I haven’t done an update in a few weeks, because I have seen zero trading ideas worth talking about for you. The stock market has been pulling back in a corrective wave in the cyclical (2-5 year, this one most likely two years) bull market that began last October. That pullback is likely near an end now, though, because the stock market is the most oversold it has been all year. You can see this with the fact that the S&P 500 now has the lowest RSI reading it has had since October and its daily stochastics has now spent more time under 20 than it did in February and March when it last had a corrective wave.
So far, the pullback has not really been a significant one in terms of size, as the S&P 500 has not even retraced 1/3 of the gains it made from its October low and July high.
Personally, I don’t think the market is going to have a major drop from here or actually go to new highs and just have some huge run either. I think we are entering a new phase for this cyclical bull market that is likely to be defined by a drifting sideways range for months, probably into the end of the year.
It’s worth noting that the Fed Fund futures are also saying that the Federal Reserve is most likely not going to raise or lower interest rates for the rest of this year and the next move is basically 50/50 if it is going to be a cut or a hike.
In other words, the bond market is not seeing much changing in the economy for the rest of this year either.
Inflation is not going to get a whole lot better from here, but the economy is not on the verge of a rapid deceleration either. It’s not booming. It’s muddling around.
As far the stock sectors go – I just just looked through all of the sectors using TC2000 and the top sectors this month, during this pullback, have been the energy complex and shipping stocks.
Many energy stocks, like XOM, are actually up this month. They, of course, had been lagging the market all year as energy prices dipped, but oil prices put in a nice bottom in July and now the stocks are turning up. I own XOM.
I pointed out ESEA, as another stock I owned, to you in my last update.
ESEA is paying an 8% dividend. It is a shipping stock. I talked about how the shipping sector was coming out of a stage one base last month.
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-Mike
