The Word from Main Street

Market Update for the Week of August 1, 2022

The stock market extended its rally on Thursday (7/28) as investors seemed to embody a “bad news is good news” mentality, catalyzed by a batch of underwhelming earnings and a series of contracting GDP figures. As expected, the Bureau of Economic Analysis (BEA) reported an estimated decrease in real gross domestic product (GDP) of -0.9% for the second quarter in a row - which constitutes a recession by a popular rule-of-thumb. However, the National Bureau of Economic Research (NBER) seeks to incorporate a variety of other data points before retrospectively defining these periods. For example, NBER designated the COVID-19 pandemic as a recession despite its relatively brief length. The NBER is the only group that can officially date a recession, not a rule-of-thumb definition from the dictionary.

There will surely be more said on this topic in the coming weeks, but as for recent notable market movements, we believe bonds (Fixed Income) deserve the attention. On Thursday (7/28), the US Treasury 10YR Yield (TNX) fell below key support at 2.7% and dipped lower intraday to nearly test its bullish support/positive trend line located at 2.625%. The current trading range, between 2.625% and 2.65%, houses the last area of support before April levels down around 2.4%. Meanwhile, we saw the US Treasury 30YR Yield (TYX) bounce off its bullish support line and form a double top at 3.075%. Like TNX, TYX sits in a precarious position with few levels of support nearby. However, today’s action resulted in the yield curve steepening. Further steepening could come with a breakout past resistance at 31 (3.1%) on TYX and subsequent weakness from TNX (source: Nasdaq Dorsey Wright).


Source: Nasdaq Dorsey wright


The current reading for the Nasdaq Dorsey Wright PR4050 Cash Trigger is: Money Market = 24.65% & U.S. Equity Core = 95.77%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, Money Market must be 50% or above and U.S. Equity Core must be 40% or below.


Source: Nasdaq Dorsey Wright

Below is the most recent DALI (Dynamic Asset Level Investing) Indicator showing Commodities holding onto first place while Cash, Domestic Equities, and Fixed Income continue to battle for second and third place. 


Source: Nasdaq Dorsey Wright

 Switching to the economy, below is the most recent Recovery Tracker from First Trust Advisors showing the 2019 level, month-over-month (MOM), and week-over-week (WOW) comparisons of high frequency economic data.


Source: First Trust Advisors

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LPL Financial did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of LPL Financial or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.

Past performance is no guarantee of future results. All investing involves risk including the loss of principal. Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.

Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.

Any statements nonfactual in nature constitute only current opinions and interpretations of their indicators, which are subject to change without notice. There may be instances when fundamental, technical and quantitative opinions may not be in concert. Any opinions expressed or implied herein are not necessarily the same as those of LPL Financial or its affiliates. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for informal purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Data and opinions are current as of 7/29/22. Additional information is available on request.

Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolio across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.

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