The Trend Letter Archives - Page 2 of 45

Chart Alert: Double Top Resistance Signals Potential for Sharp Decline

September 10, 2024/in Investing in stocks, Investing with hedging strategies' or 'Hedging', The Trend Letter /by Trend Letter

This is an important chart!

The S&P chart reveals two critical outside reversal weeks down from the 5,700 level—the first ending July 19th and the second just last week, on September 6th. These consecutive reversals in such a short time frame have created a powerful double top resistance.

After the July 19th reversal, we saw a retracement rally to 5,630 before plunging 500 points (~10%) to 5,100 over the next three weeks. We want to caution investors that a similar pattern is very much in play now. Following last week’s reversal, there’s potential for a bounce to around 5,550, but don’t be surprised if that rally falters.

If we reach that 5,500 level, be prepared with your hedging strategies, as the S&P could easily test its 200-day moving average near 5,150. Head on a swivel!

Stay tuned!

If the Fed cuts rates will that be the time to buy stocks?

September 10, 2024/in Investing in stocks, Investing with hedging strategies' or 'Hedging', The Trend Letter /by Trend Letter

In last week’s interview on This Week in Money with Jim Goddard, we explored the likelihood of the Fed beginning to cut rates at their September 18/24 meeting and debated how aggressively they would cut. The current rate is 5.50% and according to Fed fund futures, by the end of 2024, the rate will be 4.16% or 24% lower than it is today. By the end of 2025, that data expects a rate of 2.82%, slightly more than half the current rate.

The stock market, which just came off of all-time highs two weeks ago, experienced a decline every trading day last week. This stock market is driven by momentum, rather than value.

During my discussion with Jim, I referenced a short video (9:44) I created in December, demonstrating that typically, markets experience a brief uptick when the Fed pauses after raising rates, which we have seen. However, once the Fed starts aggressively cutting rates, stocks sell off.

And this pattern is logical, as rate cuts are typically triggered by economic difficulties and impending recessions, prompting investors to sell stocks due to their vulnerability in such conditions. In the short video, you will see that markets decline, often dramatically, during aggressive rate-cutting periods. Stocks tend to recover and experience strong rallies, only after the Fed ceases cutting rates.

Consider this: if the Fed embarks on an aggressive rate cut cycle starting September 18, be cautious of mass media pushing for stock purchases. The video highlights a potential risky scenario, akin to a trap. So, keep your head on a swivel. View video

March 27, 2024/in The Trend Letter /by Trend Letter

On March 8th, we shared a video pondering the significance of Nvidia’s recent reversal: ‘Has Nvidia’s recent reversal signaled a potential shift in its trend?’ • Nvidia Stock Analysis: Rebound Incomi…

Since then, Nvidia’s movement has remained uncertain, without a clear upward or downward trajectory. It hasn’t surged to establish new highs nor has it declined significantly to breach key support levels. This raises the pertinent question: ‘Could a correction be on the horizon?’ This query remains relevant. Should the stock experience a downturn and begin to establish lower trading ranges instead of reaching new highs, the $800 mark could emerge as a critical support level in the near future. Contemplating buying during a dip? Keep following us for updates as we monitor how these pivotal resistance and support levels fare under testing. See update

Market Notes – Tuesday’s Charts

February 20, 2024/in The Trend Letter /by Trend Letter

On Thursday last week, BofA analysts initiated a buy signal for Super Computer. Then on Friday, the current favorite meme stock, experienced its own parabolic ascent, soaring to a record-breaking pinnacle of $1,077. At that point it was up over 1,000% for the year.

Then it dropped 20% Friday afternoon and another 2% today.

Nvidia, the parabolic champion, is in the spotlight. Following tomorrow’s closing bell, the company will announce its earnings, attracting significant attention akin to a mini bubble. Market expectations hint at a substantial outperformance.

Analysts are setting ambitious targets, with some projecting a rise to $1,040 from its current price of $750. While Nvidia might exceed expectations in its earnings call tomorrow, the market exuberance is palpable. Remarkably, Nvidia’s valuation now surpasses that of the entire S&P Energy Sector.

After reaching a close of $737 last week, Nvidia has experienced a 7% decline, breaking through its recent steep uptrend line and nearing its first support level at $685. If $684 is breached, there’s a gap down to $620, followed by the 50-day moving average at $574.

On a bullish note, should Nvidia surpass $750, it could potentially surge towards $800.00.

What implications does this have for the broader market? As we’ve pointed out to Trend Letter subscribers, numerous indicators are signaling that these markets are excessively overbought.

Today, we observed that the majority of the Mag 7 stocks ended the day in the red, this is a pattern that has been developing over the last few trading days.

Market sentiment often oscillates like a pendulum, swinging from one extreme to another. Currently, market sentiment has reached levels of Extreme Greed.

