The Current Picture
For those who are somewhat familiar with market indicators, I think you would have to agree that we are heading into uncharted waters. You have read this same observation over the last few weeks here on GaneWisdom/Market Edge. A strong indicator seems to be on the verge of transpiring – what’s known as the “Golden Cross”. This indicator is a sign that an upward trend is forming in the market. When the 50-day moving average crosses over (up and above) the 200-day moving average, a Golden Cross has formed. The S&P 500, which our subscribers know is a true snapshot of the stock market, could well make this move over the next few trading days. The Small Cap index has already made the crossover. It too has shown a steady upward trend.
Although we are (somewhat unbelievably) witnessing this bullish pattern, this does not confirm that this upward indicator means that we are full steam ahead. Our analysis still sees a Panic Bottom happening, where the S&P 500 falls to around 3,300, before we can safely say that we’ve entered into a Bull Market. But since our analysis is based on our indicators and strategies that will allow us to guide our subscribers and not what we feel, the strategies are what we must go with. The last time we saw the S&P 500 create this Cross by the way was in July 2020 during the pandemic.
Although the S&P 500 witnessed 52 Golden Crosses since 1930 (according to Dow Jones Market Data which used back-tested data to account for the indexes’ performance prior to the S&P 500 creation in 1957) it is not a 100% accurate prediction of uptrends. Stocks did in fact trade higher 71 % of the time since for the following year, however it did not follow this trend in 1986 the year before the market crash of 1987, it did not happen again in 1999 nor did it most recently in 2019.
Actually, the Dow Jones formed this pattern this past December, and it has been accurate so far into the new year. Cyclical sectors like communication services, technology and consumer discretionary have also performed well so far in 2023.
The NDX (the Nasdaq 100) has now surpassed its highs during the Bear Market rally of November – December and the tech sector ended with a very laudable week up 4.71 %.
Keeping Ourselves Centered
Along with the good news however, there continues to be disturbing indicators pointing to unsettled waters ahead. Economic growth is slowing. Consumers are finding the mountain difficult to climb as the combination of high interest rates, high home prices along with falling real incomes are hurting the American consumer in significant, but seemingly not talked-about ways. In reality there has been a frightening drop in real disposable income – the second largest drop in history only behind the worst year of the Great Depression in 1932! A recent report out of CreditCards.com showed that 3 out of 4 credit card users added to their balance over the last year. 24 % of those borrowers reported having a problem with their income for 2022. Combined with the above, American consumers are digging deeper into not only their savings (if any is left) but borrowing just to get by. This is never a good scenario, and the outcome of a precipitous drop in the economy could be very painful in more than a few sectors.
The current 30-year mortgage rate stands at 6.2 %
What the Tea Leaves are Showing
There are still too many indicators that are pointing to a recession despite the seeming lack of concern being currently shown by investors. Frankly, this is frightening. Its as if people a partying hard just for spite!
For those who buy and trade emotionally, this period of time is exhausting. The market trend that has been forming these last few weeks are as noted above, disconcerting, however our recommendations are based on what the indicators, trends and signals are showing us. This is always done unemotionally. Therefore, based on our analysis we are positioned in the following:
Small Cap Funds
S&P 500 – Large Cap Funds
Nasdaq 100 Index Funds
International Growth Funds
As always, mid - week alerts and updates are issued as needed.
Please use discretion, good judgement and plain old common sense when positioning money in the market. Avoid putting all your eggs in one basket. Diversify, meaning spread out your portfolio into a few different sectors. We believe the sectors above will show growth in the coming days. Perhaps weeks. When changes become necessary, we will update you.