Special Bulletin: April 19, 2024

A Rare Technical Occurrence

Last Monday we updated our website to our “red” warning stop light and shared on our C.M.O. landing page (and on our Linked-In social media account like usual) this update, “Our Current Market Outlook has been downgraded to “Market in a Correction” with a red light as of 1:15pm on 04/15/24 (SPX 5,110.77). The general stock market indexes are testing and slicing through their 50-day mav’s. The pros have sold into this morning’s open, and selling is picking up, and this follows Friday’s technically disappointing action. Be very careful at this juncture. A “tornado watch” condition has materialized for stocks. Our Core Four has moved to 3 red and 1 green light with a surging VIX. A high volume snap-back up and over the 50-day mav’s on news of real peace could push the C.M.O. back to yellow. But beware: Interest rates are suggesting no immediate rate cut is coming – keep an eye on the 10-year US T-note yield. The economy is slowing – will stocks succumb or stand strong? Expect volatility.

Since that post, the stock market has weakened further. In fact, a rare technical occurrence was triggered yesterday. All four of our “Core Four” technical indicators (see top of page) are now red. This is a big deal. More on that below.

Two weeks ago, we wrote, “We see a “low (downward) pressure” system fast approaching for the stock market. The question now is will it be just a gentle shower or a more violent storm?” 

A quick look at the charts of the main indexes will answer that question. It has been a mess for certain investors’ portfolios during that fortnight. But praise be to God that our strategies have weathered the “storm” comparatively well.

Last week we mentioned the historical need for a catalyst to begin a move in the opposite direction. Perhaps the attacks on Israel and their response are just that. 

I can’t help but wonder if there isn’t something more, something financially bigger, hanging over the market. Sort of like a “rain-wrapped” tornado which is nearly impossible to see, even in broad daylight, until it is on top of you. The stock market is acting uneasy. Having said that, it is almost eerie how the stock market has experienced a slow, seemingly controlled, bloodletting. No vertical violation (yet). No panic. No washout. No “blood in the streets” fear driven plunge.

Our Current Market Outlook remains “Market in a Correction” with a red light (SPX 4,967.23). Our “Core Four” (see top of page) is historic as it now has 4 red lights! The VIX remains elevated and well above its 50-day mav.

In last week’s special Saturday C.M.O. post we stated, “A ‘red’ condition could come as early as Monday. That means that the stock market could now be seen as under a “tornado watch.” And it did in fact. A red condition (raise cash levels by taking some profits and selling any losers) was triggered at 1:15p on Monday the 15th with the SP500 at 5,110.77

We also penned, “Do you know where your umbrella is? More importantly, do you have a storm shelter in place?” That is the beauty of our Current Market Outlook internal technicals, risk management system: it gives early clues of the subtle changes “under the surface” (the math of the market) and keeps our attention focused on the “footprints of money” – what the big elephants are doing. Thank You, Lord!

Having a risk management plan of capital protection (an exit strategy) in place and then having the courage to execute it as weakness (losses) develops, we believe is paramount for individual investor survival.

This week many institutional investors continued to reduce their equity exposure (distribution days have now swollen to 11 in the past 25 days on the SP500). The S&P500 has also had 5 straight closes under its 50-day mav. This is a very technically weak position. Yet, financial stocks (banks primarily) actually rose Wednesday through Friday. Is institutional money rotating out of tech stocks and into banks now? If so, that could be a clue for the next wave of leadership.

Nothing ever goes in a straight line when analyzing the stock market. What does that mean? Odds are high that a bounce may develop next week. Maybe for just a day and a half, or maybe for a few days. It may not even come for another week or later. But a bounce will develop, and the banks are already experiencing a mini one. Gauging the internals during any bounce will reveal much about the true health of the stock market. Be patient before rushing back in. Go slow and make it prove that it is worth putting your hard-earned capital back to work in it. Stay tuned to our posts for unbiased updates on new developments.

Lastly, concerning our “four of a kind” all red Core Four indicators, this is a first since we have been publishing the Core Four that all 4 are red simultaneously. Historically, the Core Four indicator has had a yellow or green condition on the “sentiment” component while the other 3 were red- this has happened many times since 2020. But it is different this time. Typically, by the time the other 3 components are all red, the sentiment has gotten so bad that it had already turned yellow (or even green) at the same time reflecting the overly pessimistic environment. Today, while investors still appear overly optimistic (red sentiment), the other indicators are screaming a warning. “…Red sky in the morning, sailor take warning?”

“And in the morning, ‘There will be a storm today, for the sky is red and threatening.’ Do you know how to discern the appearance of the sky, but cannot discern the signs of the times?” Matthew 16:3 NASB 1995

Game plan: Prepare for a storm. Pray for a bounce. This is a time for wisdom and boldness. The major indexes are well below their 10, 21 & 50-day mav’s! A critical show of institutional support must develop immediately or expect worse. Please pray for the peace of Jerusalem, for all of Israel (Psalm 122:6-7). May they prosper who love her.

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

Have a Triumphant day! ®