- Moving the markets
Yesterday’s downward momentum carried over into today’s session and accelerated throughout the day, but a last hour rebound prevented a worse outcome.
This is now the 4th straight day of declines for the S&P 500, which has now retreated clearly below its 200-day M/A, thereby nullifying its recent break above it. Looking at the bigger picture, all the massive gains following Powell’s alleged “dovish” speech have now been surrendered.
Traders are back to the drawing board, as bullish hope based on a Powell pivot, or pause, has now made room for the bitter reality that a recession, the depth of which remains unknown, will have consequences on earnings and, by association, stock prices.
Round after round of layoffs is proof that, economically speaking, a hard landing is being accepted as likely, while inflation and its impact on consumers remains a wild guess.
Despite the Fed being expected to slow the pace of interest rate hikes from 0.75% to 0.5%, when they meet next week, traders fear that the fallout from any hike will increase recessionary pressures.
Bond yields dipped a tad but not enough to exert a positive influence on equities, with the 10-year dropping down towards its 3.5% level. The US Dollar vacillated around its 200-day M/A, while Gold gained a tad but did not manage to reclaim its $1,800 level.
Updating the 2008-2009 analog, it appears history is back on schedule for a possible two-peat.
2. “Buy” Cycle Suggestions
For the current Buy cycle, which starts on 12/1/2022, I suggest you reference my most recent StatSheet for ETFs selections. If you come 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 followed the major indexes south but remain above their respective unchanged lines. I need to see a clear break below the line, accompanied by some staying power, before acknowledging that this Buy signal was nothing but a head fake.
This is how we closed 12/06/2022:
Domestic TTI: +1.16% above its M/A (prior close +2.28%)—Buy signal effective 12/1/2022.
International TTI: +1.74% above its M/A (prior close +2.62%)—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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