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Merrium Webster Dictionary describes the term Contrarian as: a person who takes a contrary position or attitude. When the word Contrarian is market-related it means that it is a view (or viewpoint) that goes against prevailing market trends. A Contrarian market advisor may go against the thinking of a majority in the hopes of alerting others of a possible (or unwanted) market event or events. GaneWisdom/Market Edge could, at times, wear that tag. For months we have been hearing that a new bull market was/is in the making. We have continually heard that “a recession is no longer likely” or “if a recession occurs, it will be of the mild ‘soft-landing’ type”.
Over and over in these pages we have countered that opinion with facts. As a subscriber, you have read of our concerns over the ‘Inverted Yield Curve’ and how it has continually broadcast that a recession may be in the offing. Our opinion has not been popular with most market Gurus. A thorough read-through of our past posts will confirm this concern.
Good news can sometimes be bad news for the markets as you’ve read here in the past. This week for instance the U.S. economy grew 4.9% in the third quarter. That is GOOD NEWS. The bad news is that this reaffirms the Federal Reserves resolve to keep the interest rates high so as to cool inflation. The Fed meets on Tuesday and Wednesday so we’ll be able to hopefully catch a glimpse as to how long the rates will stay at these high numbers.
The stock market cannot sustain a rally as we see in the chart above. This is a (very) bad omen because as the downturn gathers speed, investors may be tempted to follow the crowd. This is a historical fact. The S&P 500 ended the week at 4,117, down 2.53% for the week. As you can see, the S&P 500 tried to rally a few weeks ago (10/9 – 10/15). The S&P 500 is now in what’s known as ‘Correction Territory.’ This happens when the index drops 10% or more from their highs of the year.
On July 27th the S&P 500 hit 4,607 (as you see from the chart above). Friday’s close at 4,117 has brought the S&P 500 down 490 points since then – this is a Correction. As you can see, the S&P 500 has tried to rally and sustain that rally over the past few months. Each bounce has not been sustained however. Each rally has lasted for weeks at the most then ended at lower levels than the previous one. This activity indicates that the stock market has little confidence in earnings and the economy.
The Dow Jones closed at 32,417 Friday, down 2.14% for the week. The Dow is down 3,262 points since it’s intra-day high of 35,679 which was also the highest it went in 2023. We are drawing near Correction Territory here. A drop of an additional 305 points will bring the Dow there, however as we’ve stated many times previously, the S&P 500 is the best indicator of the overall market. In any case, this is not the look of a healthy chart.
Like the S&P 500, the NASDAQ Composite is now in Correction Territory. Friday the NASDAQ closed at 12,643. The NASDAQ reached 14,370 on July 31st and has dropped 1,727 since then. Again, a better than 10% decline. It is now trading below it’s 200-day MA and well below it’s 50-day MA as illustrated above. These numbers are well below their August and September lows.
The Russell 2000 (using the Rydex model) is now showing that Small Caps are heading to the lows of last year’s Bear Market. You’ll recall our outlook the last two weeks.
As our readers know from our past posts, Small Cap stocks have a history of signaling what is coming in the stock market. This history can forecast a Bull market as well as a Bear market……
The Small Cap market continued its downward trend again this week, down 1.48% for the week closing at 1,719 on Friday. However – the last 30 days have seen the Small Cap market fall by 7.87%. These stocks are popular choices by investors and is a good indicator for what is (may) about to happen in the overall market. It is what is reflected in this chart above that has us very concerned. Notice the blue line
on the chart? This is the 50-day moving average (see last week’s posts on Moving Day Averages). The red line is the 200-day moving average. When the 50-day MA crosses below the 200-day MA, what’s known in the industry as a ‘Death Cross’ forms. The chart above shows that this has now happened. This is a (very) Bearish signal. In other words, the Small Cap market is announcing what could be a dire prediction for the markets…..
The ’Death Cross’ mentioned last week can be seen very clearly now in the chart above. The Russell 2000 closed at 1,680 Friday, down 2.26% for the week. Please re-read last weeks update above. Enough said – only more-so.
