Special Bulletin: October 3, 2023

 In Position for a Crash… and yet so Oversold / McCarthy is Out: Is Chaos In?

You may be wondering why two titles. Maybe even thinking, “Did he just use the ‘C’ word?” Yep, and if it were to happen it would likely be in the next 4 to 8 days. More on that below.

The fact is we had a third title as well. Half of an old stock market adage that says, “When rates are high, stocks will die.” That old axiom is proving very useful again (as it was in 2007).

Our Current Market Outlook remains “Market in a Correction” with a red light (4pm – SPX 4,229.45). Our “Core Four” (see top of page) still has 1 yellow and 3 red lights and the VIX has confirmed our previously published signal by rocketing over its 50-day mav. (FYI: Two weeks ago, we had stated, “We will see in short order if the VIX confirms the new C.M.O. downgrade to red.”) And boy! did it do it!

Warning! New 52-week lows are exploding on the NYSE and the Nasdaq. The advance/decline lines on both major indexes are almost in freefall. Beware when the “generals” (the Magnificent Seven) lead the “privates” (the rest of the market, especially the small caps) into battle (higher).

Did you catch what was said above about the new lows expanding? This should be alarming to investors. Why? Think back to late last year when the major indexes were embroiled in a deep bear market. The S&P500 hit its low on October 13th and the Nasdaq bottomed out on December 28th (lowest close). Both of those dates are within the past 52 weeks! Yet today, with the popular averages much higher in price than at those points last year (thanks largely to the infatuation with the “Mag-7” this year), the number of NEW 52-week lows reached 449 stocks on the NYSE and 571 stocks on the Nasdaq. While bearing in mind that many of those new lows were bond funds on the NYSE (thereby inflating the totals a bit), it is still alarming that the broader market (the “privates”) appears to be in full retreat.

The point is this: The stock market hit its lows late last year! Why then are there so many new LOWER LOWS today?

Let’s talk about the “C” word. Are we saying a crash is coming? No. But maybe. We don’t make market predictions, but we do recognize certain technical set-ups. Simply put, the conditions are in place that can lead to a “crash.” An excellent example from the past (and with eerie similarities to today) is 1987. If this time plays out like that period did, then a major down move would happen in just a matter of days – between 4 to 8 from today. By way of an analogy, we are not predicting a tornado will strike. But rather, we are sharing that the barometric conditions have worsened and are ripe for one to develop rapidly. 

On the other side of the coin is that internal conditions are very oversold. That will likely lead to an immediate bounce. The problem will be if no bounce (other than an anemic one-day attempt) develops. While the market is indeed oversold mathematically, our research shows it can remain in that state for another week or so, which unfortunately lines up pretty well with the aforementioned 4-to-8-day window. 

“When rates are high, stocks will die.” So, what can cause the rates to come back down and encourage stocks to go back up? A satisfied Fed. Or, maybe, a panicked Fed. It seems to us that this Fed needs to first see it (panic) in the marketplace before it decides to capitulate (change course). Here’s a thought: A freaking Fed works to stop the RED. Happy “fall” indeed.

A word on former speaker Kevin McCarthy’s ouster. It is theater, but it is serious and real. As it is the first time in our history, this is uncharted territory. How will the market respond? Does one “C-word” (chaos) lead to another? Stay tuned.

“Many plans are in a man’s heart, but the counsel of the Lord will stand.”  –  Proverbs 19:21 NASB 1995

Game plan: It is put up or shut up time for the bulls on Wall Street. Inflation continues to run hot, and rates are doing the opposite of the leaves by defying gravity. Expect a bounce but prepare for lower prices. Ask the Lord Jesus for wisdom.

Note: You can learn more about The Triumphant Core Four risk management system by clicking here.

Have a Triumphant day! ®