Elevated Risk
What Might Cause Market Weakness?

February 12, 2023

Weekly Market Outlook

By Keith Schneider and Donn Goodman


Gaugers, I hope you are having an enjoyable weekend and getting ready for the BIG SHOW… the Super Bowl. This has become a National holiday filled with gatherings and elaborate parties, and now that betting is legal in at least 33 States, a good wager.

One of our MarketGauge employees (and a major contributor to our strategies) has ties with the upper management of the Philadelphia Eagles. So I am pulling for the Eagles.

However, Mish and Keith are involved in a bet placed on Kansas City before the start of the season. So I guess I am also pulling for them.

Who Should You Be Rooting For?

Quite a few studies have been done about the correlation between the Super Bowl winner and the stock market’s performance. This began in 1978 when a sports writer was evaluating the correlation between what leagues the winner came from and that year’s stock market performance. The original thesis showed that the market benefitted most from the winner coming from the original NFC (National Football Conference).

The correlation fell apart over the years, but interestingly there is some long-term stock market better performance when an NFC team wins. A winner in the NFC has generated an average stock market return of 10% for that year following the Super Bowl. And, if an American Football Conference winner triumphs, the average return is 6.9% for that year. I guess we should all hope that the Eagles are crowned the champs. 

For more exact information, I am using The Carson Group, Ryan Detrick’s more thorough analysis that follows;


With the above information, root for the Eagles! But wait, recently (not the long-term average) the wins by AFC teams have been most bullish for the markets.


Well, I guess with this information, you should join Keith and Mish and root for the Chiefs.

Or better yet, just root for a blow out. That seems to contribute additional excess return to the stock market. See below:


How did your team do? See below for specific team information and how the stock market fared after their Super Bowl win. Notice not much happened with my team, the Cleveland Browns… why? Because they have NEVER been in the Super Bowl.


We May Learn More About The Economy From the Super Bowl Ads.

Between the action on the field between the Chiefs and Eagles will be all the ads that constitute a big part of the “Super Game,” at least for people watching on TV.

This year the cost of a commercial is around $7 million for a 30-second spot, about three times what it was in 2007 (talk about inflation). That comes despite a significant drop in television viewership.

Most advertisers, however, feel it is a good deal for them especially given the cultural impact their messages have evolved into.

Last year’s ads and the messages they conveyed were probably more telling cues about what would unfold in the stock market during 2022. For example, Larry David was skeptical about the now-collapsed cryptocurrency company FTX.

Additionally, some financial reporters dubbed last year the Crypto Bowl for all the ads that featured digital currency or the new exchanges and brokers that could facilitate your potential investing. These ads ran right before the cryptocurrency crash and the elimination of a trillion dollars worth of the coins’ market value.

Other major advertisers included Disney for its streaming service. Its stock hit an 8-year low in 2022. Gambling app DraftKings lost about half of the value of its stock by the end of 2022. Carvana dropped by 97% in value by the end of 2022 and is teetering on a possible bankruptcy.

blankAnd who can forget that E-Trade (now owned by Morgan Stanley) returned with the baby after a long hiatus from advertising at the Super Bowl.

In the commercial, the baby agrees to be whisked out of retirement by helicopter upon hearing that “people have their money just sitting around doing nothing.” Not very timely, considering that sitting in cash doing “nothing” would have been a desirable strategy for most investors at the time.

So watch the ads, as they may tell you plenty about what companies and what stocks to be cautious about in 2023.

The Win Streak Was Broken

After 5 straight weeks of up market performance in the major index averages, they all closed lower with the small caps (IWM) down the most at -3%. The tech heavy Nasdaq (QQQ) closed down -2%, and the S&P 500 fell the least, -1.0%.

The market has had an impressive move from the October lows, and the recent acceleration of the rally was welcome. But will it continue?

We have no idea. Even though our Gauges have shown Risk On, there is some apparent weakness in the technical indicators. See more of this in the bullets below.

Elevated Risk

There are a number of economic, fundamental and geopolitical situations that have become more apparent on our radar screen. Here are a few of the more important ones that have recently begun to elevate our risk sensors.

Technical Risk

The McClellan Oscillator has an ominous pattern. As we have highlighted in recent weeks in our Big View bullets (below) and in Keith’s market Outlook video, the Mc Clellan indicator has been diverging as the SPY and QQQ index climbed higher. This week the oscillator dropped below 0, which can be particularly bearish after a market rally with a divergence. As you can see in the chart below, this pattern has occurred several times in the last year.

You can also follow this chart, as it’s updated daily in our Big View service here.


Bullish % Index Has Become Less Bullish. This % index did a fantastic job in 2022 at showing the stock market weakness. This is a breadth indicator, and tops are usually found at a reading of 70, which was hit recently.    See the chart below.


