FACING LATE SUMMER HEADWINDS. 5 Important Tips for Navigating the Volatility

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All of us at MarketGauge and MarketGauge Asset Management (MGAM) want to wish you and your family an enjoyable and relaxing Labor Day Holiday.  It is because of what you do, or have done and the service Americans provide that keeps us the most prosperous and productive society in the World, making great advances daily all while maintaining our freedom and liberties.  Thank you as well for being a loyal follower and customer of our services.

We are facing a great number of headwinds.  Someone we follow had a commentary this morning that said “wake me up after September.”  I will cover some of the upcoming challenges we may be facing.  However, I always think it best to listen to what Mish has to say.  She knows far more then me about the market phases, economic backdrop and where to emphasize your attention.  Please review her great appearances recently with Neil Cavuto and on Bloomberg TV.  We have provided the links below.

   Will the Selloff Based on the Hawkish Fed Continue?

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   Now that Jackson Hole is Done, What's Next?

Click here for more media clips from Mish

I, Donn, am fortunate that my partners allow me to contribute some of my own personal thoughts and experiences.  I had one this past week.

I was invited to a lunch meeting on Thursday that was at a yacht club right outside downtown Cleveland near the private airport that will be used for the Annual Air Show held over the holiday weekend.

To my surprise and delight, the Blue Angels were practicing their maneuvers during lunch time. If you have not seen them perform, it is a spectacular sight to see.  The Blue Angels are part of the US Navy.  They have been performing at this annual show since 1964.

These accomplished Naval and Marine men and women perform from March to November each year.  The estimate is that 11 million direct spectators view their acrobatics.  During the show (and the practice) they fly up to 700 mph, but won’t go over that speed to avoid creating a sonic boom.  When flying together at those speeds, the closest they will fly to another plane is 18 inches.  Since 2000 they have been flying Boeing F/A 18 Super Hornet aircraft.

What they do is very dangerous, and they are the best of the best.  It is important for the military to be able to demonstrate how talented and well prepared our military is.  The Blue Angels are used as a PR campaign.  This type of US military aircraft demonstrations began in 1946.

While watching them directly above me (the sound was deafening) they were so close we could smell the jet fuel.  As we witnessed the loops, dives, climbs and sideway movements, it reminded me of the stock and bond market movements recently.  Upside down.

To have a positive outcome in their flight and planned precision aerobatics, the Blue Angel need to use the headwinds for maneuverability.

The stock and bond markets are no different.  (MarketGauge still has several investment strategies that are positive year-to-date against the current headwinds) . Talk to Rob Quinn our Product Specialist to get more information on all of the investment strategies MarketGauge offers along with the 6 that are producing positive returns year-to-date. 

What Happened To The Summer Rally?

We had been enjoying a powerful and long overdue rally in the stock and bond markets from mid-July to August 22.  As Mish conveyed in her recent national TV appearances (watch the replay links offered above), we had recaptured about 50% of the decline from January through the June lows.  The markets hit resistance at the 200-day moving average and had trouble sustaining the move up.  Then the Hawkish Fed Governors got together in Wyoming.  Below we show just how difficult a market it has been through late August. Only two sectors, Energy and Utilities have positive year-to-date and August returns (through August 30):

In fact, this is 4th worst first 169 trading days we have ever experienced.  See chart below:

Clearly, the markets are caught in the late summer doldrums. Ever since Jerome Powell’s brief, but hawkish commentary at breakfast in Jackson Hole last Friday, the markets have been on a severe downward trajectory.

Continued headwinds are testing investors resolve and may continue to look very much like a F/A 18 Super Hornet performing at the Air Show.  What might we expect next?

September Can Be A Volatile Month.  Caution Advised.

September is typically a bumpy ride.  Historically, September is the worst month to invest in the stock market.

Add in negative investor sentiment, rising interest rates, a non-accommodative Federal Reserve, mid-term elections and elevated prices of food, energy and rents, and you have a recipe for a potentially turbulent upcoming month or two.  Take a look at the following charts:

There are some bright spots that typically occur during September, but by and large historically it has not been a kind month to long-only investors.  The NASDAQ is usually the worst performer.

If you’re an active trader, you may want to watch Geoff’s webinar from last week which describes a trading tactic for avoiding any major decline in September without missing the upside (if the market rallies). Click here for the replay (this weekend only). This concept is covered at about minute 31 (shown below).

Here are our 5 Tips for helping you navigate the volatility.

