|technical analysis, trading systems, investing, market-timing methods, stock market, money management
Technical Market Indicators
Dow Theory, W.D. Gann, MetaStock, system tester, indicator builder, custom formulas, momentum, overbought, oversold, buy, sell, signals, top, bottom, Bull, Bear, consolidation, sentiment, contrary opinion
May 23, 2022
Preview from my weekly report*
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Stock Market Outlook: the markets are pricing in higher odds of a recession.
Stock prices fell again last week, as they have every week for 7 consecutive weeks since 3/29/2022. The benchmark S&P 500 index is down 18.14% year-to-date 2022. The objective evidence appears to suggest further downside risk ahead.
Last week, Fed Chair Jerome Powell said the US central bank will keep raising interest rates until there is "clear and convincing" evidence that inflation is in retreat. That means a bigger discount for the present value of future corporate profits and, therefore, lower stock price valuations.
"It's time to pay the bill for the exuberant excesses of the 2009-2021 bull market," wrote Bill Blain, MorningPorridge.com. The unravelling of the last 14 years of global central bank monetary distortion (intended to stimulate economic growth, but mainly stimulating stock prices) is going to expose a raft of companies struggling to cope with higher interest rates, and discovering underinvestment and too much squandered on stock buybacks has left them fatally vulnerable. Look for defaults to spike in corporate bond markets. "This is entering a chaotic phase," wrote Blain.
Sentiment indicators for the stock market continue to signal oversold sentiment for the short term. As we wrote previously, oversold sentiment "could make the stock market vulnerable to short-squeeze rally attempts at any time. With bearish momentum so strong, however, any rally attempts could quickly fizzle out. Keep in mind that price momentum can sustain a trend in motion beyond sentiment extremes."
Unfortunately for the world, the list of market risks for 2022 has been getting worse. Fortunately for our asset management clients, we have managed to avoid significant losses, thanks to our continuous analysis of global financial conditions that allows us to anticipate potential negative changes ahead of time. Here is what this report stated on 12/31/2021:
"Looking ahead, the times appear to be changing, and market performance for 2022 appears unlikely to resemble the performance of 2021. The Federal Reserve is expected to reduce monetary stimulus, eventually leading to rising interest rates and higher discount rates applied to asset price valuations, which could put downward pressure on stock prices. The pace of economic and earnings growth appears likely to slow down. Inflation has been higher and more persistent than the authorities expected. Supply chain disruptions may continue. Geopolitical tensions appear to be rising, with Ukraine, Iran, and China the most obvious current hot spots--and there are other possibilities. Wall Street expectations and stock allocations have been very optimistic, quite possibly overly optimistic, for many months, leading to an overvalued stock market. Financial Stress is rising. From a long-term perspective, stocks remain overbought and overvalued relative to traditional measures: sales, earnings, dividend yields, and book value. Stocks are priced for an extremely optimistic future, ignoring all potential bumps in the inherently unpredictable road ahead. Berkshire Hathaway's Charlie Munger thinks stock valuations are "crazier" now than they were in the dot-com bubble in years 1999-2000. History shows that overly high stock prices are followed by low returns, and overpaying for stocks is not profitable in the long run."
Our full report reviews indicators that we monitor every day and offers clear and unbiased guidance on the following each week:
Global stock markets
The Defensive stock sectors
The Health Care sector
The Cyclical sectors
The Technology sector
The Financials sector
U.S. bonds and notes
Commodities (Oil, Metals, Agriculture)
Objective Quantitative Rankings for hundreds of Exchange Traded Funds
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My ETF Rankings are not investment advice. Rather, they are an objective ongoing research study.
Analysis of market forces may offer a sense of probabilities. But the many variables that can impact market prices are notoriously difficult to predict. And, market analysis is something less than an exact science. So, sound trading tactics are always recommended. See my Money Management Rules.
According to CFTC Rule 4.41, hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.
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