The Week On Wall Street - The Crossroads

Yuri_Arcurs/E+ via Getty Images

“No fact begins with if” Nicholas II

There hasn’t been much of a change to the investment backdrop. The “issues” that were identified and appropriately labeled as “game changers” earlier this year, are still with us. The path of the equity market will be determined by how long these headwinds last.

Corporate America is still playing a “catch-up” game to confront falling demand. Inventories in Q1 surged at the second-fastest rate since the mid-1970s. That pushed the inventory-to-sales ratio to early 2007 highs and spilled over to the poor manufacturing and services data we have seen lately. In addition, the regulatory backdrop continues to pose issues for Financials to Energy, and everything else in between.

The Housing market is caught between a high-priced, low inventory landscape combined with 30-year mortgages at 5%-6% making affordability an issue. With the Fed aggressively raising rates, mortgage rates are unlikely to fall back. The supply of homes also looks to stay tight. Baby boomers, who hold 58% of the value of the housing market, tend to stay put. Housing starts and builder confidence keep slipping. After all, they simply can’t be aggressive in building given the poor fundamentals.

There is no way to sugarcoat consumer sentiment. It’s at historic lows. A recent Monmouth poll found an astounding 87% of Americans believe the country is on the wrong track, one of the worst right track/wrong track readings ever registered. To top it off, several key elements of inflation—rents, wages, and food—could run hot for some time, forcing the Fed to choose between recession (which in the past always stopped inflation) and higher unemployment.

As we have discussed these issues are all KNOWN, and they are the reasons the S&P 500 and the other indices slipped into a BEAR market. The equity markets have priced in this ‘first leg” down in the global economy. It will be “what comes next” for the economy that is the determining factor for equity prices.

DOUBLE DIP RECESSION

What? We haven’t had an official recession declared yet and he is talking about a “double dip”? OK, let me explain. Remember, this is a MACRO view that highlights what scenarios are possible as this entire “change” unfolds. Like the market itself, I keep an OPEN mind to all probabilities. In the interim, overreacting to one or the other based on a “feeling” or a “biased opinion” that we all are capable of conjuring up is a recipe for disaster.

The prevailing view believes what we are witnessing today in the economy has already been priced into stocks and this trough will not be as bad as some project. There are signs of improvement that add credibility to this theme.

  • Supply chains are normalizing. There’s also been broad-based improvement as shipping costs and delivery times are declining rapidly. Backlogs are clearing and parts shortages related to the Russia-Ukraine war have largely dissipated.
  • Capex is on the rise. Often one of the first areas to be cut during a slowdown, capital spending has risen at a healthy 7% annualized pace over the last six months, breaking out of a range where it’s hovered since 2000. The Business Roundtable says CEOs are committed to investing and are more confident about the economy than they were leading up to either the 2008-09 or 2020 recessions. In another sign of confidence, businesses continue to raise dividends, too.

Perhaps that adds credence to the notion corporate earnings aren’t going to fall off a cliff as the economy slows. We have seen that so far during this earnings season. So the consensus view says after this mild recession where corporate earnings remain resilient, economic growth will pick back up. That leads to equity prices stabilizing, and stocks enter a trading range before coming to grips with the next step in what could be the start of a recovery.

THE “OTHER” CASE

Conversely, a double-dip scenario is also a distinct possibility. The economy will still have to deal with the inflationary effects from all of the liquidity poured into it post Covid. That excess won’t disappear quickly and will hang on longer than most want to believe. We already know that a HIGH inflation backdrop that persists brings plenty of economic baggage with it. Additionally, the transition to an economy that has become conditioned to easy money won’t go as smoothly as anticipated. After running at a record rate during the pandemic, growth in the nation’s money supply is slowing fast and, could be starting to contract. That would be an extremely rare event.

We are now experiencing a period where the Covid fiscal stimulus stopped abruptly and the economy will be trying to deal with the withdrawal of some $9 trillion of support. It’s not only the liquidity issue, it’s a change to a higher interest rate environment as well. The effects of changes in the money supply tend to be felt with a 12-18-month lag. More importantly, it will be dealing with this “disappearance” into late 2023-24, just when the economy may need it.

