Special Bulletin: Sept 9, 2022 (9:30am Update)

Did the Market Just Complete a Higher Low?

Our Current Market Outlook has been upgraded to “Uptrend Under Pressure” with a yellow light. (SPX @ 4030.14 at 9:30am) Our “Core Four” (see top of page) shows 1 green, 1 yellow and 2 red lights and has improved to a yellow signal. The VIX has also moved back below its 50-day mav.

The footprints of money are beginning to show a returning appetite for stocks. This may seem counter intuitive when considering the “news” of the day and the rampant pessimism, but that’s the beauty of the market. Let’s be clear about something, the fundamentals of the economy are weakening and may deteriorate further into a full blown recession. Today’s upgrade to yellow is just that: an upgrade to yellow only and not an all-clear green signal.

On a purely technical basis, the chart of the S&P500 is offering hope in that its recent price action has carved out what we at TPM have defined as a “higher low” pattern. This is a product of both time, pattern development and % price movement. The actual “higher low” was completed on Sept 6th and has now been confirmed by a move over its 50-day mav this morning. Further, the S&P’s pattern from the lows in May to the lows this week have formed what appears to be an additional bottoming pattern called an “inverted* head and shoulders.” While this pattern can still ultimately fail and usher in another wave down, the excellent news is that investors/traders now have definite levels of support that can act as trigger points to sell stocks in order to limit losses and protect capital. The first level is the low of 09/06 and the second is just below the June lows- the ultimate invalidation point.

Another potential positive technical aspect to watch for TODAY is if the S&P500 can move over and CLOSE above the 21-day mav also. TPM defines that as a “positive double cross.” That kind of action identifies the footprints of money and reveals stronger demand, thereby increasing the odds of a sustainable rally attempt. The current relationship of the key moving averages is good, as the 21 is above the 50-day, but not perfect, as the 10-day is under both of them. 

One more positive technical aspect to watch for: if the stock market closes the day positively that would complete what we at TPM define as an A+3, a characteristic of institutional accumulation.

While there is today’s signal of technical improvement, investors are not out of the woods just yet. There is a great deal of news coming in the next 2 weeks regarding the economy and the direction of interest rates.

Not to get to technical (as if I hadn’t already! LOL), but from a possibly negative technical viewpoint there is a chance that a shorter-term upside-down “cup with handle” pattern is developing and that it could lead to an immediate sharp drop. If that is the case, we would likely know it within the next 2 – 5 days, and this bounce to the 50-day mav area would then prove to be just a handle in that negative upside-down cup pattern. In other words, if this rally attempt above the 50-day is a bear trap (a fakeout) then it will likely fail right away. Next weeks economic news could be the catalyst. As always, practice disciplined risk management.

Money (interest rates) is the life blood of the economy (stocks). Therefore, it will be prudent to pay very close attention to the math of the market this month and give it a priority over your own opinion and emotions.

Game plan: Continue building/refreshing your watch lists. Deploy cash in measured steps and properly calculate (and adhere to!) your STOPs. Remain focused on the 50-day moving averages of the S&P 500 and the Nasdaq to see if they can hold. Reminder: September & October are often not friendly to investors.

Have a Triumphant day! ® 

*Note: In the original post the word “inverted” was accidentally omitted. We regret and apologize for this omission.