Special Bulletin: April 4, 2020

America’s 4-Lettered Word- DEBT

Make no mistake about it, America is intoxicated with debt. Actually, by many counts, our society is drowning in it. Not all American citizens, mind you, as many follow biblical principles that strongly discourage the casual use of debt. Unfortunately, our cultures addiction to it doesn’t just reside on a personal level. The US Govt. debt, state and municipal debt, and corporate debt levels are massive as well.

The use of all that debt is coming home to roost with the recent debilitating 1-2 punch that hit our economy as a catalyst (see March 17th post here). Those events have put immediate, harsh pressure on the already tight budgets/thin margins of many businesses, and have exposed huge cracks in our financial system.

Quick review: The first punch was the surprise decision by Saudi Arabia to flood the world with cheap oil intentionally to decapitate our energy independence and blindside oil companies & banks. The second punch was, let’s call it what it is, the forcing of an “intentional recession” designed to stop the spread of CV-19 by shutting down our massive consumer driven economy. The President may be right: the cure may be worse than the virus.

There is some good news! President Trump and his administration, the Fed, the Treasury Dept., and finally Congress have all announced colossal measures designed to stuff cash into our sinking economy and bring a quicker end to the looming recession. The shear size of the trillions being created (about 6 of them at last count) and shoved into almost every corner of our economy is breathtaking!

As a result of all this “relief $” coming into our hands (be careful, the ink may still be wet), the stock market ended its torrid crash (at least temporarily) on March 24th and finally provided the oversold bounce that we were expecting. It, too, was breathtaking.

Based on the recent technical action in the stock market, our Current Market Outlook has been upgraded to “Uptrend Under Pressure” with a “yellow” light. Two of our Core Four indicators have turned green, while 2 remain red, creating a net yellow result. While we finally got the significant bounce we were looking for, the conditions for a new “bull” market are not present yet.

This new yellow signal may fail quickly and prove to be a false-positive reading. Sometimes that happens, since no system is accurate 100% of the time. Or perhaps, the market may surprise us all and bolt ahead and force us to a green condition in the days/weeks ahead due to new positive developments. We are open-minded, but are realists. The health of the stock market is poor.

According to Investors Business Daily, Thursday’s action resulted in a follow-through day on the S&P500 index on day 8 of the current rally attempt. That “F-T day” signaled a new uptrend may be emerging. Unfortunately, the Nasdaq did NOT officially follow-through  yet and that leaves some doubt about the IBD signal. (IBD is quick to point out that not all “F-T days” produce a sustained rally, especially early in a bear market.) Watch closely for any Distribution Days (professional selling) over the 3 trading days from Thursday. IBD’s research suggests that when DD’s crop up immediately after a “follow-through” day, it almost always torpedoes the new rally.

What’s an investor to do now? Keep praying for wisdom. Continue to be mostly in cash, but begin nibbling in fundamentally & technically  superior stocks and ETF’s now that a “confirmed uptrend” may be emerging. Keep new buys small and watch for immediate “DD” days.

Have a Triumphant day! ®