One of the great things about spending time out in nature is you don’t focus on the intraday machinations of the markets nearly as much as when you are chained to your desk. This allows one to focus more on the big picture “state” of the market as opposed to the latest wiggle and giggle on the charts.
For me, the key to the last week has been the fact that stocks, while clearly in the midst of some sort of a pullback, have actually held up pretty well. Sure, this situation could certainly change on the next tweet. And yes, there is indeed a gap on the chart of the S&P 500 down at 2938 which needs to be “filled.” So, despite some bombshell headlines recently, I’ve been impressed that the bulls have been able to hang in.
But now it’s time to put aside my subjective view of the action and objectively review the “state” of our favorite market models. So, without further ado, please join us in this week’s review of the “state of the market.”
Have a great week!
Weekly Market Model Review
Each week we do a disciplined, deep dive into our key market indicators and models. The overall goal of this exercise is to (a) remove emotion from the investment process, (b) stay “in tune” with the primary market cycles, and (c) remain cognizant of the risk/reward environment.
The Major Market Models
We start with six of our favorite long-term market models. These models are designed to help determine the “state” of the overall market. Put another way, these models indicate which team is in control of the primary trend.
There was one change to the Primary Cycle board this week as the Global Risk Model slipped back into the neutral zone. Since I consider this model to be more of a background indicator, I believe the bulls should continue to be given the benefit of any doubt during this volatile, news-driven environment.
This week’s mean percentage score of my 6 favorite models slipped to 82.2% from 84.7% last week while the median held steady at 86.7%.
The State of the Fundamental Backdrop
Next, we review the market’s fundamental factors in the areas of interest rates, the economy, inflation, and valuations.
While there were no obvious changes to the Fundamentals board this week, I think it is important to note that the inflation composite continues to inch lower within the positive zone. And while the indicator is not close to a signal change, the internal movement of this indicator suggests that inflation pressures appear to be percolating.
The State of the Trend
Next, we review the state of the current trend. This board of indicators is designed to tell us about the overall health of the current market trends.
The predominantly negative news flow pushed prices lower last week. However, the good news is that the major indices have “held up” nicely during the latest barrage of headlines. The bad news is there remains a “gap” on the chart of the S&P 500 down to 2938 that is likely to be “filled” before the bulls can hope to regain control. And as I mentioned last week, a break below 2930 would suggest the uptrend may be at risk and a move below 2820 would indicate the bears might be in business.
The State of Internal Momentum
Next, we analyze the “oomph” behind the current trend via our group of market momentum indicators/models.
Make no mistake about it; the Momentum board is starting to show signs of strain. While the bears don’t have control at this stage, the bulls are clearly losing their grip on the “mo” of the market.
Early Warning Signals
Once we have identified the current environment, the state of the trend, and the degree of momentum behind the move, we review the potential for a counter-trend move to begin. This batch of indicators is designed to suggest when the table is set for the trend to “go the other way.”
I’ve been opining over the past couple weeks that the bears held a slight edge from an Early Warning standpoint. Now that we’ve seen the action get rather sloppy, the tide may be starting to change again. However, I must again emphasize that the stars are not aligned at this stage of the game and that there is no table-pounding takeaway from a mean-reversion standpoint.
Thought For The Day:
The answer lies within ourselves. If we can’t find peace and happiness there, it’s not going to come from the outside. – Tenzin Palmo
All the best, David D. Moenning Investment Strategist
At the time of publication, Mr. Moenning and/or Redwood Wealth Management, LLC held long positions in the following securities mentioned: None
Note that positions may change at any time.
NOT INVESTMENT ADVICE. The opinions and forecasts expressed herein are those of Mr. David Moenning and Redwood Wealth and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as investment recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.
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