What a fascinating chain of technical events! The November rally has been nothing short of breath-taking. The follow-through day on the Nasdaq on the 1st followed by the S&P 500’s on the 2nd, along with our Current Market Outlook upgrade that same day, have ushered in a meaningful period of accumulation in stocks. The question on most investors/traders minds now is: “Where do we go from here?”
That answer will likely be addressed tomorrow morning with the Fed’s favorite PCE figures due to be released before the open. Will inflation jump again and cause a stampede of bulls to head for the exits? Or, will it cool off more and thrust the main averages to new highs for the year as a sigh of relief? Sleep well tonight!
The month started off well enough for the bulls with a burgeoning “short-covering” rally that got legs and quickly produced the aforementioned follow-through days, outlook upgrade, and upward, positive price violations of the key 21-day and 50-day moving averages (mavs). As is often said, “buying begets buying” and off they went.
Also, in the background was the annual phenomenon of the “best 6 months of the year” seasonality. Stock Traders Almanac has done excellent work in this area identifying a long-term trend in the US stock market that suggests the majority of positive returns earned by investors over the past several decades has happened between November 1st and April 30th. Please understand investing isn’t quite that simple and there are many exceptions on a year over year basis, yet, the data is striking. (Note: We believe a big part of the reason is that a majority of mutual funds use a fiscal year-end of October 31st. As a result, their portfolio rebalancing (window dressing of winners) and tax loss harvesting (selling to hide losers) gets cleaned up in September/October before the annual disclosure deadline, and paves the way for the placement of capital into fresh ideas for their new tax year. Then in May the traders head to the beaches!)
The bigger, real issue is the Fed and the direction of interest rates. Wall Street thinks they have figured the Fed out and they believe that the Fed is done raising rates. Even more, they believe that the Fed will have to start cutting rates early next year to avoid a recession. Those two idea’s are largely responsible for the November scramble back into stocks. This one point will have a huge impact on “where we go from here” and tomorrow’s release will have much to say about it.
While we continue to expect a technically proper “low, rally, retest” sequence, the timing will now take longer than originally believed due to the length of this initial upward thrust. Typically, a “low, rally, retest” sequence (that leads to the ever coveted “higher low”) happens within a few weeks in a moderate bounce off of lows. However, we have observed that when a meaningful low has been established, or when a stronger start to a new rally phase erupts, the ensuing “low, rally, retest” historically unfolds over 6 to 8 weeks. That suggests a pullback into the 3rd week of December is possible.
The math of the market (the internals) which measures the footprints of (big) money continues to guide us and reveals institutional accumulation has continued, but is now strongly overbought. Will the uptrend come under pressure tomorrow? We shall see. Be careful at this juncture as certain indicators are also registering high investor bullishness readings.
Our Current Market Outlook is “Uptrend Under Pressure” with a yellow light. Our “Core Four” (see top of page) has 3 green and 1 red light.
Back on November 2nd we posted, “The next few days will be very telling. The 21-day mavs are a source of resistance – no rally can succeed without getting over and staying over them.” Indeed! The major indexes got over and have stayed over them quite easily. The 21-day mavs remain an important area to watch on any frightful pullbacks in the weeks ahead. Remember, pullbacks are expected, necessary and can be fruitful.
While we have been working through a health issue this month, we have felt and have appreciated the prayers of so many of our readers and clients. Thank you. May the Lord Jesus bless you for your kindness towards us.
“…and the prayer offered in faith will restore the one who is sick, and the Lord will raise him up, and if he has committed sins, they will be forgiven him.” James 5:15 NASB 1995
Game plan: The trend remains up, but a breather may be due. Watch closely to see if tax loss selling emerges and forces a test of the 21-day mavs in early December. Continue deploying capital in the strongest ideas of your watch list. Keep in mind that the Treasury Dept. will be offering BILLONS in new debt for months to come. Please pray for the peace of Jerusalem.
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