From Yahoo News:

The stock market has soared so far this year, but expect the month of August to be lackluster if the past several decades are any guide.

August is the second-worst month for the S&P 500  and Nasdaq, and the worst for the Dow Jones Industrial Average  over the last 35 years, according to data compiled by Stock Trader’s Almanac.

The site’s analysis also shows the August before a presidential election year points to a particularly weaker month, as the Dow Jones Industrial Average, the Nasdaq, and S&P 500 all declined in the last three pre-election years: 2019, 2015, and 2011.

Dating back even further to 1950, the S&P 500 has historically been flat on average in August and generated median gains of 0.6%, according to data compiled by LPL Financial.

And with stocks on a roll so far in 2023 and relatively weak seasonal trends ahead, “we suspect this could be a logical spot for a pause or pullback in this rally,” Adam Turnquist, chief technical strategist at LPL Financial told Yahoo Finance.

The chart below is the weekly heatmap Martin mentioned in his interview with Jim Goddard on Howestreet’s This Week in Money (Click here for that interview. Martin’s interview starts at 39:32). Each of the S&P 500 stocks is represented by a block. The size of the block represents its valuation and the colour represents whether it is up (bright green the highest) or down (bright red the lowest). As we can see, there was  a lot of red this week.

Every week the American Association of Individual Investors does a survey asking their members ‘what are your expectations that stock prices will rise over the next six months?’ Historic average of bullish expectations is 37%. This week it is 49%, the 2nd highest it has ever been.

That is the 9th consecutive week it has been above the historical average. So, clearly, that group is still very optimistic.

CNN’s Fear & Greed is another indicator that gives a sense of where investor sentiment is. They use 7 indicators from moving averages, put/call ratios, Vix Volatility etc, so a fairly broad range of indicators.

Sentiment is at a high Greed level, just under the Extreme Greed level. This gauge is often a contrarian indicator, meaning we may be close to a top, so we will see if this market pull back has any legs.

Looking at the big picture, the S&P 500 is still solidly in a long-term bull market since 2009. Despite the many bearish and recessionary signals, there is a strong momentum in the markets, as the markets have continued to climb a Wall of Worry here.

To test the initial uptrend line would see a correction to the 4000 level, which would be a ~11% decline from the current 4500 range. Near-term, our model is looking for a test of the 4250 level support. The 3530 level is a key support level for the S&P500.

Fitch downgraded the United States’ top-notch credit rating by a step on Tuesday, citing a growing federal debt burden and an ‘erosion of governance’. They also commented on the expected fiscal deterioration over the next three years, and a high and growing general government debt burden. They talk about repeated debt limit standoffs and last-minute resolutions.

The numbers below are straight from the US Treasury Dept data. What it shows is that from June 2/23 when the debt ceiling agreement was in place, till the end of July, the US government has increased their spending by $1.32 trillion. That occured over 41 business days, so that equals $32.3 billion per day.

Also, the US Treasury just announced that they need to boost their borrowing to $1.03 trillion through the rest of 2023.

The US debt is now at $32.7 trillion and equals $97, 489 per citizen and $253,686 per tax payer.

In the past year, US interest expenses have surged almost 50% to $970 billion, so nearly $1 trillion on an annualized basis. That’s $970 billion per year to pay interest on their debt.

They keep piling on more debt every day, so this interest payment will keep rising. To get some perspective, at $970 billion for interest on their debt, it is even more than the $963 billion the US spends for military and defense spending.

In the US, mandatory government spending includes Social Security, Medicare, and Interest on the national debt. So, in order to balance their budget while maintaining mandatory and defense spending, the US congress would have to eliminate ALL other spending.

Which of course they are not going to do, so the deficits and debt will continue to rise.

Stay tuned!

We are providing this commentary to non-paid subscribers because we believe it is crucial for all investors to understand the current state of market sentiment. In our weekly issues of the Trend Letter, we regularly update various sentiment indicators to keep our subscribers well-informed about market trends and, equally importantly, investor sentiment.

Based on our analysis, one notable observation is the exceptionally high level of greed sentiment fueled by the Artificial Intelligence (AI) frenzy. Let’s take a look at some visual representations to illustrate this point:

1. Heat map of S&P 500

Above is an updated weekly heat map of the entire S&P 500 where the size of each stock symbol represents market capitalization. The heat map depicts a striking scene with a vast expanse of green, symbolizing the broad market’s alignment with the 8 to 10 AI stocks that spearheaded the substantial rally. Looking ahead, the crucial question is whether the prominent tech stocks will sustain their upward trajectory alongside the overall market or if their parabolic surge will trigger a downturn that affects the market as a whole.

2. Nasdaq 100 Index

The current chart of the Nasdaq 100, which represents the top tech stocks, reveals a significant deviation of nearly 11% above its 50-Day Moving Average (DMA). This level is considered extreme, as the last time it reached such heights was in August, 2022, which was followed by a notable correction. Moreover, the presence of elevated green bars indicates a surge in trading volume, approaching record highs, suggesting that a vast majority of investors have already entered the market, leaving limited room for new buyers. Additionally, the Relative Strength Index (RSI) is at 74.20, and any reading above 70 indicaties an overbought condition, further highlighting the current situation.

While not saying this rally cannot persist, the indicators serve as a warning that we are approaching extreme levels.

3. Fear & Greed Index

The CNN Fear & Greed Index has surged to 82, positioning it within the Extreme Greed range. This index often behaves like a pendulum,  swinging back in the opposite direction once it reaches extreme levels at either end.

