- Moving the markets
Despite positive earnings from Microsoft and Google after the close yesterday, the troubles of First Republic Bank (FRC) continued today and overshadowed all news with the stock sliding another 30% on top of yesterday’s 50% dump.
As I have repeatedly pointed out, there is never just one cockroach, a theory which appears to be correct again, as concerns about the banking system were moved to the front burner once more. If FRC gets downgraded by regulators, that would impair their ability to borrow from the Fed, which then would pretty much assure its demise.
In the end, the markets closed in the red for the second day, except for the Nasdaq, which eked out a gain thanks to Microsoft and Google.
Looking at the big picture, we saw surprisingly better than expected Durable Goods orders, which surged 3.2% MoM, but when looking under the hood, it was not as great as the headline number indicated. Offsetting that was the banking system debacle and the debt ceiling anxiety, all of which combined to sink 2 of the 3 major indexes.
Bond yields were mixed today but rebounded off yesterday’s lows, yet the 2-year was unable to reclaim its much fought-over 4% level.
The US Dollar dropped and popped but closed lower, while gold followed suit but was unable to hang on to its mid-day gains.
As we are nearing the end of April, volatility has picked up considerably, which today pulled our Domestic TTI back below its long-term trend line—but only by a small margin. Please see section 3 below for more details.
2. “Buy” Cycle Suggestions
For the current Buy cycle, which started on 12/1/2022, I suggested you reference my then current StatSheet for ETF selections. However, if you came on board later, you may want to look at the most recent version, which is published and posted every Thursday at 6:30 pm PST.
I also recommend you 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.
In my advisor’s 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)
I expected that another sell-off would send the Domestic TTI below its trend line and into bearish territory. That’s exactly what happened, but the dip below was very small, so we will continue to hold on to our domestic equity ETFs, until I receive more confirmation that this “Buy” signal has indeed ended.
We have seen this movie before, as on 3/23/23 our TTI had sunk -3.13% below its line before recovering. It may be different this time, but we must be patient to avoid a potential whipsaw signal.
This is how we closed 04/26/2023:
Domestic TTI: -0.58% below its M/A (prior close +0.47%)—Buy signal effective 12/1/2022.
International TTI: +6.14% above its M/A (prior close +6.57%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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