Weekly Update: This Bull Market is Not Dead
Good evening, and welcome to this week’s edition of Stealth Trades!
This bull market is not dead. In fact, I believe it is just getting warmed up.
After 4 months of consistently higher prices, stocks finally took a breath over the last few weeks.
But the pullback has been minimal. And, so far at least, it has been a healthy one.
Above is a weekly chart of the S&P 500 index. Sometimes it is best to zoom out a bit and put things in perspective.
The April retracement was just over 5%. Sub-10% pullbacks are routine in longer-term uptrends, and this one is no different.
Zooming in closer on a daily chart we can see the market’s reaction to news over the last couple days:
As of Friday morning, at the time of this writing, the index is bouncing back nicely. More importantly, we saw support buying on Thursday following a disastrous GDP report.
The economy, as measured by gross domestic product, was expected to show growth of 2.4% last quarter. But the number came in much lower at just 1.6%.
Unsurprisingly, stocks gapped down on this news. But prices rose throughout the trading session to end the day down only slightly.
That afternoon, Alphabet and Microsoft both reported better-than-expected earnings numbers. As two of the largest and most widely held stocks in the world, this sent markets even higher this morning.
These are both good signs.
When the market quickly recovers from bad news like Thursday’s GDP report, it is telling you where the bias is. In fact, it is one of the few ways to identify turning points in stocks.
The 2022 bear market low came on the day of the worst inflation numbers in decades. The fact that stocks went UP after such terrible news was the signal to start buying.
A more recent example is Tesla (TSLA). Tuesday’s earnings report showed lower than expected sales and profits. It missed on both metrics. But the stock went up.
Tesla has underperformed for the last year. It is down 50% over the last 9 months.
But this could very well be the low.
In terms of sector strength, we are still seeing money flow mainly into inflation trades.
Utilities, energy, basic materials and the like are all assets that keep pace with inflation. When these areas of the market are leading, it is generally reflective of institutions hedging their portfolios.
But that could soon change. And if the rally in the general market continues, I expect to see different groups leading the charge in the next week or two.
Until then, we remain cautiously optimistic. I still believe there is great opportunity in the gold and silver market and have not yet sold any of my holdings there.
We are also keeping a close eye on the energy market. Note the breakout pattern on the weekly chart of XLE below:
Be prepared for oil and gas prices to rise over the next 3-6 months which will create opportunities to profit from these stocks.
Best wishes for your trading,
