Stocks found the bottom end of the current range at the 200 day moving average (3,940) with a few attempts to break of late. Most notably Thursday where a good deal of the session was spent below the line. But then came ample support followed by a big up day on Friday.
What does it all mean?
That bulls and bears are pretty evenly matched these days which keeps us stuck in a trading. The more meaningful question is WHEN do we break out of the range and WHAT will be the catalyst?
We will focus our time today on answering those questions and getting our portfolios ready to profitably trade the outcome.
Market Commentary
Let’s start off with a 1 year chart of the S&P 500 (SPY) to appreciate how significant the 200 day moving average has been in framing activity.
Yes, most of the time has been spent below this key long term trend line in bear market territory. However, you can also see that it’s been over 4 months since making lows and the last 2 months breaking back above this key level.
Those who believe more in the virtue of price action would say the bulls have the upper hand at this time.
However, it is easy to blast large holes in that theory by reviewing all the glorious bear market rallies that took place in the past before the market cratered once more. Most notable would be the greater than 20% rally that was officially called a new bull market in late 2008 before making much lower lows in the first quarter of 2009.
And just for good measure, please check out how the same thing happened in late 2002 before early 2003 brought a painful conclusion to that three year bear market.
The point is that the battle for the soul of the market is still before us. And quite possibly that battle is finalized in March as we hit these key dates with market moving events:
3/10 Government Employment Situation. Keep a close eye on the wage inflation data that was far too hot in the February report which started the recent downturn.
3/14 Consumer Price Index (CPI). The key being the month over month pace to see if we are heating up like the February report...or cooling down like the previous few months.
3/15 Producer Price Index (PPI). Insiders know that this is more important than CPI because the prices paid by producers today ends up in the final product and services in the months ahead. (Current PPI leads to future CPI).
3/22 Fed Meeting with Interest Rate Decision & Economic Projections. Most expect 25 basis point hike. The real issue is whether the Fed sounds more or less Hawkish than the early February meeting.
When I look at these events, along with recent data that foreshadows what they may tell us, plus recent statements by Fed officials...I cannot help but to continue to be bearish in my market outlook.
Why?
Because of the following equation I have shared before, but deserves repeating:
Higher Rates on the Way (5%+)
+
Higher Rates in Place til at Least End of 2023
+
6-12 months of lagged economic impact
+
Already weak economic readings
=
Fertile soil to create recession and thus extension of the bear market with lower lows on the way.
No doubt this same rational explains why famed hedge fund manager David Einhorn was recently on record for the following:
David Einhorn says investors should be ‘bearish on stocks and bullish on inflation’
Until the Government Employment Report on 3/10 I would pay ZERO attention to the price action inside the range. Just meaningless noise.
From that point forward these aforementioned catalysts will be live grenades thrown into the market fray. When the smoke clears I suspect we will break out of the range with either bulls or bears crowned victorious.
Again, given the facts in hand right now I would bet on the bears having the victory parade. However, it is good to keep an open mind to the new evidence as it rolls in. If truly bullish, then I would be more than happy to shed my bear coat and wave the bullish flag proudly.
Just one bit of warning...bulls may get irrationally exuberant reading too much into the first few events. This could come to a screeching halt when the Fed steps up to the mic on 3/22.
Anything resembling recent speeches clarifying rates will climb above 5% and stay in place through year end should cool down most investors from getting ahead of themselves.
Stay opened minded to the new facts as they avail themselves. Just realize the scales are still currently tipped in the bear’s favor.
What To Do Next?
Discover my brand new “Stock Trading Plan for 2023” covering:
- Why 2023 is a “Jekyll & Hyde” year for stocks
- How the Bear Market Comes Back with a Vengeance
- 9 Trades to Profit Now as Bear Returns
- 2 Trades with 100%+ Upside Potential When New Bull Emerges
- And Much More!
Wishing you a world of investment success!
Editor of Reitmeister Total Return & POWR Value
SPY shares were unchanged in after-hours trading Friday. Year-to-date, SPY has gained 5.69%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
Battle for the Soul of the Stock Market is at Hand StockNews.com
