Mixed Signals
A lot of potential market movers this week... Revisiting long-term trends… Is the 'correction' over?... Mixed signals… What to make of moving averages… Don't panic, and stay patient…
This week marks another big one in the markets...
As our Stansberry NewsWire editor Kevin Sanford detailed in his morning commentary today, be prepared for several days of potentially market-moving news this week...
The next Federal Reserve policy announcement and press conference is Wednesday... The next major U.S. jobs report, which will include an updated unemployment rate, will come out Friday... Earnings season continues, with Apple (AAPL) notably reporting this week...
And all that will arrive after the latest GDP and inflation estimates came out last week... They showed near 5% annualized growth for the U.S. economy and neither a substantial move up nor down in inflation, at least by the Fed's preferred "official" gauge.
I (Corey McLaughlin) will have updates on what comes from this flood of news. In the meantime, including today, the U.S. markets continue to search for anything longer than a few days of consistent direction.
About that long-term trend...
We wrote to you in last Tuesday's edition that the U.S. benchmark S&P 500 Index was flirting with its long-term trend, or its 200-day moving average (200-DMA), a simple technical measure.
Since then, the S&P 500 has been below it every trading day. The mainstream financial media is now reporting on a technical "correction" of the S&P 500, down 10% from its previous highs in July.
Yet, today, the benchmark index and the other major ones were up. The Dow Jones Industrial Average led the most, up about 1.6%. What gives? Is this it for the late summer and fall swoon U.S. stocks have endured?
We can't say yea or nay for sure. If you ask the editors who are tracking the market's gyrations in our short-term trading publications, the answers are "maybe" and "stay patient for confirmation."
What to make of moving averages...
DailyWealth Trader editor Chris Igou gave subscribers a terrific update on Friday on his short-term market outlook, titled "Looking Behind the Scenes of Today's Market Breakdown."
It included covering the recent price action in the S&P 500 and Nasdaq Composite Index in the context of their technical trends like the 200-DMA and short-term 50-DMA.
First, Chris explained why any of these moving averages matter to him. Remember, he uses a blend of technical and momentum indicators to analyze the markets and recommend trades. Before we get into any more detail, I want to share his brief summary...
The moving averages are the trends. When they're moving higher or lower, assets often continue to move in the same direction.
These widely followed moving averages often serve as important "support" and "resistance" levels.
Support is a level at which folks tend to buy an asset and prices often stop falling. It's an obstacle for falling prices. Resistance is a level at which folks tend to sell an asset and prices often stop rising. It's an obstacle for rising prices.
Either way, if an asset breaks through support or resistance, it will often continue in that same direction.
A look at the S&P 500...
To see this idea at work, Chris noted the S&P 500 crossing below its 200-DMA last week, after busting below its shorter-term 50-DMA in the summer, and why this is an important point for the markets...
The broad market traded above both moving averages from March into August. Then, it lost support at the 50-DMA, and the short-term trend turned lower by mid-September.
The slide continued into October while holding above the long-term trend. Now, it's trading below both moving averages. Take a look...
There's no confusion on the short-term message here. The trend is down. And the index no longer has support.
But Chris said there is another important feature of this chart to consider. Notice that the S&P 500's long-term trend line is still moving higher. As he wrote...
Yes, the S&P 500 is below its 200-DMA. But that moving average hasn't rolled over yet. The rising 200-DMA tells us the overall trend hasn't failed.
These are conflicting signals. And when it comes to what action we take based on these, we are defaulting to the direction of the 200-DMA.
This is what our broad market system is based on. It uses the moving average to tune out the short-term noise.
Regular readers may recall that Chris used this analysis back in May – after the S&P took a similar dip during the banking crisis in the spring. The longer-term trend for the U.S. benchmark index kept moving higher, offering a buying opportunity, he said.
As we quoted Chris in the May 23 Digest...
We've been in the "false rally" camp so far this year. But with the S&P 500 climbing the wall of worry, and our U.S. system flashing "buy," it's time to put those worries aside.
The S&P 500 then made new highs into the summer, before the downturn the past three months. Chris isn't saying now marks another buying opportunity quite yet, but he cautions against panicking based on just one week of the S&P 500's trading behavior.
It's a similar story with the Nasdaq...
The tech-heavy Nasdaq is down roughly 10% since its most recent closing high on July 19, and as Chris wrote...
You can see the short-term trend is heading lower as well...
This gives us mixed signals similar to the S&P 500. There's no support level left based on the moving averages. But the 200-DMA is still rising.
This tells us that the general trend is up for now. We'll keep a close eye on this in the coming days. If that trend is going to hold, we need to see a bottom in the next week or so.
Otherwise, expect the 200-DMA to roll over as a broad drawdown takes place.
The mixed signals make it hard to pin down what's next. So we're taking a "wait and see" approach for now. We'll likely know what to expect in the next week or two.
As our Ten Stock Trader editor Greg Diamond similarly wrote on Friday – and reiterated today...
I'm waiting to see if the majority of stocks hold these lows before trading anything else.
So, we'll continue to monitor how the indexes perform over the next week or so in this context. We'll also be following timely technical analysis that Chris and Greg provide their respective subscribers, given the key inflection point around several indexes' long-term trends that they see.
The End of Globalization as We Know It
In last week's Stansberry Investor Hour, Dan Ferris and I welcomed geopolitical strategist and critically acclaimed author Peter Zeihan back to the show for a discussion on the wars in Ukraine and Israel, his views on China, and more...
Click here to listen to this episode right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and X, the platform formerly known as Twitter.
New 52-week highs (as of 10/27/23): None.
In today's mailbag, feedback on Dan's latest Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Dan: Bull Market or Bear Market. Recession, No Recession, Soft Landing, Hard Landing. Those are just words. Shortcuts to describe historical patterns and humans' predictions.
"We are currently in a unique position. No, I don't want to say 'This time is different.' Every economic cycle and every market period is different. Sure, there are some similarities, but those similarities only go so far.
"Parts of the economy are doing well, others not so. Some people have plenty of money to spend, others don't.
"Some stocks have done very well and a whole lot of others have done terribly.
"I think it is a mistake to currently lump everything together and give it a name.
"There are lots of uncertainties. One thing certain is that the politicians will continue to spend and tax. But that is not new.
"The world is not coming to an end. Some companies, and their stocks, will do well. Others won't.
"'Prepare, don't predict.'
"Thanks, Dan, for your insights." – Subscriber Bill H.
All the best,
Corey McLaughlin
Baltimore, Maryland
October 30, 2023