WELCOME TO THE FALL
Holding Out Hope for the Future

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Ten days ago, the seasons changed. We went from Summer to Fall.

Growing up in the Midwest (Ohio), I have always loved the Fall. Not necessarily the cold weather that follows it, but the season which begins in late September is by far the most beautiful. Rich in colors. Some of the other things I enjoy in the Fall include:

The days are still mild, but the nights begin to get cool.

Daylight gets shorter, and darkness arrives sooner, but it's a great time to binge-watch new shows.

College and Pro football kick off a new season. It's fun to watch new superstars emerge.

Baseball playoffs begin the excitement of the road to the World Series. (Our team, the Cleveland Guardians, recently clinched the pennant).

The September-October volatile stock market period usually comes to an end.

The Thanksgiving holiday is approaching soon. I love this holiday!

While Fall is a season, it also has numerous other pertinent meanings:

fall

[fôl]
VERB

1. move downward, typically rapidly and freely without control, from a higher to a lower level:

"five inches of snow fell through the night" · 

2. (Of a person) lose one's balance and collapse:

"He stumbled, tripped, and fell"

3. decrease in number, amount, intensity, or quality:

"Imports fell by 12 percent"  

NOUN

1. an act of falling or collapsing; a sudden uncontrollable descent:

"His mother had a fall, hurting her leg as she alighted from a train"

2. a thing which falls or has fallen:

"In October came the first thin fall of snow"

3. a decrease in size, number, rate, or level; a decline:

"a big fall in unemployment"

While the lovely autumn season is upon us (Fall), we have also had to experience a falling stock and bond markets. September saw the worst performance in the S&P 500 since March 2020 when we were in the start of the pandemic.   And it did not end well this past Friday.

Moreover, we have broken the 200-week moving average on the S&P 500. In 2011 and 2018 the S&P held here, but in 2008 and 2001, this level marked the beginning of a new wave of selling.

The Dow is now down more than 20%, which means it joins the NASDAQ and S&P 500 as having officially entered a bear market. See the chart below:

A long-lasting correction. The Fall continues.

At 269 days and counting, you would have to go back to March 2009 to find a correction this long in the number of days. The downward grind continues. This is what the numbers look like:

We are also experiencing falling numbers in consumer spending as well as consumer sentiment, purchasing managers index, and economic growth numbers. Most of these are recent numbers and have motivated the major analysts on Wall Street to reduce their earnings expectations.

The Generals Are Falling

Towards the latter part of a Bear Market, the largest companies with consistent, steady earnings begin to fall. This is a meaningful part of the contraction that begins to happen as portfolio managers and analysts revise their growth and earnings expectations. September saw a huge downward move in many of the biggest companies. Look at the table below:

As an indication of how widespread the fall in stocks has been during September, below is a graph of the S&P Sectors with their September and year-to-date performance:

The Fall in September was brutal.    See average performance below:

These are some very large numbers folks.

Week after week, we have urged our subscribers and readers to heed caution, seek the shelter of cash and keep in close contact with us as we are able to offer you a "better" way to invest. We have several dynamic algo driven strategies that are positive on the year, including Global Macro, which is up 15% ytd. If you would like help knowing what strategies work best or how we can offer you optimized blends and help manage your account for you, please click here to reach out to Rob Quinn, our Chief Strategy Consultant

Yesterday (not including the performance from Friday), our friend Charles Payne commented that so far in 2022 the stock market has lost $13 trillion in value and the bond market, worse at $16 trillion. You ask why would the bond market be worse?

The average fixed income fund is down around 16% year-to-date (less than the stock markets as indicated above), but MANY people have much more in fixed income funds than stocks. Up to now, most people believed that fixed income (bond funds) would be the savior if stocks declined. That relationship (bonds holding up when stocks fall) is broken. Both asset classes have imploded together.

That is the reason we have been emphasizing to get out of a 60/40 asset allocation for most of 2022. We showed the 60/40 performance last week, which you can read here.

A Note of Caution and Some Hope Too!

We have received calls from interested parties and subscribers asking us if the markets can continue to Fall? Of course. Unfortunately, when the Dow is down by 20% (bear market) it usually falls further. See chart below:

However, there are several statistical reasons to be hopeful about October and the remainder of the year.

We now want to take you thru a couple of hopeful and positive scenarios. These graphs have been taken from an article written by Ryan Detrick CMT of the Carson Group. I have followed Ryan for a long time from my previous involvement working with LPL where he was their Chief Market Technician (CMT) for many years. I credit Ryan's great work for helping us illustrate some hopeful potential future market behavior.

