Market Update
Market Edge

Market Update for the Week of February 19th, 2024

* As is the case with any investment, use your discretion and judgement before purchasing and/or transferring. Diversification is always prudent; therefore, our suggestion is using a portion of your portfolio and not the total in any one fund or subaccount. A portion should remain in Cash (Money Markets)

Please watch for our Mid-week Market Alerts should there be any

The Stock Market will be closed Monday, February 19th, 2024 in Observance of President’s Day

‘What goes up must come down’ as the old saying goes. This week saw the rally of 2024 which began the second week of the year sputter a bit. The stock market continued its upward movement these past weeks due to the expectations of the Federal Reserve’s interest rate cuts beginning in March. For those of you who follow our site you know we have never climbed on board with that thinking. Following our indicators, market signals and trends convinced us that a rate reduction – if they happened in the first half of the year – would not be seen until June. Possibly (but not probably) in May. We would encourage our readers to refer to our past posts located in the Archive section of our website for more information.

It is normal for human beings to take action based on emotions. It’s part of the ‘Fight or Flight’ response where the physiological reaction of our species causes us to react when there is the possibility of something mentally or physically terrifying happening. Other than their health (and even then!) most people would say money is of the utmost importance in their life. With all the buzz flying about, the siren – song of lower rates in March began to ring in our ears as well. BUT we did what we always do – go to the charts, the indicators, the signals, the trends – and base our decisions on facts and not emotions. It feels great to be correct!

The Consumer-price index (CPI) for January, which was announced on Tuesday showed that the inflation rate remained stubborn at 3%. This caused Treasury yields to rise (see the 2-year Treasury chart below) and an upper-cut to those Wall Streeters still convinced that the Fed would indeed lower the rate in March. The market took a nose-dive because of the data within the CPI.    

Friday saw the Producer-price index (PPI) rise 0.3% for January which was much stronger than economists had predicted, positing that they expected an increase of around 0.1%. The markets took a hit because of this with the S&P 500 losing 24 points and the Dow down 145 points by the end of the trading day on Friday. Additionally, what’s known as Core wholesale prices – food and energy for instance – rose 0.6% in January, the largest increase in a year.

S&P 500 (stockcharts.com)

This week saw the S&P 500 call a halt to its upward trend that began the second week of January. Closing at 5005, the S&P 500 dropped fractionally lower by 0.42% for the week.

Dow Jones Industrial Average (stockcharts.com)

Friday’s close put the DJIA down 0.11% for the week when it closed trading at 38,627.

NASDAQ (stockcharts.com)

The Nasdaq closed at 15,775 Friday down 1.34% for the week.

Russell 2000 (stockcharts.com)

Using the Rydex Russel 2000 chart (due to issues between Stock Charts and the reporting agency) we see the Russell 2000’s strengthening performance these last two weeks. Closing at 2,032 the Small Cap’s index rose 1.13% for the week. This kind of strength is usually a positive indicator for the market as a whole and we’ll see if this holds true once again over the next few weeks. See Guy’s commentary below for more on the Small Cap market.

2 – Year Treasury (stockcharts.com)

Since the beginning of the year the 2-year Treasuries have slowly climbed. At the close of trading on Friday January 5th the 2-year Treasury Bond stood at 4.40%. Friday’s close saw the 2-year at 4.64%. The Death Cross (where the 50-day MA drops below the 200 MA as noted in the above chart) usually indicates a drop in the stock, commodity or index of which it is focused, however like the price of oil in the West Texas Intermediate Oil chart below, has not performed ‘as usual’

Volatility Index (stockcharts.com)

Still hovering at its low, the VIX stood at 14.24 at Friday’s close. The VIX jumped up earlier in the week as you’ll notice above due to the market drop mid-week. By Friday it recovered most of its composure. As you remember, a number of 20 and above shows investor concern. 30 + is the beginning of a possible major downturn and when the VIX hits 40 and above people scream as they head to the fire exit. We are nowhere near these terrifying numbers.

30 – Year Mortgages (stockcharts.com)

As noted on the chart above, the national average 30-year mortgage landed at 6.77% Friday. With the Treasury yields climbing the 30-year rates have climbed up slightly since the beginning of the year which stood at 6.61% on January 1st. The Federal Reserve’s goal of 2% inflation is not been achieved yet, maintaining @ 3% due to the strong job market (that good news/bad news we always talk about). Until we see Treasuries yields begin to slide down, mortgage rates will continue in this interest rate range.