Many research firms are in agreement. They believe we are in the early stages of unwinding what was wound up during the fastest liquidity (P/Es) and EPS (stimulus checks) bubble ever. Given this extremely elevated starting point, large drawdowns in equity prices and P/E multiples, and eventually earnings well beyond a normal recession can be expected. The duration of this downturn will mirror the same time and magnitude of the tightening that caused it. There is plenty of common sense in these arguments.

So after this first dip/recession in economic activity, there won’t be a quick return to economic growth. Instead, after a period of stabilization, the negative forces remain in place and are exacerbated by the conditions mentioned above. The Fed is keenly focused on the level of inflation, which according to its forecasts, will take far longer than six months to get near its 2% target. I’ll also note that this tightening cycle has just begun, it will take at least 6-9 months before the effects of the first-rate hikes are felt. Expecting 8% inflation to drop to 2% in 6 months is very unrealistic. Some suggest inflation will remain at elevated levels well into 2023. I also lean toward that assessment.

I am not in the camp that is counting on a FED pivot anytime soon because inflation has slowed (if indeed it does). The Fed will end this rate hike cycle when inflation starts to fall off a cliff and that could be due to a severe double-dip recession. The mild recession camp says the FED continues to tighten and inflation does fall quickly setting up a mild recessionary backdrop. I’ll need to see more evidence before I can subscribe to that ‘theory’.

No one has all the answers nor can anyone predict the future. Either way, it seems to me the FED is in the picture for a while. What have we learned during the BULL market? – Don’t fight the Fed.

The Fed is here to slow things down. That tells us many challenges lie ahead.

The Week On Wall Street

The Major indices all started the week at slightly overbought conditions sitting at overhead resistance. The S&P entered the week on a 12% rally of the lows and the general feeling seemed to be it was time for a pause. That’s exactly what occurred on Monday and Tuesday as the S&P posted modest losses on both days.

This week it was a “Turnaround Wednesday” that took some traders by surprise. The S&P rallied and the NASDAQ which already posted a 16% gain off the lows, added 2.5%. After that, it was a “give and take” scene for the indices that was filled with indecision. Both the BULLS and the BEARS were not quite sure what to make of both the fundamental and technical backdrop that they are faced with.

The S&P, NASDAQ, and the Russell 2000 made it three weeks in a row with gains. The DJIA couldn’t quite get to positive territory, posting a modest loss for the week.

THE ECONOMY

The latest JOLTS report showed the number of job openings decreased to 10.7 million on the last business day of June. Hires and total separations were little changed at 6.4 million and 5.9 million, respectively. Within separations, quits (4.2 million) and layoffs and discharges (1.3 million) were also little changed. This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector, by industry, and by establishment size class.

A blowout JOBS report. Nonfarm payrolls surged 528k in July, much stronger than forecast. That’s the best since February. If follows gains of 398k in June and 384k in May. The unemployment rate dipped to 3.5% from 3.6%. Average hourly earnings popped 0.5% from 0.4%. The 12-month pace was steady at 5.2% y/y, with June revised up from 5.1% y/y. The labor force participation rate slipped to 62.1%, the lightest since December, from June’s 62.2%.

This report is positive and it confirms my view that interest rate hikes have yet to work their way into the economy in a negative way.

Manufacturing and Services reports continue to show weakness, and once again we are left to ponder whether this is the bottom. U.S Manufacturing SLOWS, but there is GOOD news on supply chain and Inflation.

With a reading of 52.2, the S&P Global US Manufacturing PMI is at the lowest level in two years as output and new orders fall in July.

ISM manufacturing index dipped 0.2 ticks to 52.8 in July, marginally better than projected, after falling 3.1 points to 53.0 in June. This is the lowest since June 2020s 52.4 reports. It was at 59.9 a year ago. The components were mixed but the big highlight was the collapse in prices paid where the gauge plunged -18.5 points to 60.0, the lowest since 2010 and the fourth largest drop since the ISM began tracking in 1948. That reflects improving supply chain activity and is potentially good news on the inflation scene.

