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Weekly Economic and Stock Market Commentary – May 1, 2023

As for the stock market specifically:

Last week was anything but the summer doldrums. The old phrase is “It is an ill wind that blows no one any good.” Last week’s wind blew good news for both bulls and bears depending upon the day of the week. Overall, things turned out well for the bulls, with modest gains, except for a substantial gain for the Nasdaq Composite.

Both the S & P 500 and Nasdaq Composite closed the week at levels on their charts where they topped and fell back twice previously. Only time will tell in which direction we get a convincing break-out. What I can tell you is should the markets continue to rise, that would be a sign that demand is in control.

There was another bank failure over the weekend. I won’t get into the details, but the three bank failures this year caused a larger value of money to go poof than the entire roster of bank failures in 2008. The stock price of the failed bank this weekend was more than $147/share about a year ago. For anyone doubting my interpretations of technical analysis, I invite you to a private call where we can dissect the chart of the now failed bank. Suffice it to say, “someone” knew trouble was brewing back in January of 2022 with a sextuple bottom break at 190/share and then a trend-line break at 186. Now… poof. For those who may still wonder, this is a major reason I sell at trend line breaks.

We are in the height of quarterly earnings season. Long time readers know I put little weight in company earnings for investment decisions. That said, that doesn’t mean earnings can be ignored.

Earnings announcements can lead to large moves. To understate the obvious, when the stock has a large move up, we are happy. A large down movement causes agita.

The week ended with a net gain of sell signals. Each of the bullish percent indicators fell at least a percentage point. There were no changes of directions. Nothing changed overall, so we will keep the split condition of WEALTH ACCUMULATION for NYSE stocks, and WEALTH PRESERVATION for the OTC.

Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of April 28, 2023 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Commerce reported the US economy grew at an annualized rate of 1.1% for the 1st quarter. That was well below the anticipated rate of 2.0%. That growth rate corresponds with the recent numbers from the Treasury Department regarding tax collections being lower than this time in 2022. There wasn’t much explanation in the report I have, but it did say business investment declined substantially.

In a report from the Labor Department, Employment Cost Index for the first quarter rose at an annualized rate of 4.8%. In a related report from the Commerce Department, the Personal Consumption Expenditure measurement of inflation showed a rate of 4.2% in March. This was the slowest rise in that indicator since early 2022.

Finally, we had some good news from the real estate sector. The S & P Core Logic Case-Schiller Home Price Index saw a gain of 0.2% in February compared to January 2023. For the year ending in February, prices rose 2%.

As always, please contact me if you have any questions or want more information.