The stock market has had a bit of a bounce at the end of May which gave many pundits hope that the bottom was in. Although it’s not perfectly clear, the evidence points to more of a downtrend. The bounce appears to have been merely an up-leg in an ongoing bear market. That up-leg may well have played itself out. Here’s my thinking:
- Inflation MAY be peaking but it certainly remains high and it’s not likely to drop as sharply as it rose.
- Supply chain shortages continue to plague the economy.
- The FED is only beginning to raise the interest rates. Historically, inflation does not begin to recede till after the third interest rate hike.
- Historically, commodities must roll over before the next bull market can begin- and commodities are currently quite strong.
- Our favorite junk bond indicator showed a brief flash of hope, but it too has rolled over.
- With this morning’s market numbers the big daddy market (the S&P 500 Index* has picked up steam in the downward direction. However, the day is not over and as of this writing, it’s hard to know the actual level of commitment.
SO, we do not invest in what we think should happen, but rather follow the trends. Today’s market was hit with the ugly stick right from the open, but it will be more important to see how it closes. Unless we can see some very strong reversing trends the markets appear to be gaining strength to the downside. We recommend that, as we are doing, investors continue to limit portfolio risk.
Ron’s Market Minute : A Picture is Worth How Many Words?
I’ve heard it said that with inflation running so high, a picture is now only worth 200 words. (Hope that makes you smile — because I don’t have much positive to say this morning.)
Although you may have seen this chart before, please take a look at what it is saying today. This is the GONOGO chart of the SPY, which is the ETF version of the S&P 500 Index*. As you look over the chart, please also take the time to follow my comments. Hopefully, that will make the whole picture clearer of what’s happening in markets today and this week.
How to read this chart: The chart starts about the beginning of March. Each bar is a daily picture of the price of the index. Light blue is an upward movement, and dark blue is a strong upward movement. You’ll note there’s precious little blue (light or dark) on the chart. On the brown-colored days the market is confused and has no clear direction. There are a few of those brown days on the chart during this time. And finally, the pink days are downward moving days with the dark purple showing days with strong downward movement.
Since the lowest point — on May 18 — we’ve seen some upward price movement, until the beginning of June. This was not, however, enough for the chart to reach any blue shades, and thus the market main direction has been down overall. On June 7th, the bars returned to the dark purple color, indicating that the direction since then has been strongly downward. With today’s print (the last purple bar on the right) we see a strong gap down in price. Along with that the oscillator chart below the main chart indicates that the little bit of support for the Index has been broken, most likely clearing the way for lower prices, and most likely a new lower low. I have fingers crossed that investors step up and do some buying today to reverse the strong downward trend. At mid-morning this doesn’t appear likely.
I will repeat myself: We recommend that, as we are doing, investors continue to limit portfolio risk.
Ronald P. Denk, CFP®
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite D406A
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
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