West Texas Intermediate Crude Oil (stockcharts.com)

What has happened with gas prices?? Wednesday saw the highest prices at the pumps in three months. U.S. refineries are currently undergoing maintenance and the Middle East is now beginning to affect domestic prices. It’s been a long time coming but was inevitable.

On January 1st we wrote……….

“…………The chart above is very interesting. On it, you’ll see the 50-day moving average of West Texas Intermediate Crude Oil surpassing the 200-day MA mid-August. Notice the price of a barrel of oil afterwards? The price went up by the last week of September ($95.03). This event on the chart is called a ‘Golden Cross’. A Golden Cross sends an investor’s heart aflutter due to the signal it gives that the price of that commodity, security or index is going to increase. This, as you can see, is exactly what happened.

Now look ahead to this past week. What you’re seeing is known as a ‘Death Cross’. This occurs when the 50-day MA falls below the 200-day MA. This is NOT a signal that an investor is hoping to see if they hold that particular commodity, security or index. The reason? Death Crosses signal a downward trend.  We should see the price of WTIC head south, perhaps significantly in the coming weeks. This will be very (happily) noted at the pumps……….”

WTIC has risen nearly 10% year to date, closing Friday at $78.46/barrel. Although lower than its 2023 peak of $94.00 in September (as well as its all-time high of $118.87 in June of 2022) the recent attacks on shipping in the Red Sea as well as the war in Gaza are causing a reversal in the usual indicator of the Death Cross we wrote about in January. This week saw the average price of gas at $3.24/gallon. We are forecasting that the price of a barrel of WTIC will range between $80.00 - $82.00 this coming week.

Commentary

This past week illustrated the struggle that investors are having in their attempt to come to grips with the realization that the Fed is not lowering interest rates anytime soon. Over these past months the ‘numbers’ and indicators weren’t adding up for a March rate reduction. It was a bit disconcerting that only a handful of market analysts did not buy into the hoopla. I say this because emotions come into play. “What do these folks see that I’m not” was a question I kept asking myself. Tuesday the market nose-dived when the stark truth of no rate drop in March became evident, but by the end of the week the major indexes regained much of the ground that was lost.

I still believe that the market is going to continue its trip north. At least for a while. My reason for this optimism is due to the strong performance, leadership really, that the Small Cap market has provided these last two weeks.

Recession fears have been put to rest, for a while anyway. I believe that a market shift in leadership will take place this year. By that I mean that the current market leaders – what’s known as the Magnificent 7 especially and Large Caps generally – will begin to step back allowing the Small Cap markets, and quite possibly the Mid-Cap equities as well, to dominate the markets. Those seven stocks – Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla – could - could - be on the verge of overvaluation. This could be good news for the investing public who always look for ‘the next big thing’. Again, that could mean a flight into Small Caps and to a lessor extent, Mid Cap stocks as well.

As readers know, I have always been of the belief that Small Caps are the Canary in the Coal Mine. I have no reason, after decades in the securities field, to change those beliefs. The S&P 500 has performed spectacularly since the market lows of September/October 2022 (+36.9%). Because Small Caps are weathering this latest turbulence, we may still see continued upside in the broader markets.

I think that the coming week could be interesting in foreshadowing the near-term markets. Watching the major indexes closely for any nuances or signals is what Gane Wisdom/Market Edge does best. Stay tuned……….

Have a blessed week.

Guy W. Gane, Jr.

From Market Update for January 1st, 2024

As you know, our investment philosophy follows the guidelines used by Guy Gane when he managed many millions of dollars for many thousands of clients. His

results placed him among the premier Registered Investment Advisors in the United States for many years.

Periodically we are asked “How are subscribers to GaneWisdom/Market Edge able to enjoy profits without losing money?” The answer is – they don’t! No-one can accurately know when a market top happens, nor when a market bottom will occur. Our philosophy is to take small losses in order to avoid big losses.

Let’s analyze the stock market for the last two years – 2022 and 2023.

2023 has witnessed an extraordinary runup in the S&P 500 (+24%), the Dow Jones (+13%), the Russell 2000 (+17%) and the most impressive – the Nasdaq (+43%).

If you are participating in your company’s 401k or 403b, you most likely have no one giving you guidance as to what to buy, when to transfer or when to sell. Consequently, you probably just leave the money, and continue to deposit into whatever funds you originally started with. Most Financial professionals advise their clients to ‘Buy and Hold’ their investments because ‘the market always comes back, then goes up!’ Sounds logical as well as sounds good! It’s hard to argue that logic, especially this year when the market did indeed ‘Come back’. But is that the end of the story? Not by a country mile……

Had your portfolio been invested in tech stocks, the Nasdaq let’s say, and you just kept the money there because your advisor said that’s the ‘smart move’, 2022 saw your investment lose 33% of its value (the Nasdaq’s performance in 2022). Your $10,000 investment by December 2022 was now worth $6,700.00. But the market came back – up 43% as we’ve seen. Despite this – YOU STILL LOST MONEY!

