A Sea Of Red

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Despite a green opening, the bulls lost control in a hurry, as the bears took over and dominated the rest of the session as if to add insult to injury to a year that is shaping up to be the worst since 2008. The S&P is now on track to close 2022 with a loss of over 20%.

Powerhouse Apple fell another 3% and dropped through a key support level to a 52-week low. Energy was big laggard with Crude Oil now below $80, and Southwest Airlines continued its slide by another 5% amid an additional surge of flight cancellations.

Traders are now simply wishing that due to bullish momentum appearing to have been exhausted, with the much hoped for technical rally fast disappearing in the rear-view mirror, that Friday afternoon arrives without much more carnage.

Ok, but what are we looking at once the first trading day of 2023 arrives next week? China, Covid, energy issues, a weakening economy (lower earnings?), Ukraine, and hawkish Central Banks do not paint a picture of calmness or balance conducive for the bulls.

With my Trend Tracking Indicators (TTIs-section 3) having hugged their trend lines in the recent past, but now are showing a southerly tendency, I would not be surprised to see a “Sell” signal in the near future, which could be as soon as next week.

2. “Buy” Cycle Suggestions

For the current Buy cycle, which starts on 12/1/2022, I suggest you reference my most recent StatSheet for ETFs selections. If you come on board later, you may want to look at the most current version, which is published and posted every Thursday at 6:30 pm PST.

I also recommend for you to consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.

We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices. I can see this current Buy signal to be short lived, say to the end of the year, and would not be surprised if it ends at some point in January.

In my advisor practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.

With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.

3. Trend Tracking Indexes (TTIs)

Our TTIs dropped, as the bullish meme disappeared, and the bears flexed their muscles. It’s been a wild ride with our indexes vacillating around their respective unchanged lines. I imagine that after the first few trading days of 2023, a new major trend will emerge, which should provide us with more clarity than we currently have.

This is how we closed 12/28/2022:

Domestic TTI: -1.46% below its M/A (prior close -0.02%)—Buy signal effective 12/1/2022.

International TTI: +0.96% above its M/A (prior close +1.73%)—Buy signal effective


Disclosure: I am obliged to inform you that I, as well as my advisory clients, own some of the ETFs listed in the above table. Furthermore, they do not represent a specific investment recommendation for you, they merely show which ETFs from the universe I track are falling within the specified guidelines.

All linked charts above are courtesy of Bloomberg via ZeroHedge.

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