Our Current Market Outlook remains “Uptrend Under Pressure” with a yellow light. The interest hikes by the Federal Reserve continue to be a serious headwind for the Nasdaq, and growth stocks in particular, but short-term technical conditions in the stock market have improved. Even with growth stocks and the major stock indexes having experienced a “bounce” recently, the general stock market still faces higher risks than normal. When putting capital back to work, remember that the economy is still facing a difficult environment – and stock returns will be “data dependent.” Thank you Mr. Powell.
A couple of weeks ago we posted, “Throughout stock market history, many of the greatest rallies have happened during a recession/bear market. They are often short-lived. As this rally develops, keep an eye on the time component – the more time that passes before another move down the better it is for the stocks.” It is important to note that, according to David Ryan, enough time has passed as of last week to meet the typical length of a “bear market bounce” – 8 to 9 weeks. (Our note: That suggests that if the market is planning to go down hard again, it will likely do it soon.)
So, what is next? Great question! Investors will have more discernment after Powell’s speech at Jackson Hole on Friday.
Currently, the popular stock indexes have moved into what is often called “no man’s land” and are facing another “question mark” moment. That’s sort of a fancy way to say we don’t know what is coming next. You may be wondering what does no man’s land mean, and asking “how does it pertain to the stock market?” By definition, no man’s land is an uninhabited or desolate area that may be under dispute between parties who leave it unoccupied out of fear or uncertainty. Zero in on the last part, dispute between parties who leave it unoccupied out of fear or uncertainty. That dispute is between the bulls and the bears. The optimists and the pessimists.
The stock market finds itself at a price level that neither side is comfortable with. Not high enough for the bears to feel comfortable shorting, or for the bulls to buy hoping for a higher high with a price burst on big volume. And conversely, not low enough to cause the bears to take profits by covering their shorts at lower support levels, or for the bulls to panic and dump their positions at a perceived breakdown in support. Then what are both sides fearing? Immediate sharp losses. Hence, no man’s (investor’s) land. In between, and well away from, important price resistance and support levels.
So what will it take to resolve it? It’s simple. One might guess news, but actually the real answer is either fear or greed. In the stock market, it’s not the news that matters as much as the markets reaction to it. Either fear or greed (on the part of big investors) will tip the scale and decide on the next direction.
Our “Core Four” (see top of page) is all yellow, and mathematically aligns perfectly with our “no man’s land” thesis. Be prepared to act defensively if conditions deteriorate quickly, while being hopeful for a continuation of the recent rally and prepared to strike by investing in emerging leaders from your updated watch list.
While on the topic of market leadership, which is presently suspect at best, a prolonged period of sideways movement in the indexes could go a long way in remedying that problem. Hmmm. Could it be possible that the market will head into a long, sideways choppy period that will try investors souls? Stay tuned and stay engaged.
Game plan: Wait for true leadership to emerge. Do not take your eyes off of the 50-day moving averages of the S&P 500 and the Nasdaq as a key tell during this pullback. Note: September & October are typically not friendly to investors.
Have a Triumphant day! ®
The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice.
©2022 Triumphant Portfolio Management, LLC.