Special Bulletin: May 26, 2022

What ‘s Next (Part 2)? A Soft Landing? New Highs?

Our post last week suggested that the stock market was oversold. In it we discussed whether a recession or a crash was on the horizon. (Keep in mind the horizon is still many months a way.) We stated that the next few days would be very telling and wrote… “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.”

We further stated, “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.” Bingo! That was exactly what transpired. Friday’s action turned out to be supportive and the turn began.

So, now that a new rally phase has begun, “What’s next?” (FYI: The Nasdaq index signaled a “Follow-Through” day today confirming the new rally attempt as well according to the excellent work of Investor’s Business Daily.)

Is a move to new all-time highs in the major stock market indexes eminent? We don’t think so. At least not without a Fed that announces they are done raising rates and that inflation is dead. The market would need a lot of time (and upward price movement) to repair the severe damage experienced thus far in 2022.

All right then. Is a “soft-landing” in store for investors? That is the goal of the Fed, and of course, only time will tell. It appears, at least for now, that investors want to embrace that thought and they may try to bid prices up into the end of this quarter. In the meantime, there is a historically upward bias at work in the markets right now as we approach a long holiday weekend/end of month/and first day of the month inflows sequence.

Our Current Market Outlook has been upgraded to “Uptrend Under Pressure” with a yellow light. (SPX @ 4057.84) The “Core Four” (see top of page) now shows 1 green, 2 yellow and 1 red light. 

There is one thing to keep in mind as you look to the future and search for optimism: A gigantic tsunami of red coming in November. It, from many reliable measurements, looks to be historic!

Game plan: Keep asking the Lord for wisdom and patience. Refresh your watch list. Study the next few days to make sure no distribution days crop up and negate this new yellow signal before putting too much of your capital back to work. We are not out of the “difficult economic conditions” woods but perhaps a short reprieve is due.

Have a Triumphant day! ®