An Early Rally Hits The Skids

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[Chart courtesy of]

  1. Moving the markets

An early rally seemed to hit a brick wall, reversed, and headed south, but the major indexes bounced off their respective trend lines and closed the session in the green.

The culprit for this reversal was the release of the Fed’s latest meeting minutes (December), which showed that the bank will continue with their hawkish policies and remain aggressive with their efforts to fight inflation.

Helping the rebound were lower bond yields, despite the Fed confirming its stance on higher rates. They intend to do so until evidence appears that inflation has waned.

On the economic front, Manufacturing contracted for the 2nd month, as ZeroHedge reported, as “prices paid” and “new orders” plunged, while the index notched its longest stretch of declines since 1974-1975.

Job Openings came in hotter than expected, despite continued deterioration in hiring, which appears to be a reversal from the prior month. This means that for the second consecutive month there are 4.4 million more jobs than unemployed workers. Hmm…

The US Dollar dipped and ripped but ended the session lower. Gold continued to be the steady Eddie and resumed its northerly path by topping $1,870 and reaching its highest level since last June 16th.

2. “Buy” Cycle Suggestions

For the current Buy cycle, which started on 12/1/2022, I suggested you reference my most recent StatSheet for ETFs selections. However, if you came 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 finally showed some signs of life and posted some nice gains. However, as we’ve seen before, we need to see more bullish follow through and staying power, before adding to our positions, to make sure this is a true upside breakout and not just another head fake.

This is how we closed 01/04/2023:

Domestic TTI: +1.62% above its M/A (prior close +0.06%)—Buy signal effective 12/1/2022.

International TTI: +3.99% above its M/A (prior close +2.53%)—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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