Interim Update:The Temperature is Rising, but We're Not at a Boil Yet

[SOL]

Bullish sentiment this week is at 51.00. A few weeks ago, it peaked at 56, dipped to 49, and has since been trading above 50.00. This suggests that investors are generally optimistic. While the major indices are holding up well, some sectors are experiencing significant drops. On the other hand, utilities are performing well.

Utilities often lead market trends, both upwards and downwards. The Dow Jones Utility Average (DJU) has been correcting since February 2022. Until September 2022, it was trending in the same direction as the Dow Jones Industrials. However, they diverged in September 2023. While the markets bottomed and started to trend higher, the DJU continued to correct until September 2023. Now, they're in an uptrend while the markets appear to be topping. For instance, NEE, a company we're considering has broken out. Some candidates are really thriving; three notable players are GNE, VST, and NRG

The DJU typically leads the market in both directions. The current divergence is an anomaly, likely signalling an impending sharp market pullback. The key question is when this might happen, considering the market always overshoots nowadays. Our suspicion (guesstimate) is that the downward move should commence between the end of March and early May. An early warning signal to watch for is when Bullish sentiment surpasses the previous high of 56.

It's entirely possible that the markets may continue to rise for longer than anticipated. This is to be expected in today's environment, where markets often overshoot in both directions. Our prediction that a top would be indicated when bullish sentiment hits 60 is likely to come true. However, sentiment data can be outdated, so a market pullback could happen quickly after that mark is hit. We believe it's not wise to try to squeeze every last bit out of a market.

While we wait for the market to cool down, we'll still target some stocks. However, we will focus on stocks that are overlooked, ignored, or trading in the extremely oversold range.


To wrap up, while the market has the potential to trend higher, it's not worth chasing the wrong stocks. The "wrong" stocks are those being pursued out of fear of missing out (FOMO). These should be avoided until the market cools down.

As indicated by the December CPI report, the crowd may have been overly optimistic when they assumed the Federal Reserve would cut rates at a predetermined pace. The Fed will cut rates, but it might happen slower than most people expect.

Our strategy is not to sit and wait for one scenario to play out. We will continue to establish positions in stocks that are beaten down or ignored but have a bright long-term outlook. The game plan is simple: we will avoid highly sought-after and highly overbought stocks.