I’m on vacation, officially. but money never sleeps. So… Here is a quick n’ dirty update on the markets from a technical and fundamental perspective. More detailed analysis will follow next week when I publish my newest Bear-o-meter reading, and cover some other factors I am looking at it.
S&P 500 chart
The quick n’ dirty assessment- neartermed bearish: Declining trend channel. Unsuccessful test of the top of the channel AND a failed break of the 200 day / 40 week SMA. Now below the 50 day/10 week SMA. Flat momentum studies with no positive moves above their levels at the summer peak indicating lack of significant momentum necessary for a market bottom – as does cumulative moneyflow (AD line) bottom pane. Target in worst case scenario lies where my circle lies – 3300-ish. If the market finds support near the last low (3500-3600 area) then we have the makings of a base. Either way, the evidence doesn’t support much neartermed hope – except for a potential of a flat market (rather than declining to the bottom of the channel).
Quick n’ dirty assessment: Mid termed bullish. Evidence starting to suggest the market was oversold last year includes the # of days that the market experienced positive days. I’ve drawn horizontal lines that roughly guide us on the turnaround points for years where markets had abnormally low numbers of positive days vs. highs.
Note the spike in # positive days in 2021 – leading to a market peak. Note the current low – suggesting a market turnaround soon. Historically, this phenomenon does not last long, although we could see a bit more depth in the indicator before it bottoms, as in 1973. So…there’s that, giving the bulls something to rejoice.
Quick n dirty fundamentals
I wouldn’t trade on this, but here is an interesting compilation of a few fundamental valuation metrics that can give us a big picture view of the markets. Current Market Valuation (www.currentmarketvaluation.com) is an interesting look at how cheap or expensive the market may be at any given time using: Yield curve, Buffett indicator, PE ratio, Interest rates and margin debt models.
Take it for what its worth (visit the site to understand each component) – its not a timing indicator. Still, you can use it to add more background to the technical picture. Right now the compilation suggests markets are at the high end of fairly valued. Interestingly, the Bear-o-meter – which looks at technical factors – measured the “low” end of the high-risk zone in early December. In other words, they both seem to say that risk is still there (poor but improving fundamentals, poor but improving technical risk/reward profile). But its getting closer to the bottom, albeit perhaps not there just yet!
Here’s where the ValueTrend mindset sits at this time
We beleive that the bear has potential for a final leg down, perhaps as low as 3300 or so on the SPX. Not a prediction, but certainly quite possible. Beyond holding 30% cash, we are migrating back into hard assets as the primary focus of late. Inflation, while declining, will remain high. Meanwhile, Russia is on the prowl, and China is likely to open back up in the first half, creating huge demand. We also view upcoming potential in large-cap global value plays, and emerging markets. The TSX, with its abundance of hard asset producers, is a happy hunting ground too.
For US equities- we believe that, beyond trading opportunities (oversold bounce plays) U.S. equity indexes will tied down with a colossal FAANNGMT (Facebook, Apple, Amazon, Nvidia, Netflix, Google, Microsoft, and Tesla) anchor around its neck. However, value plays are out there! Please take a look at my recent look at the US small capped arena blog. I am also posting a video on potential trades in the innovation stocks in the coming week. Keep an eye open for that.
As a reminder:
Back next week – Happy New Years to all of you!