Hold or Fold

Igor Manukhov - Mar 17, 2025

Markets are at a crossroads but still is in the uptrend – Patience is the key now.

The market continues to be very volatile, and it is starting to play on people’s nerves. All the news nowadays about recessions, trade wars, and real wars is just a white noise in my opinion. What ultimately matters to investors is if they should hold or fold – that’s what it all boils down to in the end.
 
Over the last few weeks, I have been sharing charts that I am watching and indicators that I track. These charts influence my portfolio decisions because I have studied their historical meaning, and I know how various indicators that I track behaved in past bear markets.
 
Normally, I include only one chart in my weekly e-mails, but since “this time is different” with Trump in the office, I am including a second chart to offer a better perspective.
 
Both charts below are setup in the same way. The first chart shows a short-term market pullback in 2023 (very good and positive year otherwise). The second chart shows the beginning of 2022 bear market.
 
  • The black line in the top panel represents a daily chart for the US market (S&P500). The purple line in the top panel represents the 150-day moving average of the S&P 500 (indicating the longer-term trend).
  • The middle panel on both charts depicts the RSI indicator, which is a momentum indicator that fluctuates from 0 to 100. Most of readings are between 30 and 70. Any reading near or below 30 represents oversold conditions (bad for selling, good for buying). Readings near or above 70 represent overbought conditions (bad for buying, good for selling).
  • The last panel on both charts (orange line) show high-yield bond spreads, which I have been referring to over the last few weeks. The rising orange line means that bond holders are getting nervous (not good).
 
I wanted to outline the difference between a market pullback (a hold or buying opportunity) and the beginning of a bear market (a fold scenario).
 
The first step in both scenarios is an unexpected sell off. We will call it a step 1. Usually, the market goes down by about 10% on some nasty news that catches people off guard. It could be inflation (2022), a slower pace of rate cuts (2023) or trade wars that we are going through now.
 
In step 1, the market could sell off sharply and the environment becomes very negative. It is very important not to fold here, because otherwise you will be selling your assets into a depressed market and will not get a good price for them. The RSI reading is usually around 30 or less at the end of step 1.
 
When the market gets too negative and prices come down, there is usually a rebound of some sort. That is where two scenarios begin to diverge.
 
1. Pullback Scenario (Chart 1)
The rebound is very strong, the 150-day moving average is still trending upward (purple line), and high yield bond spreads trend downward over a longer-term (despite a short-term spike). Historically, that is one of the best buying opportunities. The market has some of the best rallies after a short-term pullback.
 
2. Bear Market Scenario (Chart 2)
The biggest difference is that 150-day moving average starts to flatten and trends downward. The RSI struggles to get above 50 (blue oval on the second chart), and high yield bond spreads start to trend upward in short-term and long-term (green oval). The optimal time to raise cash and play defence in a bear market scenario is right around when price fails to cross above falling 150-day moving average (pink circle on the second chart).
 
I hope you can see the difference between two scenarios. I reviewed all bear markets going back to 1960 and all of them unfolded in this way. Nothing goes up or down in straight line. It zig zags instead.
 
At the present moment, we are in stage one. The market had a 10% drop from its peak in mid February and is now quite oversold. People are concerned, and there is lots of bad news. However, based on historical evidence, it is too early to tell if this is a beginning of a bear market or just a pullback. We have to wait for a rebound. So far, it still looks like a pullback because the indicators that I track are more consistent with Chart 1 than Chart 2. However, we are at crossroads. My team and I have been running fire drills in case this turns out to be the beginning of a bear market.

 

Chart 1: Short term pullback (2023)

Chart 2: Start of the bear market (2022)