Special Bulletin: May 19, 2022

What ‘s Next? A Recession? A Crash?

That is the $64,000 question of the day, isn’t it? If it’s all the same to you, I’d rather play the $100,000 Pyramid. (Evidence of a misspent youth.)  🙂

The stock market remains sick and under significant selling pressure by the pros. The next few days will be very telling. The possibility of a recession this year is high and growing. The possibility of a stock market crash is also on the table. That is not a prediction. It is simply a statement of fact that the current internal conditions are beginning to head in a direction that can lead to that outcome. 

At the same time it must be noted that certain internal indicators are so severely oversold that a relief rally is likely eminent- one that could even last for a few weeks.

Not to get too dramatic and bogged down in technical details, but if tomorrow’s stock market action is very poor (down a few percentage points on huge volume) then Monday could be an absolute rout. The good news is that if the the big investors on Wall Street don’t bail on Friday, then the market should attempt a rally into the end of the month/holiday.

Having been involved in the stock market professionally since 1985, there’s not much that I haven’t seen when it comes to price extremes and human emotions. Over and over again I have observed that price and emotion often work together and tend to follow certain sequences. It could be said that “one eggs the other on.” The various movements of stock prices creates different emotional responses for investors.

To state it simply, there are two major emotions at work every day in the stock market: Fear and greed. A prevailing certain direction to the stock market tends to exacerbate one over the other over longer periods of time.

Equally obvious is that stock prices tend to move in one of two main ways: sideways to gently up, or sideways to gently down; most of the time. Then there are the extremes: parabolic climax runs and waterfall crashes.

When studying past markets and asking the question: What causes a gentle uptrend, or a gentle downtrend, to morph into an emotionally driven extreme (climax or crash)? Invariably the answer is a galvanizing of a certain idea in a majority of investors minds at the same moment. Unfortunately, the news media is in large part responsible, maybe even culpable.

Let’s not forget that the media “experts” are people with the same set of emotions as investors. Many of them are themselves investors. And boy do they love a good story that can be used to arouse readership! Where would investors be without the news media ranting incessantly 24/7? Possibly in a state of ignorant bliss? (Maybe not. But our blood pressure sure would be lower!) Lesson: Beware of certain influencers in the media dictating what you think about and how you feel.

What’s my point? Turn off the TV, turn on your computer and learn to track the price and volume clues of stock movements for yourself. Or, if that’s not your thing, hire someone that does that professionally so you can start a new hobby, read your Bible, go for a walk and pray, or visit shut-ins. Any number of other things would be more rewarding than sitting in front of a screen listening to a bunch of talking heads lather up investor’s emotions for the sake of viewership and ads.

Our Current Market Outlook remains “Market in a Correction” with a red light. The “Core Four” (see top of page) now shows 1 green, no yellow and 3 red lights. Note: One of the 3 red components was very close to going yellow today, which would have turned our C.M.O. signal to yellow as well, but today’s action in the key indexes at the close negated that possible change, for now.

We remain grateful to our Lord Jesus for wisdom that He has given to us through this difficult period as 3 of our 4 strategies are still positive for the year. 

Please note we have recently discovered that we are having technical issues with our “Outlook Updates” archive dropdown feature to the right of this post. We are in the middle of a repair. Until further notice, feel free to also use the prior date links at the bottom left of each post to access certain earlier posts.

Game plan: Remain prayerful and be diligent to build your watch list with fresh leaders. Wait for this period of contraction to play out in the next phase. Patiently wait for a couple of big volume up days (the elephants – smart $ – stampeding back in) to confirm a time to begin putting some of your capital back to work.

Have a Triumphant day! ®