As for the stock market specifically:
Depressed pricing continued on Wall Street for another week, with the major markets once again falling more than a percentage point for the week.
Last week we discussed that the Nasdaq Composite entered correction territory. This week allows me to say that the S & P 500 also entered correction territory. Long-time readers will recall that a 10% correction, historically at-least, occurs once per year and here it is.
What does unnerve me though, is that the relative strength between stocks and cash now has shifted to cash. We also saw US stocks fall into 3rd place in the asset class rankings, with the broad International index overtaking the US for second place.
What follows for the next few paragraphs is stock text that I present occasionally. These items are the basic building blocks for the investment strategy I use. Bear in mind that this is simplified.
On the left, I highlighted a bullish chart pattern that I will call a double top break. This is a column of demand that exceeds the previous column of demand. The “signal” occurs when the stock shows demand (buyers) at $35.00.
The blue numbers and letters are used to tell time, 1 for January, 2 for February, etc., with A for October, B for November, and C for December.
On the left, I highlighted a bearish chart pattern that I will call a double bottom break. This is a column of supply that exceeds the previous column of supply. The “signal” occurs when the stock shows supply (sellers) at $38.00.
The blue numbers and letters are used to tell time, 1 for January, 2 for February, etc., with A for October, B for November, and C for December.
The bullish percent is the number of stocks that have bullish patterns, nothing more, nothing less. It is calculated by counting the bullish charts, and dividing that number by the number of stocks in a sector/market. Then multiply by 100 to get the percentage. A key item to remember is that all stocks that have traded for some time will be either bullish or bearish, not both.
About once a quarter I explain the difference between a market capitalization weighted index, such as the S&P 500, and the “one-stock, one-vote” weighting of the bullish percents. Today is that day.
The discussion comes down to a variation of this: “Why are the bullish percents increasing, but the numbers I see on TV are a little up, flat, or a little down?” Since this is election season, think of the difference in terms of the composition of Congress.
There are two basic answers. One potential answer comes from the nature of the bullish percent. It is based on the notion that a stock as large as General Electric counts as much as a stock of the size of the smallest stock on the NYSE. Think of the bullish percent like the US Senate – California counts as much as South Dakota.
The other potential answer stems from the composition of the index, such as the Dow Jones Industrial Average, S & P 500, or Nasdaq. The S & P 500 and the Nasdaq are known as capitalization weighted. That means the largest companies in the respective index holds greater influence than the smaller companies. The metaphor here is to the US House of Representatives. There, California has approximately 52 representatives, while South Dakota has 1.
All the bullish percent indicators are in the green zone now. That is not something that happens frequently, and I am looking to take advantage of the situation. Long time clients know we will not be the first to jump into the lake but will go in as the water warms. We still operate in WEALTH PRESERVATION mode.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of October 27, 2023 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Department of Commerce announced its first read on Gross Domestic Product for the 3rd quarter. The economy grew at an annualized rate of 4.9%, well above the 4.4% anticipated by economists. It was a good report in all aspects. Once again, the death of the American consumer has been exaggerated greatly. Increased consumer spending, which is adjusted for inflation here, accounted for 2.7% points of growth.
We had news regarding what is rumored to be the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditure reading. This came in as expected on two fronts for September. In the one-month movement, inflation was up 0.3%. When measured from September 2022, prices rose 3.7%.
As always, please contact me if you have any questions or need more information.