As the stock market continues in its new found trend lower, we smell a rat. Sure looks like the “smart money” knew early on something was up. Take a look at the price of Natural Gas futures a month ago. Out of nowhere they skyrocketed and nearly set the energy complex on fire. (Pun intended) Of course, we now see the obvious implications of the Russian aggression towards Ukraine- Europe is over a barrel to not anger Putin or else he may cut off their nat-gas supply… and in the dead of winter!
What smells even more to us is China. Or better said, the CCP’s appetite for Taiwanese “take out.”
How so, you ask? Look at the leading Chinese stock indexes and their largest components. Most in the toilet. (Perhaps their “sweet & sour” didn’t agree with them.) You ask, so what if their stock markets are down? What just ended on Sunday? The Olympics. Where were they held? China. Our own research has found that when a nation hosts the Olympic games, typically their economy grows from the build-up during the months prior to the games, and their stock markets “put on a show” for all the world to see. Not this time. China’s markets are in the dumps.
Who cares? You should. Sophisticated (not to mention- wealthy) Chinese investors appear to be avoiding their own markets. Keep in mind we are talking about a nation filled with savers and investors. So, what gives? That’s where the rat comes in, or better the said, the Dragon.
As with the Russian invasion, where odd things happened in advance, the Chinese stock markets are telling us something. Beware of the coming land grab? Communism at its worst. Well, actually it’s pretty much all evil.
Time will tell. Probably sooner than later. Perhaps “those” really in the know all over the world are exiting US stocks also in anticipation of this potential looming event.
Last week we wrote, “The charts of the stock market’s major indexes are giving a visual look of a coiled spring. The recent price and volume violence has settled down, for now at least, but appears to be gearing up for a significant move- and a new wave of price and volume violence.” The past 5 days did just that.
However, don’t lose sight that the main catalyst for lower stock prices HERE in the US are the soon to arrive Fed interest rate hikes. Investors should not take these hikes lightly. They are designed to slow things down, including the richly valued growth stocks and major stock indexes.
An excellent case study is the Nasdaq of 2000-2002. The S&P500 suffered significantly then too. An investor would be wise to take some time this weekend utilizing a good stock market charting system (MarketSmith from Investor’s Business Daily is a great source) and study how the interest rate hikes of that period acted as a major headwind for stocks.
In last week’s post we stated, “We don’t know. Only God knows. Either way, based on the math of the market, the current trend has caused our risk management signal to deteriorate again.” That statement was spot on as the internals have worsened further.
Our Current Market Outlook remains “Market in a Correction” with a red light. The “Core Four” shows 2 red and 2 yellow lights with today’s action (see top of page) with the VIX still casting the tie-breaking vote.
The S&P500 trades well below its 50-day moving average. In fact, the market has been so weak that the S&P500 never even came close to testing its 50-day mav from underneath. It just rolled over hard. We share a wise saying at TPM, “Nothing good happens under the 50-day.”
Speaking of wisdom, the late, great Marty Zweig often said, “Don’t fight the Fed.” Wisdom indeed.
What to do now? Keep your powder dry. Build your watchlist. Accept volatility, stay focused and prepared to act boldly when opportunities arise. The US 10-year Treasury note will likely test the 2% level again soon- let’s see how the stock market handles it this time.
Have a Triumphant day! ®
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. ©2022 Triumphant Portfolio Management, LLC.
Where Are Woodward and Bernstein When We Need Them? This article was written by Newt