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  Hi, and welcome to the weekly MSI newsletter!

The week that was:

After 8 weeks of relentless selling, the market finally had a positive week. It must be cautioned this is likely a bear market rally caused by oversold conditions. None of the problems like inflation, interest rates, the Ukraine war, supply chain disruptions, and high oil prices have been solved.

Most companies reported poor results and gave uncertain forecasts due to which stocks had sold off. Companies that reported poor results were punished excessively. An example is Ross Stores that went down by 27% after reporting relatively poor results. Dutch Bros sold off by 40% after inflation caused the price of milk to shoot up. On the other hand, TJ Maxx and Starbucks reported good results and the stocks barely gained.

Earnings season is over and most of the selling has been completed. We are entering into a quiet period for a few days with no catalysts like earnings or Fed meetings. Due to absence of news and overselling, there was a rally this week. People started to buy stocks again since the next few days will likely not bring about any new negative news.

The best thing to do in such an environment is to use the rally to sell any stocks that should not belong to your portfolio. If there are stocks of companies that are unprofitable or have high valuations, then those can be sold. The proceeds can be used to buy stocks of high quality companies that are conservative and have good valuations. Take the example of Ross Stores which fits the description of a high quality blue chip company. Although the stock went down by 27% in a single day, it recovered all the losses in just a couple trading days. I used the 27% drop to nearly double my position in Ross.