- Moving the markets
Despite the CPI report syncing up with expectations of an increase of 6.5% YoY, it was the monthly dip of 0.1% in December from November that kept the bullish juices flowing and helped the Nasdaq to complete a 5-day winning streak.
The CPI excluding food and energy prices also met anticipations, which showed a month-over-month gain of 0.3%. The markets were pleased, but the bulls did not get overly excited and pushed the major indexes to only moderate gains.
Hope reigns supreme that these numbers, which only show a slight cooling of inflationary pressures for one month, are sufficient to convince the Fed that a slowdown in rate hikes might be appropriate. Given the Fed’s responses over the past few weeks, an imminent change in policy is highly unlikely. Yes, they will pivot eventually, but I don’t think we have arrived at that moment in time yet.
Few rallies are ever sustained without a short squeeze, and today was no exception as the squeeze continued for the 5th straight day. The S&P 500 briefly crossed its 200-day M/A to the upside but was not able to close above it.
Bond yields tanked, thereby giving an assist to equities, with the 10-year dropping 18 bps to end the session at 3.44%. The US Dollar dropped to its lowest price since last May, while Gold had a great day by adding +1.2% and closing above $1,900.
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 continued their northerly march, as the CPI did not disappoint.
This is how we closed 01/12/2023:
Domestic TTI: +5.63% above its M/A (prior close +5.23%)—Buy signal effective 12/1/2022.
International TTI: +8.78% above its M/A (prior close +7.27%)—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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