Interim Update April 24, 2023

[SOL]

The MOAB signal has reached a score of 99, which is an unusual development as it is the first time in decades that this has occurred. Typically, once it hits 93, the next move is a failure or a full confirmation. This development could be viewed as advance warning of a head fake, creating the outlook for a breakdown when in fact, the market is going to break out.

This suggests that there may be a fast decline in the stock market, which could range from moderate to severe, but it's likely that the markets will quickly recover from this decline. Therefore, it's important to focus on the opportunities that may arise rather than the severity of the upcoming correction.

Over the past three weeks, the S&P 500 has shown minimal activity, with a net gain of less than 10 points as of Sunday. The markets are not breaking out or breaking down, but as the bias since the bottom was set roughly in July of last year is bullish, it signals that, ultimately, the breakout will be towards the upside. However, sentiment has been stuck in a massive trading range, with bullish sentiment trading below its historical average for nearly 18 months, which is an unprecedented long-term development. Viewed from a different angle, this could be taken as a broad gauge of uncertainty.

Despite the strong rally, bullish sentiment has not been trading above 45 for weeks on end. Hence, this must be viewed as a very long-term bullish development, which supports the long-term view that this bull market will last much longer than most expect, potentially exceeding the bull market that started after the 2009 crash.

When markets are trading in a wide range after experiencing a strong rally, especially when bearish sentiment did not spike (60 or higher), the markets tend to pull back sharply before mounting an even stronger rally. However, this time there is something different. The bears expect a strong pullback, and the bulls expect a strong rally. The best strategy would be to head fake them both by making it look like the markets will break out to new highs, then drop sharply to create the impression of a sell-off, but the sell-off never gathers traction. It is a medium sell-off, so both groups are caught off guard. The road map projected the path the markets might take until March 2024, placing support and resistance lines. The support lines are well above the lows of last year, and the resistance is placed well above what most would expect (as high as 4700).

Applying this to the current situation suggests that the best course of action for the SPX will be to trade to new highs for 2023, which entails a break past 4200, say a move to the 4250 to 4300 range, then a reversal (which appears to be sharp) and drop to the 3600 to 3900 range, with a possible overshoot (low probability outcome) to the 3450 range. Then a sharp upward reversal, followed by another pullback (not very sharp) where the SPX puts in another higher low and then starts to grind its way up to the 4400 to 4700 range.

One of the strongest bullish signals will be if, during the above action, regardless of whether the pullback is strong, medium, or mild, the number of individuals in the neutral camp soars. It will be a monstrously bullish signal if the numbers in the neutral camp move to the 48 to 55 range; the higher, the better.


Here are some charts for those who are interested in chart analysis. The analysis of what they suggest will be covered time permitting in the next update, which is currently in progress.



The monthly chart of the Dow Utilities



The monthly chart of the SP500


The monthly chart of the SP500 2nd variation

[kcun333]

As a conservative investor (now that I lost significantly in the last 12 months), I just want to know if this recent analysis changes any of my exit and enter target prices.

[Cinnamon]

I have a bunch of orders that will trigger if the S&P 500 dips towards 3700. I have been conducting a small survey of friends and family, and they are either avoiding the markets or leaning towards the bearish camp. I will use a pullback to buy and sell a bunch of puts.

[SOL]

As a conservative investor (now that I lost significantly in the last 12 months), I just want to know if this recent analysis changes any of my exit and enter target prices.

I'm not entirely sure I understand the question, could you please clarify? Each of the pending plays has specific entry points, which have already been issued. These entry points will remain valid unless there are any adjustments made. If you have different entry and exit points, it's up to you to determine whether they need to be modified.

Ideally, we would prefer a firm pullback, but due to the MOAB (Mother Of All Buys) that is almost triggered (just one point away!), we have shifted from a wait-and-see approach to a grab-and-act mode. Corrections are now viewed as excellent buying opportunities.

[kcun333]

Okay, I understand. Just keep the same entry points detailed in the last MU.

[scremonini]

Hi Sol, will the USD be covered in the next update?
Has the outlook changed on the greenback?
I have increased long USD particularly against the EUR and GBP.

[rakeshna]

Hi, if the markets is expected to go up (head fake, maybe), how would that affect precious metals price.