Construction spending dropped 1.1% in June, weaker than expected, following the 0.1% gain in May. Weakness was broad-based. Residential spending tumbled 1.6%, with private spending down 1.3%.

July Services PMI was revised up to 47.3 in the final read from the 47.0 preliminary. But it is in contraction territory for the first time since June 2020. The July reading is down 5.4 points from the 52.7 in June and is off 12.6 points from the 59.9 a year ago. It is the lowest since May 2020. The prices charged index slid to 60.4 from 62.9 and is the lowest since March 2021. Another positive for the inflation picture.

GLOBAL ECONOMY

The Bank of England hikes interest rates by 50 basis points to 1.75%, the biggest jump in 27 years, and is warning of a long recession as energy costs take their toll. They also see inflation rising to double digits.

The United Kingdom is now projected to enter recession from the fourth quarter of this year. Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.

None of this is a big surprise. HIGH energy costs seep into every part of the economy. I suspect the EU will also share the same fate.

Global PMI Data

Manufacturing

The Eurozone manufacturing sector dips into contraction.

The U.K. Manufacturing PMI falls to a 25-month low at 52.1.

Eurozone manufacturing downturn worsens in July as recession risks intensify. Eurozone Manufacturing PMI at 49.8 (contraction territory) a 25-month low.

Jibun Bank Japan Manufacturing PMI slips to a 10-month low at 52.1.

India’s manufacturing PMI is at an eight-month high of 56.4 as trends for output and new orders strengthen

China’s official manufacturing purchasing managers’ Index fell to 49.0 in July from 50.2 in June. The reading was the lowest in three months, with sub-indexes for output, new orders, and employment all contracting. Continued contraction in the oil, coal and metal smelting industries was one of the main factors pulling down the July manufacturing PMI. Manufacturers continue to wrestle with high raw material prices, which are squeezing profit margins, as the export outlook remains clouded with fears of a global recession.

Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc;

Weak demand has constrained recovery. Q3 growth may face greater challenges than expected, as recovery is slow and fragile.”

Services

Services PMIs in China recovered from the shock of the COVID lockdowns while other global Services PMIs are decelerating.

U.K. Services PMI – The weakest service sector performance since February 2021 as inflationary pressures continue to dampen demand. The index remains above contraction territory at 52.6.

Eurozone Composite PMI did slip into contraction mode with a reading of 49.9.

China Services Services activity expands at the quickest rate in the last 15 months with a one-point gain to 55.5.

India Services PMI showed the recovery of the Indian service sector lost momentum during July. The index came in at 55.5 versus the previous month’s reading of 59.2.

Jibun Bank Japan Services PMI fell sharply from 54 to 50.3 in July.

GEOPOLITICAL SCENE

There is little need to get into a debate on the recent developments taking place in Taiwan. Each side can make a compelling case for the actions being taken. It’s doubtful there will be any military escalation by China. There is no need to go that route. They have a weapon that can cause plenty of damage in a very subtle way. The more important issue now is the potential “supply chain” disruption that can become an overhang as a result of a strained US /China relationship.

We have learned a harsh lesson from the Covid event. The U.S. is still far too dependent on China for plenty of goods that are “essentials” to the US economy. The recent China zero covid policy that produced lockdowns has prolonged a supply chain issue that was on the mend.

This economic weapon is a real threat to any recovery here in the U.S. I expect there could also be an effect felt by US retail corporations doing business in mainland China.

Let’s also not forget China’s cozy relationship with Russia, and what could bring to the future global scene.

Here is the first example of the economic fallout from the recent tensions over Taiwan looks like. Early this year the largest EV battery maker in the world was eyeing locations here in the U.S. to support U.S based automakers.

