Special Bulletin: February 24, 2020 (10:30am update)

Additional Distribution Causes Downgrade

The stock market on Friday experienced additional professional selling which tipped our Core Four (see above) and caused a downgrade in our signal.

As dictated by the present readings of our “Core Four”, our Current Market Outlook is now changed to “Uptrend under Pressure” with a “yellow” light.

This morning (Monday) the market is under massive selling pressure as a result of economic outlooks changing for the worse due to the impact of the coronavirus. This has caused a continuation of the stampede into treasuries which had already inverted the yield curve.

 Last week we wrote, “The bond market seems to be saying that the stock market has got it wrong; that it is too optimistic in its outlook and the view of the effects of the virus on the economy. Many experts, commentators & pundits are pointing to the impact of the coronavirus and the increasing probability of a global economic slowdown next quarter. Yet, the US stock market seems to be hard of hearing.”

Apparently the stock markets ears are working this morning.

The long-term technical condition of the stock market is under its first serious threat in several months. As of Fridays close, the signals from our Core Four internal indicators were displaying 1 green and 3 yellow lights. Today’s action will cause additional changes in the Core Four after the close. We recently raised cash in a few of our strategies as the number of NYSE 52 week lows increased, and we are glad we did. We have raised more today.

At present (10:30am) the S&P 500 is in the process of a possible “negative double cross” pattern. That would be significant. The Nasdaq looks healthier as it is testing its 50 day moving average and remains above it at this moment.

What can an investor do now? First, remain calm. Prayer is a powerful tool in times like this. Continue to watch for additional distribution (professional selling) over the coming days in the major indexes. Stay focused on the inverted yield curve.

Remember that bear markets develop over several weeks. Additional technical damage usually comes quickly and confirms the initial down move. Having said that, the bulls on wall Street are always eager to buy on any pull-back. It’s “put up or shut up time” for them now. The next 2 – 3 days will be very telling.

While not knowing whether the bulls or the bears will ultimately prevail in the weeks ahead, it is very likely that there will be a reflex rally (a bounce) at some point within the next few days. Studying the quality of the internals during that bounce will reveal much about the probable longer term outcome of this severe bout of selling. If it’s a poor quality bounce, then traders/investors would be wise to sell more on a close under the key 50 day moving average.

Hope you have a Triumphant day! ®