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

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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

Stock futures
ES00,
+0.11%

NQ00,
+0.25%

are inching higher, as Treasury yields
BX:TMUBMUSD10Y
BX:TMUBMUSD02Y
wobble some. Bitcoin
BTCUSD,
+4.57%

rallied to its highest level since November 2021, hovering at $56,113. Gold
GC00,
+0.40%

is also higher. Japan stocks rose a third straight day — JPMorgan calls the Tokyo rally that ended three losing decades the “end of deflation” market.

Key asset performance

Last

5d

1m

YTD

1y

S&P 500

5,069.53

1.28%

2.87%

6.28%

27.30%

Nasdaq Composite

15,976.25

1.27%

2.23%

6.43%

39.32%

10 year Treasury

4.285

0.43

25.07

40.36

36.06

Gold

2,044.10

0.92%

0.56%

-1.34%

12.05%

Oil

77.75

-0.63%

1.00%

9.00%

2.65%

Data: MarketWatch. Treasury yields change expressed in basis points

The buzz

Zoom Video
ZM,
-0.44%

is soaring after the videoconferencing group’s upbeat results and $1.5 billion buyback plans. Underwhelming earnings are hitting app-monetization group Unity
U,
+5.69%

and software group Workday
WDAY,
+0.43%
.

Macy’s
M,
-1.03%

beat earnings forecasts and laid out a new growth plan, involving store closures and asset sales. Shares are down over 2%.

Viking Therapeutics shares are surging 60% after the biotech announced positive results from a weight-loss drug trial.

EBay
EBAY,
-0.30%
,
First Solar
FSLR,
+1.18%

and Devon Energy
DVN,
-0.11%

results are due after the close.

Chevron
CVX,
-0.14%

says its $53 billion Hess
HES,
+0.57%

buyout is under threat from a dispute with Exxon Mobil
XOM,
+0.39%

and the China National Offshore Oil Corporation
883,
-0.12%

over a massive Guyana oil block.

Shein is reportedly mulling a London listing as the fast-fashion group thinks it won’t make it to Wall Street.

Durable goods orders are due at 8:30 a.m., following by the S&P Case-Shiller home price index at 9 a.m., and the Conference Board’s consumer confidence index at 10 a.m. Fed Vice Chair for Supervision Michael Barr will speak at 9:05 a.m.

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The chart

Beauty and the beast?

This chart from Bespoke Investment Group shows how cosmetics maker e.l.f. Beauty
ELF,
+7.35%

has risen even more than Nvidia over a five-year period — 2,639% versus 1,937%, respectively.

“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. had seven triple plays in a row dating back to August 2022, versus a current 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

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