Throughout our careers we have heard it said that “the market climbs a wall of worry“. Historically when the markets are in an uptrend, the institutions and media sound the alarms of possible threats which keeps the small investors (the public) nervous and largely out of the market. That certainly was the case in 2017 and part of 2018. We think the narrative may have changed as of October 4th. The motto may now be “the market descends a slope of hope“. In other words, the opposite media slant seems to be developing just as it appears the market could be entering a downtrend. Many of the recent media reports are sounding more hopeful, even optimistic. Small investors who hear this new narrative may feel hope for quick profits in so-called discounted bargains, and then step in to buy the dip only to get their heads ripped off in the ensuing sell-offs as the institutions dump more shares.
Have you heard any of these hopeful headlines over the past 2 weeks? “A trade deal with China may be close.” “The Fed may not raise rates 3 times next year.” Or the newest statement out just this week: “Maybe the Fed will not hike in December”. These appear intended to encourage public hope. We believe hope is a good thing, but not when its out of sync with the market. Add to that the parade of high profile bankers trotted out this week discussing how strong the economy is and saying business is good. Ask yourself: Aren’t these the same guys who had nothing good to say about Trump-onomics before the Mid-Terms? The fact is the interest rate yield curve partially inverted this week and that directly hurts their profitability. Why are they sharing now? Beware: “the market descends a slope of hope.” Food for thought.
In the stock market, the weakness continued this week. Our internal technical indicators are still flashing signals that caution is warranted. Of the “core 4” specific technical events we watch for to affect a change back to a green light (the bottom-building process), at best 3 of them had happened as of the close on Monday 12/03, but has now slipped back to only 2. The two most crucial technical indicators of a return to a healthy market are the pair that remain at large. They must happen before any meaningful rally phase can develop & persist.
Officially we remain under a “yellow” light with our Current Market Outlook as “Uptrend Under Pressure”. The most recent rally attempt (confirmed 12/05 with a “follow-through day”) is hanging on by a thread and could easily fail and cause a change to a red light early next week. Two rays of technical hope in Fridays harsh sell-off: total share volume dropped vs. the previous day, and the number of NYSE new 52 week lows fell by over half. Does that mean the selling ammunition of the bears is all used up and a year-end rally is coming? Possibly. Or will Friday prove to be just a pause before a massive drop in the weeks ahead? Maybe. While no one knows for sure, we will have an answer soon, and our indicators will help keep the bulk of our clients assets on the right side of the major trends as we daily study the math of the market by monitoring the footprints of money. Have a Triumphant day! ®
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