In addition, the battery maker was also investigating a Mexican location as another possibility to expand operations. However, Chinese EV battery giant CALT has put its plans to build a Battery manufacturing plant in North America on hold. With tensions elevated, it is now a big question mark whether the US will remain a candidate for that investment.

EARNINGS

The ‘Bottoms Up” 2022 consensus EPS expectations for the S&P 500 have declined from $228 to $224 since July 1, but 2022 EPS expectations for the Mid Cap 400 and Small Cap 600 have increased modestly in the earnings season. That is highly unusual during times of an economic slowdown as typically the higher operating and financial leverage of small/mid caps make earnings come down faster than large caps.

I believe we are seeing evidence of the negative impact of global exposure on index earnings. Earnings expectations are decelerating faster outside the U.S. than inside, which hasn’t really occurred in at least the last 20 years, and so far, allowing small and mid-cap earnings to hold up better than large cap. I also note that earnings in value indexes are holding up better than earnings in growth indexes, for what I suspect is the same reason, as there is more global exposure in growth indexes.

This earnings season is the first time since COVID hit that guidance cuts are more frequent than guidance raises. Investors feared the season would be one where the tone would change and that appears to be the case.

FOOD FOR THOUGHT

The Joint Committee on Taxation analysis reveals the Inflation Reduction act (aka Green new deal) won’t reduce inflation. In addition, the administration’s favorite Economist says this legislation will not reduce inflation. Also in agreement with that conclusion is the Congressional Budget Office. The bill also won’t reduce the deficits as announced. Instead, this legislation will actually increase net deficits in the 2023- 2026 time frame.

Furthermore;

The “paying down our national debt” that Sen. Manchin refers to won’t start occurring for five years. The “lowering [of] energy costs” involves investments in future technology that will require years to develop and take effect. And the “lowering [of] healthcare costs” doesn’t take effect for years (as with the prescription drug price controls) or merely masks high health care costs rather than meaningfully addressing them (as with the ACA subsidies).”

Regarding the tax increase in this legislation;

By incorporating financial accounting further into the tax law, the proposal would add substantial complexity to the Code. The Act leaves critical details to be provided for by guidance from the Treasury Department and IRS. That guidance will have significant tax consequences for taxpayers and will be subject to review in an era of heightened judicial scrutiny of agency rulemaking. In addition, because the creation and modification of financial statement rules is not subject to Congressional approval or the notice-and-comment requirements of the Administrative Procedures Act, the proposal would result in the calculation of tax liability being determined by decisions made by a relatively small group of unelected, unregulated decision-makers.

The Joint Committee on Taxation, concludes that taxpayers across the spectrum of incomes will indeed see their taxes raised. Raising corporate taxes in any form will always find its way into the pocketbooks of employees and consumers. Those that are happy with the direction of the economy and in favor of this tax bill won’t have their opinion changed, nor will we see a change of opinion for those that are watching the economy and the market sink lower under the poor policy decisions. Therefore from an investor perspective, it’s out of our control leaving little reason to debate this legislation.

However, there are investment ramifications.

The losers are as always the fossil fuel industry along with additional taxes and regulations, and increased costs for drilling leases are included in this legislation. Ironically that makes energy an even better investment. Fewer incentives for drilling and production will keep supply low and prices high.

The real winners are the “greenies”, as they will see money tossed at alternative sources and from an investment point of view that has provided a lift to those sectors. While they “win” the taxpayer loses. So far the more than a decade-long effort to bolster this group of companies hasn’t produced much in the way of measurable help for energy needs.

An investor looking at the bottom line of the “alternative energy” group can conclude that the return on investment has been abysmal. I am very much aware that history shows other industries have been key beneficiaries of subsidies. I also acknowledge that subsidies have been the “American Way”. The problem this time around; probabilities remain high that more of these “speculative ventures” will fail to produce meaningful results until these alternatives are ready for mainstream deployment.

There is an issue that can be debated because we have witnessed firsthand the mounting evidence that this “‘adaption” process will take a lot more time (perhaps never) before it will be able to compete with the reliable sources of energy the world uses today. “Reliable” is the operative word.