[scott]

Hi, if the markets is expected to go up (head fake, maybe), how would that affect precious metals price.

I know you're not asking me, and keep in mind, precious metals trade separately. I see a cup and handle formation going on for palladium, could be ZOOM.

[SOL]

Hi Sol, will the USD be covered in the next update?
Has the outlook changed on the greenback?
I have increased long USD particularly against the EUR and GBP.

Yes, I will but here is a brief overview

The USD has been consolidating for a while now and is trading in the extremely oversold ranges on the weekly chart. There are two potential outcomes at this point: it could rally sharply and trade to 105-106 before fizzling out, or it could move upwards and close above 105.50 on a weekly basis, and then attempt to challenge its old highs.

Please do not overload on any given investment, no matter how good it looks.

[SOL]

Hi, if the markets is expected to go up (head fake, maybe), how would that affect precious metals price.

Treat PMS separately, as our focus is on the long-term pattern.

For example, Palladium is exhibiting unusual behaviour, which often indicates a long-term move is in the works (to the upside). Furthermore, commodities as a whole are anticipated to perform well over the next 15 to possibly 24 months.

Various factors, such as geopolitics and the pace at which the developing world distances itself from the US, will play significant roles in determining the duration of this move.

[Yodean]

Hi Sol, will the USD be covered in the next update?
Has the outlook changed on the greenback?
I have increased long USD particularly against the EUR and GBP.

*****

Playing the odds - using seasonality, Herd sentiment, COT positioning, and inter-asset correlation factors - my base case is gold likely to pull back a bit until June, at least, while USD is sideways/bullish.

Also I think Jesus told me so.

[scremonini]

Thanks for sharing. Relieving I guess

[SOL]

Hi, if the markets is expected to go up (head fake, maybe), how would that affect precious metals price.

I forgot to address the short-term outlook. In the short to intermediate term, most precious metals are likely to experience a pullback. All the precious metals are trading in the overbought ranges on the weekly timelines.

Gold has recently traded past $2,000, and silver has also had a significant upward movement, so it is normal for both to let out some steam. In addition, the dollar is expected to mount another rally, which could lead to a test of its recent highs.
As the dollar rallies, precious metals will consolidate, pull back and build steam for the next leg up.
Hence, from a long-term perspective, pullbacks should be viewed as a buying opportunity for precious metals.

[Budge]

"Over the past three weeks, the S&P 500 has shown minimal activity, with a net gain of less than 10 points as of Sunday."

Re SPX, a portfolio manager friend recently had the following observation:

I just wanted to mention that basing one's investment decisions on the S&P 500 Index can be very dangerous because in general it is skewed to just a few large stocks and if all those stocks suddenly decide to tank at the same time, your short term losses could be extreme. To show you how skewed the index is just seven stocks in the index account for 88% of the S&P’s 2023 gains and that means that the other 493 in the index were flat or underperformed. Meta, Tesla, Apple, Alphabet, Nvidia, Amazon and Microsoft are the seven stocks but that is just the performance year to date and Meta and Tesla came back strong this year, but if we go back a while you would see a completely different picture.

Lets say you just invested in those same seven stocks in equal $ amounts back in November 2021, your gain to date as of April 21, 2023 would be -31.34% or three times the loss of the S&P 500 Index during that time. I am not a big fan of index investing simply because I am a market historian and mathematician by training and know the math involved. Indices were created to help brokerage firms fool their clients into believing they were making a lot more money than they actually were by introducing dividend reinvesting and totally disregarding inflation. I am not going to get into explaining the dirty details involved as I always seem to anger people when I do so, but here is the actual performance over the last 150 years that clearly show the actual performance of the markets when you take out inflation and dividends.



So as you can see when you do the math involved the return for the markets when investing in indexes is not really 9.079% as financial firms advertise, but is actually 2.394% and that is why I pay zero attention to indices. Basically this is all done because brokerage firms and mutual fund companies can do so and get away with it because no one investing in the S&P 500 Index is willing to do the math or actually learn the facts about dividend reinvesting

[SOL]

@Budge, the dude is smart

We utilise indices such as the SP500, NDX, and others to determine the market outlook. However, better returns can often be achieved when investing in individual stocks or select ETFs. Finding a good play that offers a dividend can be an even better bet.