Fear and Greed Index. CNN publishes a well followed fear and greed indicator. Even though it is free, it has been quite reliable in the past for gauging excess pessimism (fear) and excess optimism (greed). Those tend to be highly reliable contrarian indicators. Notice that right now we are sitting at a high in optimism. That in itself should provide some degree of caution. See the chart below:


This recent rally looks the same as the one from August to October in 2022. Unfortunately, the number of stocks above their 50-day moving average is less in this go around. This may be a cautionary indicator. See the chart below:


Breaking below 4100 on Friday may lead to more of a sell-off. The recent chart pattern represents the market’s activity we witnessed several times in 2022. See the chart below:


The second half of February historically has not been a positive time for stocks. Certainly, this time could be different, but we do try and provide historical patterns and trends. See the chart below:


Finally, a Bullish AAII Reading. We have shared with you a number of times the AAII bullish and bearish sentiment readings.

During all of 2022 these readings have been consistently more bearish than bullish.   We also stated that these are often interpreted as contrarian indicators. The charts have finally turned more bullish (than bearish). Is this telling us something? See the chart below:


Economic Risk

In last week’s article, we highlighted that we remain focused on the actions of the Federal Reserve. It is important to remember that we are in a “non-accomodative” cycle and that the Fed is likely to continue raising interest rates.

The markets were jittery to start the week as it was expected that Chairman Powell would be speaking early Tuesday at a breakfast meeting. Once again, he spoke about the disinflation the Fed is beginning to see in the economy (good news). 

But Powell also remarked that the inflation fight isn’t over and will take “a significant period of time,” especially with the unexpected and “extraordinarily strong” labor market. He continued to say, “we will stay the course,” and implied ongoing hawkishness with no hint of pivoting to lower interest rates anytime soon (bad news).

The markets (stock and bond) have been looking for and anticipating a Fed pivot for a while now. We do not think it will come anytime soon, or at least not in 2023.

What followed was rising interest rates as the 10-year Treasuries sold off. The 10-year rate increased from 3.39% (a week earlier) to 3.74% at Friday’s end of trading. That is a 10% rise in the 10-year interest rate. That had a dampening effect on the markets this past week. See the chart below:


This week many more companies, including Disney (after announcing great earnings) announced layoffs. The bigger the company, the more people they appear to be laying off. This will likely continue leading to a cycle of higher unemployment claims in the future, leading to economic weakness. This is exactly what the Federal Reserve wants!

One must recall that these cycles can go on for some time and usually take a good year before the effects (lower employment) starts to be felt throughout the economy.

Just the national notification that these are about to begin usually sends a message to consumers to tighten their wallets.

Earnings Not Meeting Expectations. 

According to FactSet, 69% of companies have already reported earnings and 69% have beaten their estimates, with 63% reporting exceeding revenue estimates. Keep in mind these two important factors. One, most estimates have been lowered over the last 6 months. Two, revenue should be going up given that most companies have raised prices, some substantially, to offset the rising prices of raw materials, labor, energy costs, etc.

Analysts are concerned with the 69% beat of earnings expectations. The average over the past few years has typically been 77% of companies beating their earnings expectations. So a 69% beat is about a 10% decline in the typical earnings reporting season and is causing Wall Street analysts to reevaluate their forward earnings expectations.

Additionally, the market is rich. Its 18.5 multiple is considered a bit high when you have a Fed taking aggressive action to cool inflation by continuing to raise rates. Recall the many times we have shared with you that rising interest rates factor into lower multiples.

Geopolitical Risk


By now we assume that you are aware of this past week’s unusual events including the Chinese balloon being shot down. This has raised the heat on the rhetoric between China and the United States. We probably don’t need to remind you that MANY of our products are manufactured in China and that China remains one, if not our largest, trading partners.

Additionally, the United States is aggressively trying to protect our semiconductor interests in Tawain. China could use aggressive action to try and take over Tawain, similar to their stranglehold on Hong Kong. This remains a concern for our consumption of Chinese goods as well as interactions with all our allies in Asia.

There are plenty of other Geopolitical events (around the world) which could cause some sort of economic impact here in the US, including:


Russia is cutting back production of Oil in defense of continued Western sanctions against it. They expect to take at least 500,000 barrels of oil off line per day beginning in March. Oil prices were up 2% on this news Friday. IF, energy prices went back up suddenly, this would not help the inflation fight by the Fed. They may have to raise rates additionally to fight off the negative effect higher inflation costs would have.


The United States, Germany, and the UK are about to deliver highly sophisticated tanks to Ukraine. This is not sitting well with Russia who continues to threaten the use of nuclear weapons on Ukraine in defense of these moves by NATO led countries.

North Korea

North Korea is flexing its muscle yet again. They are showing the world that their arsenal of missiles is superior to the United States' arsenal and that sable rattling is not helping our Asia partners as well. This is what happens when you have a madman at the helm of a communist country. (Sound familiar to Russia?).