Bottom Line – Only those who worship at the altar of climate change wish to “tax and spend” while the Fed is raising rates to slow an economy racked by inflation. All while keeping energy costs high by choking off supply.

Therein lies the issues for investors to ponder.

SENTIMENT

It has been over a decade since the last time S&P 500 futures positioning has seen a double-digit net short reading, but that is what the latest Commitments of Traders report revealed. Going further back through the history of the data to 1996, there have only been seven other occurrences that have happened with at least six months between the last.

Historically, that overwhelmingly bearish reading on positioning has tended to be a bullish signal for performance. While these readings have been rare in recent history, these past occurrences have consistently seen the S&P 500 trade higher over the next year with consistently stronger-than-average moves.

However, the following three-month performance is perhaps the most impressive with the S&P 500 higher each time.

The Daily chart of the S&P 500 (SPY)

The rally off the June lows has now taken the S&P 500 slightly above the June highs. This pattern is being played out in nearly all of the major indices as well.

S&P 500 8-5 (www.FreeStockCharts.com)

There is an equal chance the S&P can move to the next major resistance level at ~4300, OR head back down to test initial support around S&P 3900.

That leaves a trading range of abut 400 points where literally anything can occur without upsetting the short-term BULL rally or the long-term BEAR trend. Our first view of the crossroads an investor faces today.

INVESTMENT BACKDROP

Investors have navigated a couple of tough weeks with EPS reports on the mega caps and the FOMC meeting and this recent rally leaves the S&P right at resistance.

There may not be an official start date, but August represents what many consider the dog days of summer when, for a lot of people, the market is the last thing on their minds. Historically, there have been a number of calamitous events that began or transpired in August, but overall stock market returns during this time of year have been middling. September has had a median gain of 1.15% while the next three months have seen a median gain of 2.75%. Nothing especially notable, but the way this year has gone, a gain is a gain.

While it’s not wise to rely on the calendar alone, from a seasonality perspective, the market is entering a period historically characterized by increased volatility and continued choppiness in the market as well. That suggests the recent move higher may not be durable. VIX seasonality tends to increase starting about now. Moreover, the increased volatility in the near term has been consistent with some sideways consolidation in markets.

The fundamental backdrop is filled with conflicting data. The first half saw negative GDP growth and economic reports around the globe are aligned with a slowdown. Strong jobs report here in the US bolsters the no-recession talk, while the UK is talking about a long recession, and with energy costs still high, the EU is sure to follow. Add all of that to a technical view that suggests the equity market is at a crossroads, leaving investors scratching their heads.

Whether this 14% rally off the June lows has run its course remains to be seen. For now, however, I will continue to proceed with a mind on following the strategy that has turned this BEAR market into a profitable year. Protecting my capital, adding to quality when given the opportunity more than growing it at any cost, and following what is “working”. If you don’t want to go that route and instead bet that we’ve already seen the worst, that the bear market is over, and we’re going back to new highs, more power to you.

I haven’t lost sight of the fact that the long-term trend patterns for ALL of the indices are still BEARISH. When that changes I will change, but not a day sooner.

I’ve navigated the first part of this difficult “change” in market behavior, and I don’t want to get reckless now. If that means I underperform the major indices during a rally that goes straight up, I am ok with that. I’d rather continue to make sure I don’t get overextended in a questionable backdrop, and lose money by focusing exclusively (Greed) on making money.

When the trends do go back to a full-blown BULL market setup there will be plenty of time to make money in that trend. We aren’t there yet.

Thank you for reading this analysis. If you enjoyed this article so far, this next section provides a quick taste of what members of my marketplace service receive in DAILY updates. If you find these weekly articles useful, you may want to join a community of SAVVY Investors that have discovered “how the market works”.

The 2022 Playbook is now “Lean and Mean”

Opportunities are condensed in Energy, Commodities, and Healthcare. Along with that I’ve defined Bearish to Bullish reversals in three other areas of the market that have led to massive gains (30+%) in the last two months. The message to clients and members of my service has been the same. Stay with what is working.