Earlier, markets surged with the anticipation of the Fed reducing rates by six or more times in 2024, driven by that hopeful outlook. However, just a month ago, there was a 71% probability that the Fed would cut rates in March, which has now dwindled to just 8.5%.

The probability of a rate cut in May has now diminished to just 14%.

We also make note that Jeff Bezos recently offloaded $6 billion worth of stock, coinciding with Amazon reaching a new peak.

While these events don’t necessarily indicate that markets cannot ascend further, it’s worth noting that overly exuberant markets typically require a healthy correction, and this one appears overdue. Exercising caution would be prudent.

Regarding the S&P 500, we anticipate a potential test of the 50-day moving average around the 4800 range, followed by a possible descent to the 100-day moving average at 4584.

Stay tuned!

“Fueling Success: Exploring Explosive Investment Opportunities in Energy”

February 6, 2024/in Investing in Commodities, The Trend Letter /by Trend Letter

Martin re-recorded his presentation from the World Outlook Financial Conference in Vancouver on February 2/3, 2024. In the presentation he outlines key energy sources and gives 12 stocks for investors to consider in the natural gas, uranium, and oil sectors.

Navigating market crossroads

January 3, 2024/in Investing in stocks, The Trend Letter /by Trend Letter

As an investment newsletter we strive to keep investors on top of what is driving the markets.

As we have been highlighting for Trend Letter subscribers the last few weeks, we are currently well-positioned for a potential pullback in the S&P. The developments in yesterday and today’s price action has increased the likelihood of such an event. As we have highlighted there are a number of indicators flashing warnings that a correction is due::

Seasonality:

The S&P 500 has almost perfectly followed the seasonal trend in 2023 and if this continues, then a pullback around now till the end of January is likely.

Fear & Greed:

The Fear & Greed Index serves as a tool for assessing stock market dynamics and evaluating the fairness of stock prices. The underlying principle is rooted in the idea that an abundance of fear tends to push down stock prices, while an excess of greed tends to exert the opposite influence, driving prices higher.

As sentiment reaches extreme levels, it often undergoes a swing from one extreme to the opposite. Over the past few weeks, sentiment has been consistently characterized by Greed and has now escalated to Extreme Greed, indicating a potential shift in the opposite direction.

Overexposure:

Another indicator that we published last week for subscribers is the NAAIM Exposure Index which represents the average exposure of fund managers. In October, fund managers were less than 25% exposed to the S&P 500. Today they are over 100% exposed, employing leveraged long strategies. The last time were saw this extreme bullish sentiment was back in July (top arrow) where we saw the start of a ~10% correction in the S&P 500 (lower red arrow).

Volatility:

Another signal of caution comes from the VIX Volatility Index. The VIX serves as a metric indicating investors’ expectations regarding near-future stock market fluctuations. Commonly known as the ‘fear gauge,’ the VIX tends to climb in response to heightened uncertainty or fear in the market. Recognized as a contrarian indicator, it often suggests a potential reversal when reaching extreme levels. Presently, the VIX has lingered at historically low levels, signaling an exceptionally bullish sentiment in the markets. However, when sentiment becomes extremely bullish, it implies a dearth of buyers, often indicative of an impending correction.

While we expect a correction in the early to mid-January, we will be looking to play such a downward move as a buying opportunity. The year 2024 being an election year in the United States adds an interesting dynamic. Historical patterns suggest that stock market performance tends to improve during election years. This improvement is often linked to the incumbent’s capacity to boost investor enthusiasm through strategic initiatives, such as substantial spending, particularly targeted at significant voter segments like millennials today.

What to watch for:

The US dollar rallied strongly from July until October followed by a decline since October, coinciding with a decrease in bond yields. This decline has notably benefited equities. However, the trend appears to have become overextended, prompting a test of the downtrend line for the US dollar. If a breakthrough occurs, it could lead to, at least, a temporary rally in the US dollar, negatively impacting stocks (especially in the tech sector), bonds, precious metals, base metals, and other commodities.

To validate these expectations, we will be monitoring the following indicators:

A VIX Volatility rally surpassing 20
Fear & Greed Index entering the Fear range
NAAIM Index dropping below 60
S&P 500 testing 50-DMA at 4621, followed by the 100-DMA at 4454, and potentially the 200-DMA at 4361

If we hit these targets, then it could set up a great buying opportunity. Trend letter subscribers receive all BUY & SELL signals.

The forecasts could potentially be bleaker. Escalation of conflicts in the Middle East, tensions between China and Taiwan, and other unforeseen events are factors that could exacerbate the situation. It’s advisable to keep a close eye on your SELL Stops.

Stay tuned!

Optimism abounds!!

December 19, 2023/in Investing in stocks, The Trend Letter /by Trend Letter

Investing in Stocks

We won’t dispute the momentum in prices. The S&P 500 has surged approximately 16% since October 27, a rally that would typically be considered substantial for an entire year. The Russell 2000 has experienced an even more significant increase of 25% during the same period. Incredibly, the equal-weight S&P 500 Index swiftly transitioned from a 52-week low to a 52-week high in just 33 trading days.

