Special Bulletin: July 13, 2023

The Only Thing Hotter than Summer: Stocks?

Our Current Market Outlook was upgraded to “Market in an Uptrend” with a green light at last night’s close (SPX at 4,472.16). Our “Core Four” (see top of page) now has 2 yellow and 2 green lights with a hibernating VIX.

With the “dog days” of summer pressing in, the popular indexes are acting more like a greyhound in spring – by racing ahead! Yesterday’s CPI release caused the bears to let go of the leach on the bulls and off they went! As a result, our Current Market Outlook has moved to a green condition.

Now before you start surfing the web for that new boat, or start planning your early retirement party, keep in mind that what goes up usually comes back down, at least in the short-term when markets are as extended as they are today.

Due to a rare and unusual scheduling conflict yesterday, our C.M.O. was updated after the markets close on Wednesday. Normally, in immediate response to the action of the market’s internal technicals after yesterday’s CPI numbers were released, our C.M.O. would have been upgraded at the stock market’s open, or at the latest around 10am on the 12th. (Side note: In this blog we do not make official changes in our outlook based on “pre-market” action because many of our readers do not participate in pre-market trading, but yesterday’s 8:30am response to the CPI news would have been the actual technical trigger if we did.)

As mentioned above, an unusual scheduling event caused a delay in the processing of our data used to calculate the Current Market Outlook signal, and as such it was based on the figures from the close. Further, the uploading of this blog post was delayed as well until today.

The broader market is beginning to play catch up with the so called “magnificent 7” and that is good news for the burgeoning rally. Recent outperformance by the “equal weight” proxies and the small to mid-cap indexes is a positive for the bulls. It appears to our team that the massive rally in the “magnificent 7” is now being used as a subtle cash register to fund purchases of the broader market. In other words, the big guys and gals on Wall Street are taking profits and moving that capital into areas that have not yet rallied meaningfully. In a word this is often referred to as “rotation.” That may bode well for a sustained second half rally. But beware the tech behemoths! 

The CPI data released pre-market on July 12th gave the Fed some breathing room and in response investors piled in and extended the recent rally. The uptrend, while currently extended, had refreshed itself over a 5-day pause and set up the main indexes move into “new highs” for the year (not all-time highs). With the start of the historically unpredictable 3rd quarter, and rates “itching to go,” risks to stocks in the short run are rising. Keep in mind that the economy still faces a difficult environment due to higher interest rates and growing recession fears.

When I kept silent about my sin, my body wasted away through my groaning all day long.
For day and night Your hand was heavy upon me;
my vitality was drained away as with the fever heat of summer. Selah.
I acknowledged my sin to You, and my iniquity I did not hide;
I said, “I will confess my transgressions to the Lord”; and You forgave the guilt of my sin. Selah.

Psalm 32:3-5 NASB 1995

Game plan: Watch the major stock indexes for any sign of distribution on pullbacks. Have an exit strategy (for at least partial selling- profit taking) in the event of a jump in the number of Distribution Days in the days ahead. Watch the 10-year US Treasury note to see how it acts around the 4% level.

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

Have a Triumphant day! ®