Our Current Market Outlook has been upgraded to “Uptrend Under Pressure” with a yellow light. Our “Core Four” shows 1 green, 2 yellow and 1 red light (see top of page) causing an upgrade in the signal to yellow.
The stock market’s tone has improved on Monday and today as the fear of the emerging C-19 variant Omicron has waned a bit. The risk/reward ratio for investing in growth stocks and the general stock market indexes continues to reflect higher than normal risk at these lofty price levels. Investors, especially those with a shorter time frame, should be prepared to become more defensive if the S&P500 & Nasdaq slice below their 50-day moving averages on increased volume in the days ahead.
The general stock market indexes have already successfully recovered half of their recent pounding. Retracing a little over 50% of the 2 week losses. The fear index, or VIX, remains elevated but has contracted significantly since Friday – perhaps reflecting less fear for the Omicron variant.
The stock markets next move will be key. The main indexes find themselves at an inflection point. 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.
A quick note about possible market threats. All eyes are on the Omicron developments, of course, but that seems to be a diversion to us. However, growing risks about a Russian invasion, a Chinese invasion, and debt-ceiling matters in DC are also weighing. While these 4 issues may sound newsworthy and looming, the real issue, as far as impact on market liquidity, is the direction of interest rates and the money supply. The Fed will make a decision, they have to. The stock market will then take its cue from that.
Now that the Fed has admitted inflation is more than just “transitory,” which many of us maintained all along, they will begin a campaign of tightening. In other words, the Fed has decided to stop spiking the punch-bowl. Eventually, they may take it away all together.
Our strategies remain heavily defensive. We have initiated small “pilot” positions today in certain areas we feel are positioned to rebound and ultimately show leadership.
There was a slight reprieve in the number of stocks hitting new 52 week lows on the NYSE and the Nasdaq today. A few more days of this would be very encouraging and seen as bullish.
What to do now? Build your watch list of stocks and sectors that are holding up well over the past two weeks. Keep an eye out for vertical violations on the key 50-day mav of the main indexes. Watch for a cluster of Distribution Days (aka. professional selling) in the days ahead. Monitor the relationship of the rate of the US 10-year note to longer-term rates for further flattening, or rapid expansion, of the yield curve.
Have a Triumphant day! ®
Ps. Please pray for the families impacted by the memory of lost loved ones in Pearl Harbor. Thank you to our veterans and to those currently serving in our armed forces.
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.
©2021 Triumphant Portfolio Management, LLC.