Market sentiment is being swayed by the anticipation of up to three rate cuts in 2024. If you watched our short video on what the stock market typically does when the Fed cuts rates you will understand that when the Fed cuts rates, history suggests that is not a good time to buy stocks. See short video here.

The markets are extremely overbought here with the 14-day Relative Strength Index (RSI) for the S&P 500 reaching an elevated reading of 87.19, surpassing the generally considered overbought threshold of 70.

Mean reversion is a trading or investing strategy that suggests that prices tend to revert to their historical average over time (eg: 200-dma). In other words, if a security’s price deviates significantly from its historical average, it is expected to move back toward that average. When we look at the current deviation of the S&P 500 from its 200-dma, it is getting near levels that are considered extreme, suggesting that it will need to revert closer to that average.

Another indicator flashing that the market is overbought is the Fear & Greed Index which monitors 7 indicators to determine where on the pendulum of extreme fear to extreme greed the markets are at. Today, the Fear & Greed Index is at an Extreme Greed reading.

While the markets can certainly continue to run hot through the rest of the year, investors should brace themselves for a potential pullback soon.

Investing in Oil

The recent overbought condition of oil (RSI reading on lower chart) prompted our models to trigger a new trade to capitalize on a potential oil rally. The current seasonally strong period for oil, coupled with escalating geopolitical tensions in the Red Sea, builds a case for a potential uptick in oil prices.

Contrary to these bullish factors, the significant oil production by the US, Iran, and a few other countries continues at a high pace, maintaining elevated output levels.

Stay tuned for further developments!

Video: Is a Fed rate cut good news or bad?

December 6, 2023/in The Trend Letter /by Trend Letter

We’re in a situation where bad news is seen as good news in financial markets. Investors in stocks and bonds are optimistic about the prospect of slower economic growth and lower inflation, despite these being typically unfavorable for equity investments. The hope is pinned on the possibility of the Federal Reserve cutting interest rates.

Traditionally, stocks thrive during Fed rate hikes, signaling a robust economy. However, the inverse holds true when the Fed starts cutting rates. This makes sense as rate cuts usually indicate economic concerns and a potential recession.

In a brief video, we demonstrate how the S&P 500 has corrected in the last four instances when the Fed cut rates after a prolonged rise. It’s noteworthy that while the Fed hasn’t cut rates yet, the market is forecasting a cut around March 20/23.

Stay tuned!

Seasonal signals point to impending pullback!

November 30, 2023/in The Trend Letter /by Trend Letter

As an investment newsletter, our commitment is to empower investors with information that facilitates well-informed and successful decision-making. When investing in stocks, grasping the inherent trends within a market cycle becomes of vital importance. Charles Dow, a foundational figure at Dow Jones & Company and a significant contributor to the creation of the Dow Jones Industrial Average (DJIA), consistently drew parallels between the dynamics of the stock market and ‘market tides,’ illuminating distinctive patterns and movements. Dow’s philosophy rested on the notion that the market, much like the rhythmic ebb and flow of sea tides, experiences regular and predictable cycles.

We are presenting a chart that has been shared with our subscribers recently, preparing them for an anticipated short-term correction in the markets. Examining the chart reveals a robust period for the S&P 500 from early October to year-end, with a recurring pattern of a short-term correction in early December, as highlighted by the pink circle. Following this correction, the market typically resumes its upward bullish trajectory.

One contributing factor to this early December correction is investors engaging in tax-loss selling. This strategy involves selling underperforming investments to offset capital gains from those that have appreciated. It provides an opportunity to leverage investments expected to lag in performance, offsetting realized capital gains before the market rebounds. In Canada, according to the CRA, the last day for tax-loss selling in 2023 is December 27, while in the US, it is December 29, according to information from the IRS.

NOTE: It’s important to note that investors should consult with experts or review relevant tax documents for comprehensive answers, as the information provided here should not be considered tax advice.

Another significant reason for the correction in early December is the obligation of mutual funds to distribute capital gains, dividends, and interest income for the year. While these distributions commence in late November, a substantial number occur in the initial two weeks of December.

With the market potentially overbought (see RSI on bottom of chart) in the short term and volume declining, additional selling pressure from mutual fund distributions could momentarily impact prices. However, this does not signify the end of the bull market; rather, it suggests the necessity for a healthy reset to attract buyers back into the market. This suggests that if one has not participated in the current rally and is inclined to enter now, history suggests that a potential pullback would offer a more opportune moment to increase exposure in the markets.

The near-term support level (red line) for a correction is anticipated to be around the 100-day moving average at 4418. Following a brief correction, the expectation is for the Santa Claus rally to drive the markets higher into year-end.

Stay tuned!

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November 22, 2023/in The Trend Letter, Trend Disruptors /by Trend Letter

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