Each week I revisit the “canary message” which served as a warning for the economy. The focus was on the Financials, Transports, Semiconductors, and Small Caps. I used them as a “tell” for what direction the economy was headed to help forge a near-term strategy. With the major indices showing some signs of stabilization, it might be a signal that is now lining up with the “consensus” view of a “mild recession”.

I’m not there yet but if the price action tells me that, I will gladly reconsider my forecast.

SMALL CAPS

The technical view on the small caps as measured by the (IWM) looks EXACTLY like the S&P and the DJIA. Indices that are at pivot points.

From the fundamental viewpoint, longer-term investors might be witnessing an opportunity for outperformance on the other side of this bear market. The group trades at just a 13x P/E (vs 18.2x average), which is the lowest valuation of the past 20 years other than the Covid shutdown and credit crisis lows. On a relative basis, the small caps trade at a 32% discount to the large caps (vs 6% premium on average), which is the lowest relative multiple outsides of the Covid shutdown low.

SECTORS

Other than Energy most if not all of the other sectors have produced nice rallies off the lows. The true test is upon us and many chart patterns are aligned right at key resistance levels.

COMMODITIES – AGRIBUSINESS

The commodities in this sector could become interesting again. It is easy to look back with the benefit of hindsight and pick out winning themes that would have made you a lot of money if you had only held on during a long-term move. In practice, it is MUCH harder to not only identify those themes in real time but also to hold through the inevitable volatility that arises. That is the issue that trips up most investors. Nothing goes straight up, even during strong uptrends. Shakeout moves happen, especially when a theme gets too popular and too many jump into the idea.

At the first sign of trouble, however, these weak holders/traders bail and that can send prices down quickly. I think that’s what we’ve seen in areas like Energy and Agricultural commodities, which have pulled back from their year-to-date highs after climbing considerably in the first few months of 2022. The physical supply issues, though, that I believe are powering these themes have not gone away and in some cases are only likely to get worse.

So, “food and energy” remain two favorite investment themes for me and most of my portfolio holdings reflect this. Agriculture ETF (DBA), for example, holds a basket of agricultural commodities like Soybeans, Wheat, Corn, and Cattle and has pulled back around 15% in the past few months.

DBA has now pulled back to an area of longer-term support. Of equal and possibly more important to me is the fact that despite the pullback, many stocks/ETFs remain in longer-term BULL market trends. Investing here is riding the tailwinds of a positive trend.

ENERGY

Oil prices stabilized, moved higher, then reversed lower after OPEC+ only increased production by 100K barrels/day. In the scheme of global oil production that is a “rounding error”, but forecasting the daily moves in the oil market can be quite frustrating.

Meanwhile, the Strategic Petroleum Reserve release will end in October and at some point, those reserves will have to be replenished. Supply will continue to be “tight” and if demand stays stable energy prices should remain at or near these levels. With WTI closing at $88.50 on Friday, the Energy ETF (XLE) remains above support levels and in a BULLISH trend.

At the moment there is little reason to leave this sector, (LT BULL trend) and once again I continue to recommend the stocks that offer “base and variable” dividends to shareholders. I’m collecting 8-10% yields on select energy stocks that have pristine balance sheets.

For those that want less volatility, there is nothing wrong with being involved in (CVX) or (XOM) at these levels as well. BULL market trends with above-average yields. Those two attributes represent an opportunity to make money in a BEAR market.

NATURAL GAS

There is volatility in the sector (UNG), but I’m staying with a position that is also in a Primary uptrend. The tailwinds for higher prices remain in place and adding on weakness has been profitable. Another situation where there are tailwinds for higher prices in the future.

FINANCIALS

Financials (XLF) may have put in a double bottom in June/July and so far the rally off those lows continues. There is plenty of resistance overhead and the road to full recovery is a very long one. Perhaps this is the first step. I remain neutral on a group that is still mired in a primary downtrend.

