.

Rarely do we see the market rewarding a crowded trade. Even when that trade makes the most sense. In order for a setup to go lower, we need to see sentiment reset. There is a high level of bearish bets right now, and these will likely need to unwind if we are going lower.

Interestingly, this lines up with what we have been saying for the last 3 weeks here, which is summarized in the most recent YouTube video below.

We have been raising large sums of cash throughout late November/early December in preparation for a volatile month. The volatility has only increased the number of bearish bets in the market as many stocks approach oversold conditions again. We believe that the market is setting up for another rally, which should last through early January.

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Whether we drop to new lows, or continue higher is yet to be seen. There are some markets in the US and abroad that have clean setups to new highs, which we’ve discussed here and here. This would certainly be the contrarian perspective going into 2023, which is worth acknowledging. However, the global central banks went on an aggressive rate hiking campaign while shifting global trade dynamics are exacerbating inflationary pressures worldwide. This is happening while we are experiencing drastic decelerations in key tech sectors, which we discussed here. So, we are not married to a thesis, and are ready to shift in either direction once we get clear signals. We believe the biggest risk that investors face going into 2023 is thinking they know what will happen and not considering there is more than one possibility.

In conclusion, we believe there will be a Christmas Rally of sorts as the probability favors a move higher as we enter 2023 into the first couple of weeks of January. Both the market internals and sentiment have reached a level of bearishness that rarely leads to a prolonged drop. Look for this to reset before we go lower.

Regarding the long-term narrative, instead of leaning into a thesis, we prefer to let price action determine whether we hedge, or leverage our portfolio to the long side. This neutral stance has been rewarding for us as an all-tech portfolio. As of now, we are leading our all-tech peers and our audited results will be out in Q1 of 2023.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

The Low is in for Bonds, As Well As Most Stocks (For Now)

Posted on November 11, 2022June 30, 2026 by io-fund

Last week, the market went through one of the largest intraday swings since the bear market began in 2022. Since then, we have reclaimed that high. The question is: what does this mean for the market in the long term?

How the Chaos Began

It started with the FED. They indicated they are now more open to pausing interest rate hikes, which sent markets soaring. The Federal Open Market Committee (FOMC) announced that, instead of reacting to only the latest inflation numbers, they will take in the “cumulative effect” of all their rate hikes.

They further acknowledged that the aggressive actions they’ve taken to combat inflation need time to play out. In other words, it remains to be seen whether they will they be seriously damaging, ineffective, or somewhere in-between. This startling self-awareness implied that the FOMC may not need to aggressively raise rates until the effects of their rate changes are truly obvious.

The market jumped 1.5% on this announcement, as pundits began to suggest a pause was insight.

However, in the speech that followed, Jerome Powell halted bullish emotions. He acknowledged that inflation has not come down as expected, even though supply chain issues that plagued most of 2021/2022 have been resolved. But he called a pause “very premature”— there’s still so much further to go, both in how high the rate could go and in the duration that they need to stay in the stratosphere.

And so, the press conference led to a plunge in the S&P 500, which closed down -3.4% from its high earlier in the day. It became the worst sell off on a FED-day since January, which has led to a retrace of most of the bounce from the October 13th low.

What Happens Next

You might assume we should brace ourselves for a new low in the S&P 500. That would be the prevailing trend preceding every FED meeting this year, but the market isn’t operating in a vacuum, and when you look outside of the S&P 500, a different story continues to emerge.

While some FAANGs and tech darlings, like TSLA, continued lower, many sectors and global markets continued higher. We’ve been trained for over a decade to follow tech, as it will lead the market. However, a seismic shift is occurring in real-time, as new leaders are being minted. The bond market was signaling to anyone listening that this FOMC meeting was different, as the complex bottoming process we have been discussing for weeks continues to build.

This shouldn’t be a surprise to our regular readers on Seeking Alpha. Here’s what we’ve been saying:

“…more and more signs are pointing to a bigger trend reversal underway.”

“…global markets did not follow the S&P 500 to new lows last week. Instead, they are signaling that a new push higher is likely to follow.” new push higher is likely to follow.”

“…the last time we saw these patterns was in mid-June, just before the market moved up 18% in less than 2 months…”

Those predictions, by the way, were all within the past month.

Value is a Major Indicator of the Next Upward Swing

The Big Five tech companies, also known by the acronym the FAANG, are having a rough time, especially Facebook (where thousands are being laid off), and Amazon and Google, which hit new lows, most people ignored what the rest of the market was saying.

Last week we discussed how boring Caterpillar and JPM Morgan have made their first higher high, as they are closer to making all-time highs than lows. This week, we will continue with theme from a broader perspective.

The DOW

The oft-ignored Dow Jones Industrial Average (DJI) has just given us a clean and clear 5 wave pattern off its late September low, while also reclaiming the 200 day-moving average. Not only did it bottom before the NASDAQ and S&P 500, but this 5 wave pattern suggests a much larger trend is developing. Translation: If the next pullback holds the low, and we can breakout to new highs, I see the Dow Jones powering to new all-time highs in the coming months.

