This Market Signal Indicates a Choppy Road Ahead

The past few months have been difficult in the stock market.

Since hitting a year-to-date high in July, the S&P 500 Index is down about 10% through yesterday's close. Other indexes have fared worse...

The tech-heavy Nasdaq Composite Index has pulled back 12% and the small-cap focused Russell 2000 Index closed yesterday down 17%.

What does this mean for investors?

Well, one indicator is signaling that rougher times may be ahead...

Headline No. 1:

Two major indexes are now below their 200-day moving averages (200-DMAs).

McCall's Call: The 200-DMA is a great way to gauge the market's long-term trend. It takes the average of the last 200 trading days and removes the "noise" of daily price swings.

As a result, it can also serve as important support and resistance levels.

When a 200-DMA is rising, it's a sign that stocks are in an uptrend. In that scenario, it would serve as long-term support for stocks. Assets would pull back to their 200-DMA before heading higher.

But that's not what we're seeing today.

The S&P 500 and Nasdaq Composite fell to their respective moving averages this week... but they didn't bounce. Instead, they continued to fall further and effectively turned what should have been support into resistance.

You can see this action in the chart of the S&P 500 below.

Over the past decade, the S&P 500 has consistently fallen to its moving average and then bounced higher. On the few occasions where support didn't hold, stocks sold off – fast.

That's where things get bumpy...

The S&P 500 has broken support at its 200-DMA on four separate occasions over the past 10 years (excluding this week). The past three times this happened, the index fell more than 12%. The fourth occasion saw a decline of 7.5%.

Even more ominous, the past two times the S&P 500 fell below its 200-DMA resulted in a bear market.

If stocks don't change their direction soon, we could be in for a rough couple months.

Now, let me be very clear...

I'm not recommending you sell everything and move your money to the sidelines until trading gets better. Regular readers know I invest with a long-term mindset – and bear markets are part of a normal and healthy cycle.

That means I'm prepared to hold through periods of volatility.

If anything, I would consider more near-term weakness as an opportunity to buy strong companies in inevitable megatrends at a discount.

When the market gives you a strong signal like this... you shouldn't ignore it.

Headline No. 2:

Tesla (TSLA) received a huge ultra-fast charger order from BP (BP).

McCall's Call: The nationwide charging network is getting support from an unlikely friend...

Earlier this year, the U.S. Department of Transportation created the Charging and Fueling Infrastructure Grant Program. It's a five-year program that includes $700 million worth of funding for 500,000 new electric vehicle ("EV") charging stations across the country.

This cash is in addition to the $5 billion that has already been set aside by the National Electric Vehicle Infrastructure Formula Program – which will build EV chargers on federal and state highways and roads.

A lot of government dollars are flowing into this sector. But yesterday, the private sector increased its involvement.

Oil and gas giant BP placed an order for $100 million worth of Tesla's ultra-fast chargers for its EV unit. This will be the first time that Tesla's chargers are used by a company other than itself.

BP expects to have these new charging stations up and running at its TravelCenters of America and Amoco brand locations by next year. The first cities to incorporate them will be Houston, Phoenix, Los Angeles, and Chicago.

This is just the beginning BP's foray into EV charging. It plans to invest about $1 billion in these stations by 2030.

It's also a new revenue stream for Tesla. The company already owns and operates the largest fast-charging network in the world with more than 50,000 chargers. And these external sales could be a sign of things to come.

Of course, it's too early to know just how much revenue these types of deals will bring in for the firm. But it will certainly expand Tesla's reach and dominance in the EV market.

Plus, it will be difficult for other EV firms to compete with a company that not only sells the most EVs, but also has the biggest charging network in the world.

This is good news for Tesla... and great news for EVs as a whole. Widespread EV adoption can't happen without a bigger and better charging network. And this is a step in the right direction.

Here's to the future,

Matt McCall
Editor, Daily Insight
October 27, 2023

P.S. EVs are going mainstream.

The number of EVs available to consumers is expected to double by the end of next year. And by 2030, we could see 48 million EVs on the road.

That's more EVs than gasoline-powered cars.

All those EVs are going to need one important thing – batteries.

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Did You Miss My Latest Podcast?

There are many types of investors out there. One of the most common is "do it yourselfers." These folks typically subscribe to multiple investment newsletters and watch various financial news outlets to make their own investment decisions and build their own portfolios. It's smart to get your news from a variety of sources. But it can get overwhelming – especially in a world with no shortage of bad news.

So on this episode of Making Money With Matt McCall, I invited Josh Brown to sit down and talk about the current state of the market. He shares his views on the nature of long-term investing in the face of uncertainty.

Josh discusses how his team at Ritholtz Wealth Management approaches investing and how they handle their clients in both up and down markets – both of which we've seen this year. He also highlights one of the big lessons he learned this year. Don't wait to tune in.