The Pullback Is Coming. Is Your Portfolio Prepared?
Things were looking up… Recent data suggests inflation has peaked while retail sales numbers did not disappoint. Reports from Walmart and Home Depot even surprised to the upside on both earnings and revenue.
But the summer rally faltered as the market struggled to digest hawkish Federal Reserve rate comments and a slowdown in the housing market.
Not to be all doom and gloom… but odds are the recent uptrend we’ve had is a classic case of too much too soon.
Cracks in the market are starting to spread, indicating we’re in store for a major pullback…
Warning: Choppy Trading Ahead
The No. 1 sign the market is headed for a pullback is current momentum levels. And you know me, I’m always watching momentum!
When we look at the S&P 500, 88% of stocks are trading above their 50-day moving averages, while only 43% are trading above their 200.
Whenever the number of stocks trading above their 50-day MA is about twice as big as the number trading above the 200, that’s a BIG red flag. It means that more than likely, stocks have gotten ahead of themselves and are due to cool off.
Take a look at the chart below. I’ve highlighted the 50-day MA column in yellow, and the 200 column in red...
Two of the most misaligned sectors are Information Technology and Consumer Discretionary — they’re screaming that we’re due for a pullback!
The numbers here also reflect what we’re seeing in the charts.
Both sectors have been on a tear since early July, and they’re starting to pull back from recent highs.
Keep in mind, tech and consumer discretionary stocks represent the things people want versus the things they need.
The economic numbers were good, but inflation is still high. And if things get tough again and there’s a flight to safety, money is going to rotate out of these sectors and into more defensive ones like Consumer Staples.
The market, and these sectors in particular, is overbought right now. We’re most likely going to revert back to a choppy market soon, and anyone who tells you otherwise is too optimistic.
But even though the market is likely to pull back and choppy trading is going to resume, that’s OK! Because it’s all part of figuring out where the economy and Wall Street truly stand.
Why billionaires are piling into one little-known sector in preparation for what might be the worst crisis yet this coming winter.
What experts are saying about a rare 20-year supercycle.
And why parking your money in the S&P 500 over the next few months could cause you to miss out on what could be the most explosive trading opportunities.
*Stated results are typical for given period. Past performance is not indicative of any future results. Trade at your own risk. From 5/23/22 to 7/12/22 on live trades the average win rate is 100%, the average return is 15.3% over a 3 day average hold time.
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