- Moving the markets
Traders and algos alike continued with their relentless efforts to challenge the Fed’s resolve of hiking rates for “higher and longer” by propelling the major indexes higher on the last day of the month and the day prior to the Fed’s much-awaited policy announcement.
Again, much of this January move was based on the Fed at least shifting into “pause” mode, which they eventually will, but likely because of the economy is turning over, which will then mean the rally could be short-lived due to earnings taking a hit.
For right now, the overriding theme is a bullish one with S&P 500 having scored its best January since 2019. The anticipation is for the Fed to hike only a meager 0.25% tomorrow, with an 83% chance of another 0.25% in March being baked in the cake.
A massive MOC (Market on Close) order erased all of yesterday’s losses, while the seemingly ever-present short squeeze contributed to January’s comeback. All this exuberance has now reduced the financial conditions to their loosest since June, as ZeroHedge pointed out. This is just the opposite of what the Fed wanted to see, when they called “unwarranted easing” in the last release of their Minutes.
Bond yields slipped during January, the US Dollar fell for the 4th straight month, all of which benefited Gold, as the precious metal not only surged for the 3rd straight month in a row but also gained a solid +5.74% just for January—only a hair below the S&P’s +6.29%.
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 rocketed higher, as traders continued to disregard the Fed’s hawkish intentions.
This is how we closed 01/31/2023:
Domestic TTI: +7.77% above its M/A (prior close +6.00%)—Buy signal effective 12/1/2022.
International TTI: +10.19% above its M/A (prior close +9.63%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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