Hope #1

Historically, stocks have rallied in October after a September that is down more than 8%. See chart below:

Hope #2

A significant number of bear markets have been stopped in their tracks in October. See chart below:

Hope #3

October to December is usually the best period of the year to invest in the stock market. See chart below:

Hope #4

After midterm elections, the market typically does well. See chart below:

While this upcoming period of October to December has typically been positive, we want to caution you that we are NOT PREDICTING this, but just citing the facts.

This remains a FED non-accommodative, raising interest rates period. As Mish continually points out, we are in a low or no growth stagflation period. To make money and be successful in your investment portfolio at this time you should have much more of a trader's mentality.

You can find a recent webinar by Mish here, in which she reveals her 8 steps to identifying and managing trades.

PLEASE note we continue to strongly suggest you follow a highly disciplined approach incorporating stops and targets into your investment construct.

The MarketGauge strategies doing the best right now are incorporating hedges, inverse ETF's, commodities, trading ideas, and cash.

 

Here are some additional observations taken from our Big View service:

Risk On

• Market Internals are improving despite prices for SPY and QQQ at new lows, a potential indication for a short-term mean reversion rally. (+)

Neutral  

• Risk Gauges improved slightly to a weak neutral reading driven by relative firmness in high-yield debt and weakness in utilities. (=)
• The 10-day moving average for each index is the main resistance level that must be overcome for a meaningful bounce. (=)
• The number of stocks above key moving averages within the Russell 2000 (IWM) has  improved from oversold levels and may actually be signaling a further correction to the upside, meanwhile the same indicator for the SPY is still sitting at deeply oversold levels and also subject to potential mean reversion. (=)
• Russell 2000 did not make a new low, but large cap stocks that populate the DOW made new lows. Small cap stocks are outperforming large cap stocks, due to US dollar strength. (=)
• Foreign Equities (EEM & EFA) have slightly outperformed US Equities over the short-term but are lagging longer-term, however, EEM and EFA are oversold on both price and momentum according to Real Motion and may have a potential mean reversion. (=)

Risk Off

• All 4 of the key US indices remain oversold according to Real Motion despite having their prices go down for the week. (-)
• All indices in terms of price are inside their lower Bollinger bands, but Real Motion is outside of the lower Bollinger band for each stock index. (-)
• Except for the S&P 500 and IWM, 2 of the 4 major US indices finished below their 200-week moving averages, and 3 of the 4 also made new weekly lows at levels not seen since 2021 except for IWM. (-)
• Besides the NASDAQ, which has neutral volume readings, the other three indices, the DOW, the Russell 2000, and the S&P 500 are all showing negative volume patterns. (-)
• Except for Energy (2.2%) all sectors were down and mostly in bearish phases. Consumer discretionary (-2.7%), Materials (-0.6%), and Healthcare (-1.3%) were down the least in sector analysis. Semiconductors were down (-3.2%) and the worst performer was Utilities (-8.7%). (-)
• In terms of hotspots, gold miners (7.40%) are the outlier to the upside for the week. (-)
• The cumulative advance-decline line is at new lows (-)
• The 52-week new High / Low ratio for the S&P 500 has not improved and is sitting at 2.5% while for the Nasdaq Composite is at just under 5%. (-)
• Volatility ratio remained at extremely low readings. (-)
• The S&P 500 continues to underperform US Bonds (TLT) on a relative basis according to the Triple Play indicator. (-)
• The US Long Bond (TLT), which had an oversold condition earlier in the week and had a shaky recovery through the end of the week, appears to be breaking down and remains under pressure.. The first indication of a short-term reversal would be a close above the 10-day moving average. (-)
• Value stocks (VTV) continue to outperform Growth stocks (VUG) according to the Triple Play indicator and maintain their leadership. (-)
• The two best performers of Mish's Modern Family are Regional Banks (KRE) and Biotech (IBB), however, all 6 members remain in bearish phases. (-)
• Soft Commodities (DBA) continue to outperform US Equities on a long-term basis, showing the persistence of inflationary pressures. (-)
• Despite a lousy performance and a bearish phase, Gold (GLD) continues to outperform against the SPY which is not at all surprising given the recent uptick in geopolitical stress. (-)
• The US Dollar (UUP) is still extremely strong and remains above its upper Bollinger band on momentum according to Real Motion