- Moving the markets
Traders were stuck in limbo today trying to assess future monetary policy, the current earnings season, which was subpar at best, and the profit outlook for the remainder of 2023.
None of the above deliberations created much motivation by the bulls to drive this market higher, so the path of least resistance was down, with the S&P 500 surrendering some -1.11%.
Company guidance took center stage, as data provider Refinitiv announced that 42 companies in the S&P 500 have issued negative earnings guidance, 8 have posted positive numbers, while many others have not changed their forecast or issued any to begin with.
Alphabet stock took it on the chin this morning by tumbling more than 7%, as competition in the Artificial Intelligence space has heated up thereby limiting the first mover advantage.
However, capping any potential bullish sentiment were a few Fed mouthpieces, who uttered market unfriendly comments like the ones I have repeatedly mentioned: “More work to do, higher for longer, no rate cuts this year.” As a result, terminal rate expectations surged and have now reached a new cycle high of 5.18%, as per ZeroHedge.
Most shorted stocks reversed from last week’s Ramp-A-Thon and did what they are supposed to, namely head south, and bite the dust, which is what we saw over the past 3 trading days.
Bond yields went sideways, the US Dollar eked out a tiny gain, while Gold kissed the $1,900 level briefly but was not able to hold on. Still, the precious metal gained a tad.
The tug-of-war with the Fed continues, but I think next week’s eagerly awaited CPI report may shed some light on the future direction of the markets.
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 headed back south, as a bullish driver was clearly lacking during this session.
This is how we closed 02/08/2023:
Domestic TTI: +7.76% above its M/A (prior close +8.83%)—Buy signal effective 12/1/2022.
International TTI: +9.61% above its M/A (prior close +9.98%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.Contact Ulli