This is not only limited to U.S. value stocks. Global markets are also setting up for a bigger push higher. The French CAC-40 and German DAX have recently broken out of their bear market down trends. This is in light of Europe facing all the problems the U.S. is facing currently facing with inflation, on top of a serious energy crisis.

The Canadian TSX as well as the Australian XJO have broken out of their bear market trend lines. Interestingly, these too markets appear to be setting up for a run the higher highs like the Dow Jones.

The reason I am mentioning this is because really big trends occur when all markets are moving in the same direction. While tech and some FAANGs have a setup to go lower, the rest of the market looks like it is setting up to go higher. It’s important to track these markets in order to get clues on when bottoms (and tops) are developing. A bottom never happens when everyone is expecting it, and it almost always happens when sentiment has reached a bearish extreme.

Transportation Is Having a Bonanza

The transportation sector has historically been a leading indicator of America’s economic growth, and therefore it often leads the stock market.

The Dow Jones Transportation ETF (DJT) is also exhibiting relative strength compared to the broad market. While the Tech heavy NASDAQ-100 is about 9% off its lows, and the S&P 500 is 12% off its lows, DJT is over 16 % off its lows.

Also, like the Dow Jones, it has just completed a 5 wave pattern off the low, suggesting that a bigger rally is likely.

If the next pullback can hold the low, and then turn back above to make a fresh high, it will be signaling that a major low was put in as we move into the heart of a new rally.

The Bond Market Called the FED’s Bluff

The FOMC announcement triggered an odd reaction in a sector few were paying attention to: bonds. The further one gets on the curve, in our experience, the less of an effect FED decisions has on rates; instead, growth and inflation expectations affect them more. After every hawkish policy decision this year, we have seen rates go higher, as long duration bonds hit a fresh low.

Last week, we discussed how bonds were setting up for a multi-month rally. This week we will acknowledge the very important fact that bonds not only failed to make a new low after the last FED speech, but they have since reclaimed the high on FED-day. This is significant, as the bond market is pricing in inflation and rate hikes, and signaling a low in bonds.

As bonds catch a long-term bid, rates will only go lower. This will force many beaten down tech stocks, which are simply long duration assets, to get repriced. This will be a tailwind for tech, and we believe today was the beginning of this repricing.

In anticipation of favorable repricing, coupled with tech’s beaten down valuations, we have been building key positions with real-time trade alerts sent to our premium subscribers.

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Market Levels

Reminder: the market rallied about ~12% just on a rumor of a potential pivot by the FED. Regardless of whether you believe we had it, the market definitely sold the news, and failed to make a new low. Not only that, but the S&P 500 reclaimed the 3912 level which was the high going into the FED speech. This is significant, as it is the first FED high the market has taken back in 2022.

With the divergences we have been talking about for weeks, if we do see continued volatility, it will likely be setting up a buyable low as we setup for a larger rally in the coming weeks.

The S&P 500 is not as clear as the Dow Jones. Like DJT, it completed 5 waves off its October 13th low, but it did so in a messy fashion. There are two primary probabilities: either the S&P 500 will make a new high in 2023 OR will instead play out a larger degree bear rally. If the next pullback can hold the low, then turn back and make a new high, I will be leaning towards the S&P 500 seeing new highs into 2023.

This would occur in large swings and likely take us back to 4300 SPX. It would be the scenario where some stocks and markets make new highs, while others do not. However, what is important to understand is that when you combine what rates, the dollar, global markets and many value stocks are telling us, it is that a large rally of some kind is under way.

What’s Coming— And When

The potential for some stocks to make a new low is present. However, the larger setup is for stocks to keep pushing higher. Short of a black swan event, we think most of the risk over the intermediate to long-term time frame is up — but the FAANGs do not appear to be leading, as we have been accustomed to expect. However, weakness in these companies does not seem to be signaling weakness across the market. As long as rates hold their high, and many of the value stocks that are well off their highs hold, I see any additional volatility as a buying opportunity.

Regarding tech, not all companies are equal. One of the strongest companies in the market, is a well-known tech name, bottomed in May and is nearly 40% off its lows. While we will likely not see an all-encompassing tech rally, we do believe some names are setting up to be new leaders. The prices we are seeing, we believe, will pay off handsomely in the coming years.

Who’s ready for it?

Every Thursday at 4:30 pm Eastern we provide our Premium Members with a weekly market webinar where we discuss the stocks we’ve entered and exited throughout the week, plus stocks that are about to break out and our buy plan. The information from our weekly webinars have been used to successfully hedge our portfolio multiple times in 2022, as well as build positions at key levels. When we buy positions, sell positions or hedge the market, real-time trade alerts are sent to our Premium Members plus we offer a fully managed portfolio including details on allocations.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.