Special Bulletin: Nov 2, 2022 (3pm Update)

The Rally Attempt is Beginning to Falter

As of 3pm today our Current Market Outlook was downgraded to “Market in a Correction” with a red light (SPX @ 3,821.17) Currently our “Core Four” (see top of page) has 1 green and 3 red lights.

The stock market had its hopes dashed by comments made by Fed Chairman Powell in his after the rate hike announcement press conference. As of 3pm the S&P 500 had sliced under its 50-day moving average (mav) on high volume in response to answers Mr. Powell gave regarding the outlook for the next rate hike at the Fed meeting in December.

Is today’s sell-off the start of a new leg down in the weeks ahead? Or was it just a knee-jerk reaction to the Fed’s tone not being dovish.

Did the Chairman hit his target by creating fear with his responses through tough talk designed to keep the Wall Street bulls at bay for a while longer? It certainly appears so, at least for a day.

What if he’s bluffing? If he is, the market will sniff it out and call his bluff immediately and snap back with the all too common “opposite of the Fed day” action on the day after a Fed decision. We don’t know what tomorrow will bring. But we do know that today’s action in the stock market was weak and concerning. Still, tomorrow is another day and over night the “big money” may have a change of heart.

(Editor’s note: The S&P 500 index confirmed our 3pm sell signal with a price movement down through and a close under both the 21-day and 50-day mav’s. That type of action is technically important and we call it a “negative double cross.”)

There are 3 primary near-term outcomes to monitor from the current technical chart configuration of the S&P 500. The first is clearly a continuation of today’s price weakness and an immediate dive to new lows for the year. The second is an initial move down for a few days that ultimately finds price support at a “higher low” level than the low from Oct 13th, and then rallies from there. The third is where the market moves straight back up by this Friday, overtaking the 21-day and 50-day mav’s (aka: a “positive double cross”) and driving higher than the high of yesterday. If this sort of whipsaw action were to happen, our red signal would be wrong and would quickly return to yellow.

It will be very important for the market to avoid another Distribution Day tomorrow. That technical fact is deserving of your attention.

While our signal has turned red based on the action today, the Investor’s Business Daily rally attempt by definition is still officially underway. I.B.D rally attempts don’t typically die until the low price from the start of the rally phase (Oct 13th) is undercut. You can learn more about their definition of a “Follow Through Day” here. 

In our post 2 weeks ago we stated, “One more thing to ponder: Based on the remarkable rise in interest rates (and conversely the dramatic collapse in the long-term US Govt. bond price) could the Chinese Govt. be selling some of their massive, ~ 3 trillion, US Treasury holdings to destabilize things just before the mid-terms?” We learned this week that the holdings of the CCP are now believed to be down to around only $1 trillion.

Game plan: Prepare to play defense if today’s sell-off gains traction with higher volume tomorrow and Friday. Friday’s US Employment Situation release will likely be a market mover. Continue to build your watchlist. 

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

Have a Triumphant day! ®