Special Bulletin: December 19, 2023

 And the Fed Said, “Merry Christmas?”

Has the Fed really pivoted? Have they declared victory over inflation? What happened to their 2% inflation target?

Or, has the Street misinterpreted their comments and read something into them? The Fed has stated, “higher for longer” and still seems to have much work left to do in order to sop up all the pandemic induced free (stimulus) liquidity still out there (liquidity = fuel for inflation).

But, it is an election year and maybe the Fed wants to appear non-partisan. Keep in mind that a rising stock market puts added pressure on prices (eg. inflation) and will have an impact on future economic releases. And all this while stocks appear to be back up on stilts.

Our Current Market Outlook has been downgraded to “Uptrend Under Pressure” with a yellow light as of today’s close (SPX 4,768.37). Our “Core Four” (see top of page) has 3 green and 1 red light. The rally in growth stocks and the general stock market indexes is very extended and as such the risk/reward ratio over the next few weeks now has a negative bias.

Have you noticed that the economy is slowing while the stock market is climbing? One will likely break rank and join the other after the calendar turns. This type of bifurcation often leads to a period of consolidation. The 21-day mav’s will eventually be a source of support  – no rally can fail without getting below and staying under them. There is a growing thought that many traders are waiting for the new year to take profits. If so, the first few days of January could usher in a well needed pullback-  a pause to refresh? Since 2024 will be an election year, we expect to see more price volatility.

Interest rates are arguing with stocks and are suggesting a recession is still coming – keep an eye on the 10-year US T-note yield as it currently sits in the low 3.90’s %. A surprise PCE number later this week could reignite a bond selling wave and drive rates back above 4% rather easily.

As we previously stated, The widely expected “low, rally, retest” sequence has not happened yet. Historically, it doesn’t have to happen. It is still possible, but what is more likely is a profit taking pullback to test the 21-day mav, but at higher levels. Note: The longer it takes for a retest, the stronger the new rally may become.” The market remains overbought and investor sentiment readings are flashing a warning. The VIX is still at an unhealthy multi-year low level – complacency alert! But the long-term trend is up until it is broken. 

“Now the birth of Jesus Christ was as follows: when His mother Mary had been betrothed to Joseph, before they came together she was found to be with child by the Holy Spirit. And Joseph her husband, being a righteous man and not wanting to disgrace her, planned to send her away secretly. But when he had considered this, behold, an angel of the Lord appeared to him in a dream, saying, “Joseph, son of David, do not be afraid to take Mary as your wife; for the Child who has been conceived in her is of the Holy Spirit. She will bear a Son; and you shall call His name Jesus, for He will save His people from their sins.” Now all this took place to fulfill what was spoken by the Lord through the prophet: “Behold, the virgin shall be with child and shall bear a Son, and they shall call His name Immanuel,” which translated means, “God with us.”  And Joseph awoke from his sleep and did as the angel of the Lord commanded him, and took Mary as his wife, but kept her a virgin until she gave birth to a Son; and he called His name Jesus.“ Matthew 1:18-25  NASB 1995  Merry CHRISTmas!

Game plan: The general stock market is extended and needs a breather. Wait to deploy new capital until a pullback can be measured technically. Take profits were appropriate. Please continue praying for the peace of Jerusalem.

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

Have a Triumphant day! ®