The Death Cross we wrote about has not been proven inaccurate on the market as a whole.
The feeling of concern of the investing public in the U.S. has remained as can be seen above. Friday the Volatility Index closed at 21.27. Last week’s close was 21.71. Anything above 30 will be a clue to the weakening of trust in the market. 40 and above will signal that investors are throwing in the towel. We are not seeing that scenario at the present time, however this index bears watching over the coming weeks.
The 2-year Treasury closed Friday with a yield of 4.99%. The rate has come down the last few weeks. Last Friday (10/20/23) saw the 2-year at 5.07% and the week before (10/13/23) saw it at 5.04%. Events in the Middle will dictate the short-term rates. 5-year Treasuries are now at 4.76% and the 10-year closing at 4.83%. The higher interest rates remain, profit growth as well as economic growth will slow down further.
This week’s national average of 30-year Mortgages stood at 7.79%. Sam Khater, the chief economist at Freddie Mac observed that “Rates have risen two full percentage points in 2023 alone and, as we head into Halloween, the impacts may scare potential homebuyers.” He continued, “In March 2022, the typical monthly payment was about $2,000 and homebuyers needed an income of about $89,000 to qualify for a loan. Now…the typical monthly payment is $3,100 and a homebuyer would have to earn more than $130,000 to qualify.”
The price of a barrel of oil closed at $85.54 Friday. We should expect to see the price of West Texas Intermediate Crude oil fluctuate this week between $81 and $87 dollars per barrel. Thanks to the stockpile of oil in the United States gas prices have remained fairly stable this past week despite the turmoil in the Middle East. It will remain to be seen what the 30-day, 60-day and 90-day prices do.
Over the past months it has become clear that the economy is in trouble. Despite the Brokerage House’s Back-Room Sage’s prognostications (in the hopes of enticing new investment dollars) the U.S. is looking less and less likely to escape a recession. As a Stockbroker for many years as well as a Registered Investment Advisor, I had the opportunity to not only study the markets, but to observe the swings associated with them. The most important benefit of having a 30+ year career in the financial industry was to actually live through them.
Throughout these past months I have expressed my opinion on the possibility – likelihood in my judgement - of a recession, the indicators that have led me to that conclusion (the Inverted Yield Curve among others) as well as the recent, and somewhat dramatic downturn in the markets due to the so called “Death Cross’ in the Small Cap market. You’ve read that as Small Cap stocks go, the broader market usually follows. That indicator seems to be holding validity once again.
There has been a striking rise in credit card debt. Americans have been using credit just to pay bills and that’s never a good sign. Additionally, delinquencies in auto loans are heading into all-time highs. The economy is showing clear signs now of slowing, and this is something that you saw forecasted here. High interest rates are never popular and arresting inflation as it gathers speed is a harbinger of corporate pain, which eventually trickles down to employee pain through cost-of-living adjustments. Those beautiful and shiny repossessed new cars are now being auctioned off at unbelievable discounts, hence the many ads, announcements and notices popping up online about such ‘deals’. Like the housing bubble of 2008, the auto industry, (which has been trying to get production moving again after the UAW strike ends) is about to have direct competition with late-model vehicles being offered at literally rock-bottom prices.
The banking ‘concerns’ of early spring have not gone away. They are just not discussed much by the media. Given the present economic conditions and signals, it is appearing likely that a recession is looming and possibly very soon. The best advice – begin to prepare your finances and investments accordingly.
Guy W. Gane, Jr.
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 32,417. The S&P 500 at 4,117. Any profit you made in the market runup of 2023 has either been negligible or has likely disappeared. So much for the ‘Buy and Hold’ theory. Our subscribers have averaged positive returns and by following our column has exited the market weeks ago – while the Buy and Hold crowd hangs on with white knuckles…………
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’.
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. 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.
Bearish
Money should be in or transferred into Cash (Money Market).
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.
We are issuing a BUY signal for those whose portfolios include Utilities. Money should be transferred by the close of business on 11/3/23.
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 modest portion of your portfolio and not the total.
