Special Bulletin: Aug 26, 2022 (11am Update)

A Race to the 50-Day Moving Average. Then What?

Our Current Market Outlook has been downgraded to “Market in a Correction” with a red light. (SPX @ 4133.12 at 11am) Our “Core Four” (see top of page) shows 2 yellow and 2 red lights and has tilted to a red signal with the VIX tie-breaker.

Just 3 days ago we posted, “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.)” It now looks to us that as of this morning that is underway.

In that same post we added, “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 market’s reaction to it. Either fear or greed (on the part of big investors) will tip the scale and decide on the next direction.” So far today the stronger trend, after the initial reaction, looks to favor fear.

The Fed’s interest rate hikes continue to be a serious headwind for growth, and a near-term test of the 50-day moving averages looks very likely. The general stock market still faces higher than normal risks. The next few days will be VERY telling about institutional demand going into September. Remember that the economy is still facing a difficult environment – and stock returns will be “data dependent.

Expect a drubbing next week if today’s sell signal proves to be strong. Remain calm and prepared to act even more defensively if conditions deteriorate further. If today’s signal instead proves to be weak (aka. a shakeout), we will know asap as the market would immediately have to go up sharply on big volume over the next few days. That would cause a “yellow” condition to return. A key test of support (demand for stocks) lies just below at the all-important 50-day mav’s.

Game plan: Raise cash. Raise your STOPs. Continue to focus on the 50-day moving averages of the S&P 500 and the Nasdaq as a key tell during this pullback. Reminder: September & October are often not friendly to investors.

Have a Triumphant day! ®