Battling The Downtrend Line

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[Chart courtesy of]

  1. Moving the markets

An early Ramp-A-Thon lost some momentum during mid-session, but the pullback was contained and still enabled the major indexes to close solidly in the green.

While the S&P 500 managed to finally break above its 200-day M/A, it was not yet able to hold the move above its longer-term downtrend line, which had been a insurmountable resistance point throughout 2022.

Supporting today’s follow through from Friday was the continuation of the short squeeze, without which there would have not been enough upward momentum. That brings up the question whether this session simply represented the reloading of the shorts, as ZeroHedge described it.

Traders still contemplated a potential slowdown in rate hikes, thereby stubbornly taking the opposite view of what the Fed and its mouthpieces have been jawboning about for months now, namely “higher rates for a longer duration.” Of course, there is always a possibility of only a +0.25% hike when the Fed meets early February.

Earnings will be closely watched this week, as some big names like Microsoft, IBM, Tesla, Visa and Mastercard will be presenting their report cards. As always, future guidance will be at the center of attention for most analysts.

Much overlooked are figures like the Leading Indicator (LEI), which clearly shows that the “soft landing” theme may not work out as had been anticipated. Stocks ramped anyway and even rate-trajectory expectations drifted higher (more hawkish), which makes me wonder how much more firepower is left in the bullish scenario.

The US Dollar dropped and popped, went sideways, and closed just about unchanged. Gold pumped and dumped and managed to eke out a small gain.

2. “Buy” Cycle Suggestions

For the current Buy cycle, which started on 12/1/2022, I suggested you reference my most 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 bounced higher, as Friday’s bullish momentum carried into this week.

This is how we closed 01/23/2023:

Domestic TTI: +6.18% above its M/A (prior close +4.87%)—Buy signal effective 12/1/2022.

International TTI: +9.33% above its M/A (prior close +8.62%)—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.

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