HEALTHCARE

The Healthcare ETF (XLV) continues to track sideways, but the real value is presented in what I mentioned in earlier reports. Involvement in pharma stocks that are in BULL trends with above-average yield continues to be my recommendation. (ABBV), (PFE), and (MRK) are examples of what I am referring to.

BIOTECH

Dividend income and “Value” lie within big pharma and “Growth” is in the Biotech ETF (XBI). This group that I have been tracking moved into a sideways pattern after its BIG move off the lows, then reignited. The ETF added 12% this week, easily outperforming other sectors. The BEAR to BULL reversal pattern that was uncovered here in June is still active and has now yielded a 40+% gain.

TECHNOLOGY

Most of this recent rally has been fueled by a move from “Value” to “Growth”. The “Energy” trade has given way to the “FAANG” trade. I prefer to stay with both leaving Energy as “overweight” due to the income stream and Technology as an “equalweight”.

Tech Sub Sector – Semiconductors

Semiconductors (SOXX) have been outperforming the general market for a few weeks now. However, there is a lot more work that needs to be done before we can start to throw caution to the wind. The ETF is now up against the top end of the down-trending channel that began in January. While I am not a seller here, I’m also not recommending anyone to be aggressively buying until the potential “turn” looks more constructive.

ARK INNOVATION ETF (ARKK)

The other BEAR to BULL reversal we are tracking is in the ARK Innovation ETF (ARKK). Similar to the Biotechs this ETF traded sideways recently and broke to the upside this week. There is a defined ‘base” pattern in place that could be set up for an eventual move higher. As with any stock or ETF that has been in a decided downtrend, there are many hurdles to overcome on the road back,

I don’t expect a moonshot to higher levels but if this reversal pattern is genuine we could see more of a stair-step move to higher prices over time. However, please do not lose sight of the fact that this is still a “speculative” group of stocks. My gains off the June lows stand at 42%.

CRYPTOCURRENCY

Alongside equities, Bitcoin and other cryptos pushed higher and then settled into what (for crypto) has been a narrow trading range between $22k-$24k. As we have seen in the past, cryptos and equities have been positively correlated to one another recently, and that has especially been the case for the mega caps.

Last week we saw the horse placed before the cart as the solid results and even more solid reaction to mega-cap earnings likely assisted in boosting risk sentiment to lift cryptos higher. With the coincident moves higher in cryptos and Bitcoin, Bitcoin has successfully tested and held above its 50-Day MA while breaking the downtrend that has been in place since April.

Bitcoin – Last 12 months (www.bespokepremium.com)

The longer-term downtrend from the fall highs and the 200- Day MA, however, are both considerably higher than where BTC closed (~23k) on Friday.

FINAL THOUGHT

The most difficult issue for any investor to come to grips with is how much of the “change” has taken place and is priced in. That is precisely what the universe of investors that make up the equity market is trying to figure out now. I expect this back-and-forth price action should continue for a while.

This last BEAR market rally has felt a little different and also has presented other indicators that separate this move from the prior BEAR rallies. The weight of evidence for both the fundamental and technical sides of the investment equation is still dominated by uncertainty.

It’s best to not get discouraged on the down days and don’t get euphoric during the rallies. I intend to maintain an even keel and ride this BEAR market storm out by staying in control. I plan to stay at these crossroads for a while in an effort to determine which one offers the best path to profits in the near term. Running too fast in one direction now can lead to plenty of mistakes.

POSTSCRIPT

Please allow me to take a moment and remind all of the readers of an important issue. I provide investment advice to clients and members of my marketplace service. Each week I strive to provide an investment backdrop that helps investors make their own decisions. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation.

In different circumstances, I can determine each client’s personal situation/requirements and discuss issues with them when needed. That is impossible with readers of these articles. Therefore I will attempt to help form an opinion without crossing the line into specific advice. Please keep that in mind when forming your investment strategy.

Thanks to all of the readers that contribute to this forum to make these articles a better experience for everyone.

Best of Luck to Everyone!