Special Bulletin: July 5, 2023

Be Careful Out There

Our Current Market Outlook has been downgraded to “Uptrend Under Pressure” with a yellow light as of today’s close (SPX at 4,446.82). Our “Core Four” (see top of page) still has 2 yellow and 2 green lights but with a bottoming VIX. Keep a sharp eye on the VIX in the days ahead as an important confirming signal.

With interest rates beginning to press hard to the upside again, last month’s rally push in stocks into the end of the quarter may be about to come to an abrupt end. The uptrend appears to have gotten ahead of itself due to the quarter ending, window-dressing push by Wall Street into the end of June. Interest rates are the life blood of the stock market and are beginning to climb again as the 10-year note barely exceeded the 30-year bond rate today. With a new quarter ahead of us and rates “itching to go,” risks to stocks in the short run have risen. 

Last week we posted, “But, don’t lose sight of the fact that the recent gentle pullback could give way in the near future to a more harsh retest of the 50-day mav’s (in what we call a “Down, Up, Down” pattern), and that the recent move up in the so called “magnificent 7” stocks may just be quarter-end window dressing by managers on Wall Street to boost assets. If so, the technical damage that might arise in any sharper decline would be assessed immediately as to whether it was a normal “shakeout” pullback (which finds support at key technical levels), or if it might be the start of something more grim, perhaps in reaction to a souring economy or even a “scary” geo-political event.” Well, we are assessing it and it appears to call for some initial defensive action.

Keep in the center of your mind the fact that 2nd quarter earnings results will start being released in the middle of July and will keep rolling out for 7-8 weeks. Much will be able to be gleaned from the action in stocks AFTER each announcement is made. Often what is generally more telling is how stocks react to their earnings releases rather than the release itself.

It might be wise to keep this old market adage in mind through the summer: “When rates are high, stocks will die. When rates are low, stocks will grow.”

The Pharisees and Sadducees came up, and testing Jesus, they asked Him to show them a sign from heaven. But He replied to them, “When it is evening, you say, ‘It will be fair weather, for the sky is red.’ And in the morning, ‘There will be a storm today, for the sky is red and threatening.’ Do you know how to discern the appearance of the sky, but cannot discern the signs of the times? An evil and adulterous generation seeks after a sign; and a sign will not be given it, except the sign of Jonah.” And He left them and went away. Matthew 16:1-4 NASB 1995

Game plan: Monitor the major stock indexes to see if they hold their 21-day mav’s on any additional pullback. Begin to prepare an exit strategy in the event of a persistent rise in the number of Distribution Days in the days ahead. Watch the 10-year US Treasury note and 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! ®