Middle East

The Middle East is a powder keg yet again. Israel is fighting off potential terror attacks that are coming from its neighbors. While this is not unusual, there is a stepped up rhetoric coming from these countries. Perhaps more importantly, the United States is not fully supporting Israel’s sovereign rights, something it has always done in the past. This is a tense situation and could draw several other Middle East countries if there is an outright incursion.

The Climate

`Earthquakes, weather and climate changes are all having a negative effect as well on countries around the world. These sudden disruptions create aggressiveness and non-normal behavior and could negatively affect world order.

We should mention that our hearts and prayers go out to the people of Turkey who are going through a difficult period after the earthquake that has killed no less than 20,000 innocent victims.

A Note About Managing Risk With MGAM

As most of you are aware, I spend the majority of my time during the week working at MarketGauge Asset Management (MGAM) and with the clients we are blessed to work with. Most of my almost 40 year career in this business has either come from consulting large pension funds or my most recent career representing a NY based equity manager. During this experience, I have seen just about every type of investment style and structure of asset managers in the US and some abroad. I have helped hire and fire many investment managers and products for large funds as well as consulted Advisors on their selection of investment strategies.

The thing that resonates deeply with me during my experience is the blatant disregard for risk and risk management of assets that are under these Fiduciaries. Most investment managers I have come in contact with manage assets for clients, big and small, against a stated benchmark like the S&P 500 or some other cap-weighted or investment style benchmark.

I have already heard some stories from old associates that investment managers are telling their clients after 2022 the same mantra… we are down about what the benchmark is down. Or, we are in line with our stated benchmark.

Let me get this right, the NASDAQ was down 33% last year and the S&P 500 was down almost 20%. So if the manager is down in that neighborhood, it is ok? (This is why Vanguard has become so big… they have low cost products that emulate the benchmarks. Users don’t have to feel as if they are paying a larger fee for something that will do no better than its respective index).

Our priority at MGAM is on risk management. That is why we developed the MGAM Dynamic Blends that offer our clients a TARGET of what type of risk management they could expect over a market cycle (3-5 years). We do this by combining different (and disparate) investment strategies that utilize different investment edges together to create a blend that mitigates risk and can and will outperform the respective benchmarks on the upside.

Did you know that if you preserve capital in down periods, you don’t have to work so hard in up markets to try and make up what was lost?

I personally believe this is the best way to manage assets.

Now more about the state of the markets from our Big View and the all important video from Keith that follows.



  • With the exception of the Diamonds (DIA), all other major indices are maintaining a favorable ratio of more accumulation days than distribution days over the past 2 weeks. (+)
  • Risk Gauges remain fully bullish. (+)


  • The S&P 500 broke out off of a golden cross and into a bullish phase before promptly retreating with the rest of the market, providing a mixed read on a short-term basis. (=)
  • Keep an eye on the IWM to hold the $189 support level, which if broken would lead to a retest of its 50-day moving average. (=)
  • Cash Volatility ($VIX.X) is bouncing off of recent lows and is close to a positive phase change back into a recovery phase. (=)
  • The large majority of components within the SPY and IWM indices have recently gone below their respective 10-day moving averages, but longer-term moving averages of the components of the two indexes appear to be holding up for the time being. (=)
  • Small and Mid-Cap stocks which had been leading in January’s rally have begun to back off and need to hold current levels in order to retain their leadership in this current rally. (=)
  • Growth stocks (VUG) need to hold their current levels relative to Value stocks (VTV) in order to maintain the current Risk-On scenario. (=)
  • Nearly every member of Mish’s Modern Family has now retraced from new highs created in the January rally and need to hold up at their current levels or they risk giving back a large chunk of the move up. (=)
  • Foreign Equities have given up their short-term leadership compared to US Equities, but are still holding up on a longer-term basis. (=)
  • Gold (GLD) needs to hold on to its 50-day moving average in order to remain in play. (=)


  • Risk-On sectors like Retail (XRT) were down the most while Consumer Staples (XLP) and Utilities (XLU) held up relatively well over the course of the week, a bearish indication. (-)
  • The whole energy sector improved significantly after tagging oversold levels last week, with top-performing ETFs including US Oil (USO), US Natural Gas (UNG), and Energy (XLE). (-)
  • Market internals have clearly rolled over with the McClellan Oscillator showing a clear downturn for both the S&P 500 and Nasdaq Composite. (-)
  • The New High / New Low ratio is beginning to look tired while sitting at overbought readings for both the S&P 500 and even more so for the Nasdaq Composite. (-)
  • Rates continue to rise across the yield curve, forcing treasury bonds to lose the support of their 50-day moving average and potentially even a tumble lower on the invalidation of a multi-month uptrend dating back to mid-October. (-)

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Donn Goodman