- Moving the markets
Friday’s sour mood about a worsening recession carried over into today’s session, with only the Dow managing to glimpse above its unchanged line, while the S&P 500 and Nasdaq never saw any green numbers. The major indexes have now closed lower for the 4th day in a row and are in the red for the month.
With the Fed now looking to hike the Federal Funds rate towards the 5.1% area, no matter what, traders have had to come to terms that this type of increase will worsen the recession and, by association, affect earnings negatively, which will cause stock prices to pull back.
On the economic side, there was only one data point of interest, and that was Homebuilder Confidence, which pretty much sealed the dominance of the bears for the day. The print was downright dismal, as the headline index dropped 2 points to 31, vs. expectations of a rally to 34, but there is still a long way to go to the downside to catch up with the Homebuyer confidence number.
There was no news whatsoever to support any bullish movement, but traders and algos still have 4 days left to produce a Santa Claus rally, although right now, the odds are not that great.
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 retreated again with the International one following suit by dropping into the red by a tad.
As posted, I will need to see more staying power “below the line” before declaring this Domestic Buy cycle to be over.
This is how we closed 12/19/2022:
Domestic TTI: -1.92% below its M/A (prior close -0.71%)—Buy signal effective 12/1/2022.
International TTI: -0.04% below its M/A (prior close +0.14%)—Buy signal effective
12/1/2022.
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.
Contact Ulli