Why? Let’s look……

$6,700  x 43% = $2,881

$6,700 + $2,881 = $9,581 !

In order to break even – JUST TO BREAK EVEN – the Nasdaq would have had to increase 49.3% !! You still lost money 2023!

As you can read in our Archive section, we have given sound financial guidance throughout the last 16 months which could have minimized these losses and maximized gains.

This dear reader, is the visual result of Buying and Holding.

Upon Reflection

When we began publishing GaneWisdom/Market Watch on August 21st, 2022, the Dow on the previous business day (8/19/22) stood at 33,706. The S&P 500 ended trading on the same day at 4,228. As we wrote above, Friday’s close for the Dow Jones was 38,627. The S&P 500 at 5,005.

Having to give back profits, then having to make them back up instead of profiting by building on profits is not the way to win on Wall Street. This is the ‘Buy and Hold’ strategy. Realistically this is the ‘Buy and Hope’ theory.                                                                                                     

Our subscribers have averaged meaningful positive returns and by following our column exited the markets and re-entered them when appropriate – while the Buy and Hold crowd hung on with white knuckles hoping the market would come back and make up what they lost. The current market has offered significant trading opportunities which we’ve taken advantage of throughout the past eighteen months (please refer to the “Archive” Section of our site). We are listing our current positions below. Our market strategy has been taking advantage of upward trends, the advantage being not having to make up for the large losses that can (often) occur in the Buy and Hold strategy. When (not if) the market shifts again, we will issue our analysis, guidance and suggestions at that time.

Our Commitment

When GaneWisdom/Market Edge went live in August 2022, the goal was to provide our subscribers top-tier market analysis and outlook to those with qualified accounts such as: IRAs, ROTH IRAs, 401Ks, and 403Bs. Our desire was to make this service affordable to anyone. Instead of paying thousands of dollars, or a percentage based on investment assets (which is how Guy managed his client’s money as a Registered Investment Advisor) GaneWisdom/Market Edge charges a very affordable $200 per year. Our subscribers now include those with non-qualified accounts as well as financial professionals.                 

Our market analysis consists of market indicators, trends and strategies which allow our followers to avoid large losses usually associated with the traditional ‘Buy and Hold’ method. Our results speak for themselves and each of our Posts since our inauguration are available under the site’s heading: ‘Archive’.

In Conclusion

As a subscriber to GaneWisdom/Market Edge you are being given unequalled access to the latest and most comprehensive market analysis available. Please note the following and move accordingly. We strongly caution moving into an equity position in the middle of a market rally, as we are in right now. This could lead to severe losses – ‘Buying high, selling low’ – is not wise. This is especially true for this current rally – this past week notwithstanding -  where the S&P 500 has increased 18% + since late October. Please watch for our Mid-Week Market Alerts in the event of shifting market conditions. Wishing, hoping, If only’s and what if’s are based on emotion and you know that we follow the numbers, the indexes, the trend, the fundamentals - not emotions.

Our current positions:

We currently are/or were positioned in the following:Entered
A portfolio consisting primarily of Consumer Products11/6/23
A portfolio consisting primarily of NASDAQ – dominated stocks11/9/23
A portfolio consisting primarily of S&P 500 (Large Cap) stocks11/9/23
A portfolio consisting primarily of Financial stocks11/9/23
A portfolio consisting primarily of Telecom stocks11/9/23
A portfolio consisting primarily of Small Cap stocks11/14/23
A portfolio consisting primarily of Biotech stocks11/16/23
A portfolio consisting primarily of Health care stocks11/16/23
A portfolio consisting primarily of Technology stocks1/22/24
A portfolio consisting primarily of Electronic stocks1/23/24
A portfolio consisting primarily of Banking stocks2/2/24
A portfolio consisting primarily of Retailing stocks2/2/24

Your particular Mutual Funds and/or Variable Annuities may or may not offer all or any of the positions we recommend from time to time. You MUST do your homework. Doing so and finding the portfolio in accordance with the our analysis may position you to take advantage of what we believe to be the next market rally.

* As is the case with any investment, use your discretion and judgement before purchasing and/or transferring. Diversification is always prudent; therefore, our suggestion is using a portion of your portfolio and not the total in any one fund or subaccount. A portion should remain in Cash (Money Markets)

Please watch for our Mid-week Market Alerts should there be any

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