Special Bulletin: Feb 7, 2023 (2pm Update)

The Trend is Your Friend, and so is the Fed?

The stock market is doing its best to act like a Weeble… it may wobble but it won’t fall down! The underlying character (tone) of the market changed for the better on January 6th and has persisted in its advance. Many are asking “Why are stocks going up?” in the face of a serious campaign of higher rates by the Fed. The answer is simple: investors are pouring money back into stocks. It’s old-fashioned supply and demand. The footprints of money are revealing institutional buying.

Sometimes it’s easy for financial pros to get cute and over think this thing. Many feel like they must have a reason that makes sense to them before they will believe the demand evidence and commit capital. The bottom line is that people who are a lot smarter than most and who have gigantic resources at their disposal (the “elephants”) are putting some of it back to work. That demand is reflected in higher prices. But higher prices alone is not enough; it must be accompanied with BIG volume to be more meaningful. That’s the key and it has been happening lately.

Our Current Market Outlook has been upgraded to “Market in an Uptrend” with a green light as of 2pm today with the S&P500 at 4,103.99. Our “Core Four” (see top of page) has improved to 3 green and 1 yellow light.

So, why is the market going higher even as the Fed is raising rates and suggesting more hikes are coming? Maybe you’ve heard the adage “Don’t fight the Fed,” or my personal favorite, “when rates are high stocks will die; when rates are low stocks will grow” and you are confused. You have good reason to be. That’s one of the things the market does best – confuse the crowd.

Can a strong uptrend and a constrictive Fed coexist for long? Most definitely not. That is precisely when the math of the market becomes so valuable. The footprints of money (tracked by our technical internals) will signal an end to one of these tectonic forces before the “crowd” figures it out for themselves. Maybe the Fed is bluffing, and they will back off from their assault earlier than expected. If so, smart money will sniff that out. Or, maybe Wall Street has Mr. Powell secretly pegged as weak and they find out otherwise in short order and reverse their course and head for the exits. Either way, participants (the elephants on Wall Street) will tip their hand eventually and discerning, disciplined students of the market will “see it” early.

For now, the trend is up, strangely enough, for both stocks and interest rates. But at some point, the fog will rise, and one will prevail over the other. In the meantime, shrewd investors would be wise to prepare for a year of choppy swings with a likely sideways grind as a result.

One final note: I made a mistake in our Special Bulletin blog post on January 27th. In it, I incorrectly stated our C.M.O. was downgraded to yellow. On a later review, I found that I was wrong. As the “TPM Core Four” at the top of that post clearly showed, there were 2 green lights and 2 yellow lights creating a “tie” in the signal. The tiebreaker, specifically the proximately of the VIX to its own 50-day mav, which we have written about in past posts, was clearly bullish and therefore would have created a 3-2 outcome and maintained a green signal. I interpreted it incorrectly. That downgrade to yellow was wrong (which the market soon proved) and it has now been brought back into line with today’s upgrade to green. I am sorry for my mistake, and I recognize that my cautious nature should not impact our C.M.O.’s signal to be bold early in a new advance. The “math of the market” is what it is. And it is a wonderful thing to fully trust it. 

Game plan: Be optimistic yet cautious at this juncture. Ignore your urge to bail out if the S&P 500 is still over its 21-day mav. Expect a breather in the recent rally. 

Note: You can learn more about The Triumphant Core Four risk management system by clicking here.

Have a Triumphant day! ®