Special Bulletin: Oct 5, 2022

A New Rally Attempt is Underway

While it may be hard to read that statement and accept it, it was equally hard to write it. But there it is.

Even as the world seems to be on the verge of a collapse, and investor pessimism is rampant and souring more each week, the stock market is attempting to stop the losses and begin a new rally phase. (Note: According to The Bulls vs. Bears weekly survey of newsletter writers published by Investors Intelligence, the level of bullish outlooks is actually lower than it was on March 25, 2020 – the Covid bottom.) Yet, today’s action in the stock market was encouraging and indicated a possible change is under way in its character.

While the underlying stock market conditions are still not bullish, the very recent action in the internals (detected by our daily study of the math of the market) has revealed the footprints of money (more on that below) may be starting to buy initial bullish positions. Today counted as day 3 of a new rally attempt. The first 3 days historically aren’t usually that important during new rally attempts, but days 4 through 10 are vital. Believe it or not, as early as tomorrow a new signal could emerge suggesting that at least a meaningful bounce is at hand, if not even leading to a full-fledged return of a bull market in the weeks/months ahead.

According to the excellent work at Investor’s Business Daily, a “Follow Through Day” (which is needed to confirm a new rally) typically happens on days 4 – 10 of a new rally attempt and can signal a changed view towards stocks in the outlook of the big institutions.

But let’s pull in the reigns a little bit. Maybe the employment data coming tomorrow (Thursday) and on Friday will be hotter than expected and cause the stock market rally to disintegrate instantly and send the popular indexes down sharply to new lows for the year. Or maybe it will show a cooling in the jobs market and send the indexes screaming higher through their 21-day mav’s and to their 50-day mav’s. A lot hinges on this data release.

So, what might be causing this initial buying spree (aka. rally attempt)? First, perhaps it is the belief that our Fed is about to “blink” as the BOE did just last week. A less aggressive Fed (let alone a return to a dovish one) would breathe a sigh of relief into the stock market and start a major short covering rally. Second, current underlying conditions in the technicals reveal a severely oversold market. Third, market historians have shared that October has been the bear market beater many times in the past. In other words, significant bottoms have happened in October.

An internal indicator in one of our 4 key components of our “Core Four” issued a buy signal yesterday – the TRIN indicator. This signal (which is not failproof – none are- but is good) has historically indicated that a near-term bottom may be in or will be established within 2 – 5 days. FYI: The TRIN is just one small aspect of our Current Market Outlook signal generating system, and when its signals are right, they tend to be slightly early or right on time.

Our Current Market Outlook remains “Market in a Correction” with a red light. Currently our “Core Four” (see top of page) is the same as it was in our last post with 1 green and 3 red lights. While the longer-term direction is still down, a rally attempt is trying to build. Based on the market’s technical internals, our signal is closer to moving to yellow.

Game plan: Keep an eye on the brand-new rally attempt – a move below Friday’s (09/30) low would kill this nascent rally. Stay focused as you move through the new quarter and near the Mid-term elections. Note: October has been known to usher in market bottoms.

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

Have a Triumphant day! ®