- Moving the markets
It wasn’t an impressive performance, but at least the markets managed to snap a 4-day losing streak by eking out a tiny gain in the face of sharply rising bond yields. Traders tried to shake off a surprise rate hike by the Bank of Japan (BoJ) and resigned themselves to the idea of a waning year-end rally.
The global trading community was shocked when the BoJ announced a “widening of its cap” on the Japanese 10-year government bond yield thereby following the hawkish tone set by the ECB and the Fed.
The Japanese Yen shifted into rally mode after needing to be propped up in September and October, while the US Dollar was slammed. Gold was the beneficiary with the precious metal gaining a solid +1.70%.
Of course, the BoJ’s hike immediately supported hopes, or wishful thinking, that we have now moved one step closer to the end of the hiking cycles, which would lessen bearish sentiment and lay the foundation for a new bull market.
On the other hand, the economic hits keep coming with today’s collapse of US Building permits of -11.2% MoM (vs. -2.1% expected) being the latest data point that clearly shows that a recession is in the making. As ZeroHedge added, YoY permits are down over 22%, the biggest drop since 2009.
US Bond yields rallied with the 10-year surging 21 bps to close at 3.69%.
I expect trading volume to slow down over the next three trading days, as we approach the Christmas holiday.
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 improved a tad but are still closely hugging their respective trend lines, which means a clear direction is not yet discernable.
This is how we closed 12/20/2022:
Domestic TTI: -1.83% below its M/A (prior close -1.92%)—Buy signal effective 12/1/2022.
International TTI: +0.53% above its M/A (prior close -0.04%)—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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