4. AAII Bullish Sentiment

Every week, the American Association of Individual Investors (AAII) conducts a survey among its members, inquiring about their opinions regarding the market’s trajectory over the next six months. In the most recent survey, the AAII Bullish sentiment exhibited a sharp surge, rising from 25 to 45 in a straight upward trajectory. The chart above illustrates that the last time the AAII Bullish sentiment surpassed 45 was in late 2021, followed by a significant decline in the S&P 500 just over a month later, which persisted throughout 2022.

5. VIX Volatility

The VIX volatility index serves as a measure of investors’ risk-tolerance. A reading above 30 signifies increasing risk aversion, while readings below 20 indicate a ‘risk-on’ sentiment. Significant declines in the VIX often indicate a Fear Of Missing Out (FOMO) sentiment, where investors rush into the markets. When the majority of investors join the latest popular trend, it often coincides with a market peak.

Market shifts typically occur when ‘something’ breaks. The last time the VIX reached such low levels was just before the onset of COVID-19, leading to global economic lockdowns. What could potentially trigger the next market-breaking event? A recession would certainly qualify as a significant factor.

How to prepare your investment portfolio?

Firstly, it is important to note that we are not predicting an immediate market crash. However, several indicators are suggesting that the market is becoming extremely overbought. If you have a substantial investment, now is a good time to assess your exit strategy in case a correction occurs. Here are a couple of options to consider:

a) Review your SELL Stops: Take a look at your predetermined selling prices for each position, known as SELL Stops. If you have experienced significant gains, you may want to secure some or all of those profits by adjusting your SELL Stops closer to the current market prices.  If the stock continues higher, continue to raise your SELL Stop.

b) Hedge your positions: If you prefer to retain your positions and anticipate just a  minor correction, consider incorporating hedging positions. There are various methods available, such as using inverse Exchange Traded Funds (ETFs). Our Trend Technical Trader service was initially designed as a hedging service and offers multiple strategies to safeguard your portfolio during market corrections.

We trust this information highlights the overbought nature of the current market and the increased likelihood of a correction. If you are not currently subscribed to any of our services, but are interested, we are offering significant discounts to provide investors with access to our strategies for both upward and downward market movements.

Stay tuned !

US stocks fell Wednesday as two economic prints showed a slowdown in the US economy in February, while fresh turmoil at Credit Suisse renewed investor concerns over the banking sector.

The S&P 500  dropped 0.7%, while the Dow Jones Industrial Average lost 0.9%. Contracts with the technology-heavy Nasdaq Composite pared earlier losses and ended just above the flatline.

The banking sector has been in free fall, with a benchmark KRE Bank ETF down more than 30% in the last 6 weeks.

Half a dozen of these regional banks have seen their shares drop 50-80%.

Many are asking if they should buy these oversold stocks. If you are contemplating that, understand that these stocks has crashed for a reason.  There is still high risk of contagion in the global banking sector, as Credit Suisse struggles today highlighted.

Oil fell to new lows on the year, with WTI falling below $70 a barrel. Over the last couple  of months the Trend Letter has been telling subscribers to watch for oil to drop below $70, and that oil in the mid $60 range would be a great buying opportunity. Today, oil dropped as low as $65.65.  Subscribers of Trend Letter were sent 6 new energy trades today. If you are not a subscriber but would like to be, subscribe here and save $250.

Stay tuned!

Market Overview – March 1/23

US stocks finished mostly lower Wednesday to start March as key manufacturing data offered mixed results and two Federal Reserve officials suggested a more aggressive rate-hiking campaign in the coming months. The S&P 500  declined by 0.5%, while the Dow Jones Industrial Average was flat. Contracts on the technology-heavy Nasdaq Composite fell by 0.6%.

S&P 500:

The S&P 500 continues to struggle. After a decade of ‘Don’t Fight the Fed’, investors fought the Fed, not believing they would continue to raise rates to fight inflation. Since the start of February, things have changed.  Last week the S&P 500 had its worst week since December on hotter than projected inflation.

As inflation data remains ‘too high’, the markets seem to now believe that the Fed will indeed keep rates ‘higher for longer.’ The S&P 500 is now testing the uptrend line (green diagonal line) from since October. Next key support is 3900. Note that a number of technical indicators are suggesting the S&P 500 is close to being oversold, so a rally should be in the  cards soon.

Gold:

Four weeks ago, we warned that after a great run since November, gold was technically overbought. Since  that call, gold twice tested near-term support at 1875, but that support level failed to hold after the 2nd test. Strength of the $US has been the main headwind for gold.

In last week’s issue of the Trend Letter we noted that gold was ‘getting over sold in the short-term, so we could see a rally here.’  Watch for 1875 as the next resistance level.

Bond Yields:

Today, the  equity markets had to deal with a 10-year yield that again breached 4%. The stock market does not like to see rising yields.

Gasoline:

Based on seasonality, gasoline typically has a strong run from late February till June. We recently sent Trend Letter subscribers a way to play that potential upside move.

Natural Gas:

Natural gas has been hammered since its high back in August. It is heavily dependent on weather and typically it is very volatile, but that volatility works both ways and can produce some excellent short-term gains. As we can see on the chart, recent gains of 30%, 55%, 80% and 138% were all achieved within just the last year.

We recently sent subscribers two plays on natural gas, one each for Canadian and US subscribers.

Stay tuned!