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Client Letter July 29, 2022
Market Close July 29, 2022
DJIA 32,845.13
S&P 500 4,130.29
NASDAQ 12,390.69
Barron’s
Bear Market Rally
Last week, we saw the S&P 500 and the NASDAQ 100 indexes break a four-month downtrend in concert with the indexes closing above the 50-day moving price averages (MA). While we are still living in a Death Cross market environment (read our March
letter below), we find this very positive for stock in the near term. Until the equity markets can break above their longer term 200-day MAs, we are treating this as nothing more than a bear market rally. With the 200-day MAs flattening and the 10-week MAs turning up, we feel stocks could continue to work higher in the near term. However, we anticipate this momentum to fade into the downtrend line (see chart above) that began in early January.
After watching US stocks have their worst start in 50 years, we would not be surprised to see big percentage moves in each direction without the major indices hitting new highs for the foreseeable future. In January of 1966, the Dow Jones Industrial Average (DJIA) was at roughly 983. Fast forward 16 years to October of 1982, the DJIA was at 991. During that time, the DJIA had 5 corrections of 15% or more and 7 rallies of 17%
or greater. If you did nothing, you captured dividends - but not enough in the high inflationary period that dominated the 1970s.
The latest reading on the US economy is that we have had two consecutive quarters of declining Gross Domestic Product output. However, there is a growing discussion that the definition of a recession is inaccurate. To us, it’s irrelevant. In September the
uptrend in equities failed and by March the Death Cross confirmed it. Today’s squabble over the definition of a recession is of no value to investors.
With growing economic hardships across Europe and a slowing Chinese economy, coupled with the persistent and elevated inflation here in the US, there are quite a few hurdles to clear for us to get fully committed to equities. Maybe the most important one is the bond market. While the yield on the 10-year US Treasury Note has pulled back during this recent rally in stocks, we are mindful that it is still above its long term MAs, and will help dictate where stocks go next.
With that said, we do feel that there are moves to be made in the near term with the intent to sell should this rally fail and that having cash on the sidelines is still paramount until we see greater interest in equities from institutional investors.
May the trend be with you!
Gavin A Tolan is a registered representative of and offers securities through SCF Securities, Inc. • Member FINRA/SIPC • and is an investment advisor representative of SCF Investment Advisors, Inc. • 155 E. Shaw Ave #102 • Fresno, CA 93710 • 800.955.2517 • 559.456.6109 FAX • Fifty200 Investment Management and SCF Securities, Inc., are independently owned and operated.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including possible loss of principal. No strategy assures success or protects against loss. To determine what is appropriate for you, consult a qualified professional.
Client Letter March 20, 2022
Market Close March 20, 2022
DJIA 34,754.93
S&P 500 4,463.12
NASDAQ 13,893.84
Barron's
Death Cross
This past week, we saw the S&P 500 index chart complete the Death Cross. This negative price action is when the 50-day moving price average (MA) falls below the longer trend 200-day MA, signaling a bear market for stocks. Oddly enough, equities had a sharp rally to close out the week sending the NASDAQ index finishing above its long term trend line - a positive sign.
In the accompanying chart of the S&P 500 Index , the 18-month rally in stocks from the COVID-19 selloff came to an end in the 3rd week of September. With inflation setting in, investors began to consider historical valuations and decided to sell. While the market had a little life left in it, the damage was done, the trend was broken.
The months-long economic shutdown, which created a supply chain disruption leading to this inflationary environment, was setting in and the Federal Reserve signaled that they were looking to slow down the economy with a series of interest rate hikes in the coming year. As we near the end of Q1, there are many reasons for concern with respect to stock prices. With war in Europe, rising housing and energy costs at home, rising COVID cases in China, and continued supply chain issues, we would be very mindful of the current stock market condition.
While the 50/200 death cross is a lagging indicator, we feel it is the last warning for the individual investor to protect their stock market investments before a potential big selloff takes place. We are not calling for a major downturn in equities from these levels. We are suggesting that the market’s recent uptrend is broken and needs to prove itself with higher prices before we would be interested in equities. Broadly speaking, we believe investors should be cautious until prices prove otherwise.
We are using the Q1 selloff to look for individual companies with big growth and a catalyst to match. Businesses with low exposure to inflation or have the ability to pass on the costs to their customers without impacting demand should be able to weather the current economic conditions and have a strong year ahead.
May the trend be with you!
Gavin A Tolan is a registered representative of and offers securities through SCF Securities, Inc. • Member FINRA/SIPC • and is an investment advisor representative of SCF Investment Advisors, Inc. • 155 E. Shaw Ave #102 • Fresno, CA 93710 • 800.955.2517 • 559.456.6109 FAX • Fifty200 Investment Management and SCF Securities, Inc., are independently owned and operated.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including possible loss of principal. No strategy assures success or protects against loss. To determine what is appropriate for you, consult a qualified professional.