- Moving the markets
A continuation of Friday’s rally hit a overhead resistance, with the major indexes reversing direction and plunging below their respective unchanged lines. The exception was the Nasdaq, which managed to hang on to a +0.63% gain, as traders scooped up some of the beaten-up shares like Tesla.
Optimism ruled, compared to the end of 2022, as traders are convinced that inflation may be easing, which explains today’s preference of “growth” assets over “value” ones. Whether that relentless hope will pay off remains to be seen, because the Fed has constantly emphasized its narrative of “no rate cuts” this year.
Market participants simply refuse to accept any Fed jawboning, with today being a perfect example, as ZeroHedge noted:
Fed’s Daly: “Getting inflation down to 2% won’t be completed this year.”
Fed’s Bostic: “I favor hiking rates to 5-5.25%, then hold through 2024. We are just going to have to hold our resolve and let the policy work.”
Bond yields dropped and gave an assist to the early rally, but in the end, they could not keep the markets propped up. The US Dollar slid, and Gold extended its gains to its highest since May 2022.
All eyes are on Thursday’s CPI report and big bank earnings due out Friday, both of which could have market moving effects in either direction.
2. “Buy” Cycle Suggestions
For the current Buy cycle, which started on 12/1/2022, I suggested you reference my most recent StatSheet 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 inched up a tad, despite the Dow and S&P 500 having lost their initial mojo.
This is how we closed 01/09/2023:
Domestic TTI: +3.20% above its M/A (prior close +3.15%)—Buy signal effective 12/1/2022.
International TTI: +6.26% above its M/A (prior close +5.82%)—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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