1. Cash is an asset class. If you are uncomfortable being invested, go to the sidelines.  Why do we share this with you so often?  Because we keep getting told by our subscribers, investors and asset management clients that their current Advisor cannot or will not let them use too much cash.  Their firms penalize them for doing so.
2. Subscribe to our Alpha Rotation strategies. We are thrilled that we have been out of the markets most of the year.  More importantly, we just finished making some very important updates and tweaks to the strategy and are fully confident that these strategies will be even more adaptive in the future.
3. Read Big View and become a subscriber if you are not already. Our notes and video at the bottom of this will tell you everything you need to know to adjust your portfolios.
4. Become a subscriber to Global Macro and Sector Plus strategies. These are both positive for 2022.  One is up double digits.  Why?  Because both these strategies invest in alternative asset classes such as commodities, inverse (short) ETF’s, interest rate sensitive areas (like utilities and short interest rates), etc.
5. Subscribe to and read Mish’s Daily and watch her frequent appearances on national TV. Her words and prognostications are often prophetic.  Learn to trust her experience at mixing economic forecasting, chart reading, trading mentality and instinctual views.  They will help you further navigate these difficult and volatile markets.

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Talk to Rob Quinn our Product Specialist to get more information on any of the services above.

Here are some additional insights from Big View:

Risk-Off

• The Big View Risk Gauge (overlaid on SPY) has reached an extreme Bearish reading - Risk Off reading. On 8/29/22, the Risk Gauge changed from Bullish to Bearish where it has remained as of Friday’s market close on 09/02/22. (-)
• All 4 key US Indices are trading below key daily and weekly technical moving averages and have now confirmed trading below their respective 10-week moving averages. Falling below their 10-week moving averages is a new development confirming the indices are in bearish phases. (-)
• The iShares Russell 2000 ETF (IWM) fell -4.70% for the week. The Invesco QQQ Trust ETF lost -3.99%, the SPDR S&P 500 ETF (SPY) lost -3.22% and the SPDR Dow Jones Industrial Average ETF (DIA) declined -2.84% for the week. (-)
• Real Motion momentum readings of the indices are not oversold, and further downside momentum is a distinct possibility. (-)
• Volume analysis shows more distribution days across the board in all four indices. (-)
• All sectors closed negative for the week and were led down by Semiconductors (SMH) -6.7% and Technology (XLK) -5.0. Risk off plays, like Utilities (XLU) -1.5% were down the least. (-)
• Utilities (XLU) continue to outperform versus the broader market (SPY). (-)
• Market Internals continued to deteriorate and closed at extreme oversold levels. (-)
• The SPY and the Nasdaq Composite, continued to decline sharply, as indicated by the McClellan Oscillator, for a second consecutive week. Currently, the McClellan Oscillator is at the worst oversold levels of 2022. (-)
• The new high new low ratios for the S&P 500 and the NASDAQ Composite continue to deteriorate and are clearly indicating risk off. (-)
• The number of stocks above their respective 10-day, 50-day, and 200-day moving averages have broken down further on all Indices. The number of stocks specifically beneath their respective 10-day moving averages is an extremely low number of stocks not seen since before the mid-June rally began. This extremely low reading is on all Indices. (-)
• The Yield Curve continues to be inverted, a continued recessionary indication, and the Long Bond tested recent lows set in mid-June. (-)
• Value stocks (VTV) are outperforming Growth stocks (VUG) on a short and long-term basis, confirming risk-off. (-)
• Every member of Mish’s Modern Family has crossed and closed beneath its 50-day moving indicating a bear phase. (-)
• The strongest performers are IBB, IYT, and KRE although they are in bearish phases. If the three Modern Family members, Biotechnology (IBB), Transportation (IYT), and Regional Banking (KRE) can regain their 50-day moving averages, this would indicate a recovery is underway from this recent selloff. (-)
• Agriculture (DBA) continues to hold up and outperform the S&P 500 on a short and long-term basis. This indicates risk-off. (-)
• Both Gold (GLD) and Oil (USO)are now outperforming US equities daily according to Triple Play. (-)
• The US Dollar (UUP)has continued new highs this week indicating a risk-off environment. (-)
• Gold (GLD) tested its 200-week moving average and bounced back. It is outperforming the S&P 500 on a short-term basis. (-)

Neutral

• Oil (USO) sold off this week, testing its 200-day moving average while still holding on to it. Real Motion is showing downward momentum but still within the Bollinger band. The 70 USD price level is critical to watch, and a breakdown under this level could be pivotal. It is at a huge inflection point as its 50-week and 200-week moving averages are close to converging. (=)
• India (IFN) was the one single country ETF ending the week up 0.92%. (=)