Climbing Out Of A Deep Hole

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  1. Moving the markets

Yesterday’s non-event session heated up in overnight trading, after Microsoft’s earnings at first spiked their stock price due to better-than-expected cloud service results. This moment of euphoria was short-lived, however, after the CEO presented lackluster guidance that would result in reduced earnings. That was end of the rally, and Microsoft tanked, making this morning’s opening very likely a weak on.

That’s how it turned out, with the Dow sinking some 400 points and the Nasdaq getting clobbered. Optimism suddenly resumed, as dip buyers stepped up to the plate, and a steady climb out of that early hole erased all losses, and we closed just about unchanged.

The S&P 500 lost its grip on the much-fought over 200-day M/A intra-day but, thanks to the dip buyers, it reclaimed that crucial level, as the rebound accelerated. And, as I have commented numerous times, such a rebound is simply not possible without a short-squeeze, which is exactly what transpired today.

Bond yields slipped a tad, the US Dollar retreated, while Gold surged after being down early in the session with the precious metal now homing in on crucial overhead resistance levels. If they get broken, the $2k price point will come into play again—hopefully with longer duration than the last two attempts.  

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 inched up, as the early market plunge turned into a slow but steady recovery.

This is how we closed 01/25/2023:

Domestic TTI: +6.19% above its M/A (prior close +5.92%)—Buy signal effective 12/1/2022.

International TTI: +9.87% above its M/A (prior close +9.60%)—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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