- Moving the markets
The markets were sluggish at first, but then they revved up their engines, as traders felt optimistic about a debt ceiling deal in the making. They were cheered by the words of speaker McCarthy, who said what Wall Street wanted to hear: “better progress”, “it’s possible to get a deal by the end of the week”, and “now we have a structure to find a way to come to a conclusion.”
That boosted the mood of the bulls, who also benefited from a massive short squeeze, and pushed the major indexes to soar higher, especially since Biden did not object and said that it was a “productive” meeting and “I’m confident we will get a budget agreement.”
But the threat of a default still looms over the markets like a sword of Damocles, and until a deal is sealed, nothing is guaranteed. The markets have been stuck in limbo and have been oscillating around our directional indicator, the Domestic Trend Tracking Index (TTI).
It’s possible that a final debt deal clears the way for a breakout to the upside, but we could also witness a classic case of “buy the rumor, sell the fact”, which means that this euphoric move could reverse.
After all, none of the other problems that plague traders around economics, geo-politics, banking crisis and ever widening deficits have gone away and will come back to haunt us once the debt ceiling drama loses its steam.
Regional banks joined in today’s rally with KRE hitting a resistance level. Bond yields dipped at first but then surged higher with the 2-year leaving the 4% level behind. With higher yields, the US Dollar climbed, but Gold retreated and remains stuck below its $2k level.
Adding to the economic slowdown are the banks, which are stingy with consumer loans, which in turn crimps consumer spending.
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)
Hope that a debt ceiling deal can be reached by the end of the week, pushed equities into overdrive, with our Domestic TTI crossing its trend line to the upside—again.
This is how we closed 05/17/2023:
Domestic TTI: +0.16% above its M/A (prior close -1.09%)—Buy signal effective 12/1/2022.
International TTI: +5.50% above its M/A (prior close +4.98%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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