Our team often uses one of our very own market axioms, “If the market doesn’t do what it is supposed to do, it ain’t gonna.” Simply stated, we take historical outcomes and compare them to current technical & fundamental conditions to develop a mathematical set of expectations for each day – the “what it is supposed to do” part of the saying. We have shared that saying before and it is applicable to the stock market’s activity this week.
Higher interest rates and a rising stock market generally don’t go together, at least not for long. Remember the old adage “When rates are high stocks will die; when rates are low stocks will grow” in our last post? No doubt you have also heard the phrase, “Don’t fight the Fed.” So, shouldn’t this mean that the market is going to fail at the key moving averages and fall sharply?
Not so fast says Mr. Market! That may still come to pass but as of this moment in time the technical conditions (the math of the market) have improved and so has our outlook.
Two days ago we wrote, “While our C.M.O. has changed to a red signal, we fully recognize that being in a volatile stock market environment means that signal will likely not stay static, unless a major breakdown happens. And as we previously stated, our C.M.O. could move back to yellow very soon. The indexes price and volume action in the very near future will determine that.” (emphasis added) That is happening this morning and even in the face of a 4% yield on the 10-year US Treasury note. Hence, the stock market is not doing “what it is supposed to do.” As a result, our C.M.O. was upgraded.
Our Current Market Outlook has been upgraded to “Uptrend Under Pressure” with a yellow light as of 10:21am (SPX @ 4,009.63). Our “Core Four” (see top of page) sports 4 yellow lights with a VIX well below it’s 50-day mav.
THIS REMAINS A CRITICAL JUNCTURE. While the Fed’s interest rate hikes continue to be a serious headwind for growth stocks and the general stock market indexes, inflation is moderating. The current test of support at the S&P 500’s 50-day & 200-day moving averages continues and MUST hold. If the market keeps and adds to this mornings gains in the face of a 4%+ yield on the 10-year US Treasury, that would be seen as a big victory for the bulls! The economy is still facing a difficult environment due to higher interest rates. Therefore, investors should continue to expect choppy market conditions.
In the post from March 1st, we also shared, “A significant move from here is likely in short order. “Up or down?” you ask. We will soon find out. The math of the market has been pushed to the brink with this morning’s action. This is where the institutions execute their real intentions. If indeed the market is going down from here, it will happen immediately. But, if this is the last “shakeout,” and they are ready to make a strong push into the end of the first quarter having created a negative tone for retail investors, then an immediate bounce higher will happen and lift the major indexes above their respective key moving averages (mav’s) within days, if not hours.”
So far the latter half of that statement is coming to fruition. Now, our expectation is up. But, if the market doesn’t do what “it is supposed to do…”
Game plan: Begin putting capital back to work in the strongest areas on your watch list while closely monitoring the S&P 500’s 50-day and 200-day mav’s as a risk management exit strategy. The US Treasury 10-year note yield is a major tell.
Note: You can learn more about The Triumphant Core Four risk management system by clicking here.
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. ©2023 Triumphant Portfolio Management, LLC.
Where Are Woodward and Bernstein When We Need Them? This article was written by Newt