Special Bulletin: December 14, 2021

On the Eve of History

Our Current Market Outlook has been downgraded to “Market in a Correction” with a red light. Our “Core Four” shows 2 yellow and 2 red light (see top of page) with the VIX being the tie breaker again and causing a downgrade in the signal to red.

Tomorrow’s Fed interest rate decision at 2pm and Fed Chair Powell’s press conference at 2:30p will be major market-moving events.

The stock markets next move remains key as the main indexes still find themselves at an inflection point. As we stated a week ago, “A strong move up from here on increasing daily trading volume would signal an resumption of the uptrend and most likely a strong Christmas/year-end rally. On the other hand, a move sideways this week and then sharply lower next would likely trigger an avalanche of selling and indicate a resumption of fear and a year-end rout unfolding.”

So far, the latter scenario is unfolding. But that can change on a dime with a “dovish” Fed announcement tomorrow.

The math of the market continues to show alarming erosion under the surface. In other words, the footprints of money has revealed an undertow in the stock market. The internals are deteriorating. The number of stocks hitting new 52 week lows on the NYSE and the Nasdaq continues to be very high. The net advance/decline line has been weak too. “Leading” growth stocks have been leading- but to the downside.

While we fully recognize that the stock market is “going to do what it is going to do” and generally can’t be predicted accurately long-term, the immediate decisions of the institutions can be traced and provide very useful information.

Additionally, we acknowledge that our C.M.O. red signal could be forced to move to yellow, or even green, within just a day or two if investors respond very favorably to a surprisingly dovish Fed announcement. Either way, it is wise to expect increased volatility and a persistent violent move one direction or the other for several days.

Our defensive position in our strategies has served our clients well over the past few weeks. Praise God!

What to do now? Positively: Maintain your watch list of stocks and sectors that are holding up well. Negatively: Watch for a vertical violation through the 50-day mav of the S&P 500 index. Obviously: Listen closely to Mr. Powell’s speech and monitor the rate of the US 10-year note.

Have a Triumphant day! ® 

Ps. Please pray for the families and first responders/medical teams impacted by the tornados in the Midwest.