February 13, 2024
The latest research, market indicators and trade summaries from Sungarden Investment Publishing
ROAR Score
(Return Opportunity and Risk)
If my choices are stocks and cash, what % would I have in the stock market right now?
Market in a Minute
Just when you thought…
I promise not to do this too often (unless we get a lot of feedback that it helps our subscribers), but I’m starting today with a few words from last week’s commentary. Because today’s CPI report apparently rocked some people’s worlds. And, while we have had countless one-day plunges over the past 18 months, for the most part they have been “buy the dips” moments. But countering that is the fact that those dip-buying moments have been confined largely to a small number of giant stocks.
So days like today are a case of “the market” falling suddenly, thanks to a slight uptick in inflation (at least that’s what they tell me on the TV). But as I’ve pointed out many times, most of the global stock market has not been along for the ride.
That has created deceptive index performance, “all-time highs” in SPY and QQQ, and it joins the narrative that “inflation is conquered, the economy is not going into recession, and we can all look under our seat for a special prize.” OK, that last part is just homage to Oprah.
As stated here last week:"
The markets have been living “life in the fast lane” since October, 2022…With all the government and consumer debt piling up, tech valuations stretched beyond what seems possible for even those giant companies to grow into and a growing list of under the headlines data on employment and the economy in general, how does the market sit near all-time highs?
T-bills/short-term Treasuries are the place to be in the bond market for now
The rest of the bond market now acts as volatile as stocks, so why bother?
What’s next? Heck if I know. That’s my usual answer because I am tired of reading and hearing investors (professional and otherwise) act like they know. NO ONE KNOWS. And that arrogance gets people in trouble, especially at times like these. I’d rather simply rotate softly along the 0 to 100 range that governs our ROAR Score, and emphasize staying out of trouble when markets are acting like they do when things are about to get dangerous. Even if it is a false alarm today, we live in a time where rules have shifted, the bond market matters, and everyone’s an expert. I thought about titling this post “calm the ___ down!” but thought better of it.
This is a time for baby steps, not giant adjustments to my portfolio. Here are 2 pictures, one of current conditions, and another from 24 years ago that just might be what everyone is talking about soon. At least if today turns out to be something other than a one-day wonder to the downside.
Here’s that favorite site of mine (ustreasuryyieldcurve.com) that I spent some time on during last week’s live “Ask Me Anything” session (by the way, we are compiling a group of shorter segments from our last 3 live events, and will post them to the site soon).
That yield curve has shifted a lot since the first day of this month, and it doesn’t include today’s additional ratcheting up of Treasury rates. As I’ll explain further in the premium subscriber commentary, this recent bond market action is starting to make a lot of things clearer to me, after a long stretch where the only clarity was “Magnificent 7 stocks go up…that is all.”
Now for Rob’s latest history lesson. See below for the S&P 500’s run to new all-time highs during summer, 1999. Those highs were followed by a dip and then a furious rally into early 2000, which then paused for a moment before the “crescendo” in March of that year. This was the moment the dot-com bubble popped.
New highs, euphoria, and then a sudden jolt to the downside. That was followed by lots of short-term volatility…and then a down move that didn’t end until the first quarter of 2003.
And the place that everyone crowded into, the Nasdaq (just like now), rolled over sharply, down 26% in 2 1/2 weeks.
This all just means what it always does: don’t get caught up in the euphoria. Days like today are what happens when markets are priced for perfection. It is hard to count on perfection, in investing or any other aspect of life.
The ROAR Score drops from 20 to 10. There’s still just a skinny bit of room between 10% offense and “all cash” but if this turns into more than a day or a few days of drudgery, we could see a zero ROAR Score for the first time since late August of last year.
There are a lot of things I see in today’s price action that is potentially in “it’s different this time” territory, as I’ll explain in the premium subscriber commentary below.
S&P X-Ray
The S&P X-Ray tracks our latest projected trading ranges
for the S&P 500
(Updated weekly on Tuesday, as of Monday’s market close)
Additional note on the S&P 500 X-Ray this week:
You may be wondering why I have not adjusted the “weeks” outlook to above 5,000, with the S&P 500 just about 1% from reaching it. The answer: because I am a tough grader, and because I am certainly willing to “see” past that level, but the market’s sluggishness and still-stagnant technical outlook is not a moment to give the market any extra love, if you will. Show me a breakout with force above that level, with more than just a small number of stocks carrying things, and THEN we can look to the “months” trading range, where reward is higher…but so is risk.
More in this and our model portfolio updates in the premium section of this newsletter, below.
Subscriber feedback drives ALL of this, so keep the suggestions and ideas coming!