Market Update for the Week of December 5, 2022
As we enter the month of December, we can add another tally to the number of rare occurrences we have seen in what has been an eventful 2022. On the back of Wednesday’s rally coming after the seemingly dovish tilt by Fed Chair Powell suggesting smaller rate hikes coming as soon as this month, an indicator we follow, the Ten Week for SPX (^TWSPX), surged to 92%. As a reminder, this indicator measures the percentage of stocks within the S&P 500 that currently lie above their 10-week (50-day) moving average. With that said, while the sensitive nature of the indicator in comparison to others we follow leads to more printed action over time, the trips above 90% (in this case 92%) are rare at best. Readings of 92% or higher have only been seen a total of 14 times over the indicator's now 2-decade-long history. That count dwindles further when you consider the number of times the reading has printed 2 separate 92 or better readings within a rolling 12-month period, with Wednesday’s action leading to only the 5th occurrence of such near-term reparative nature. While the population is small, it may be conversationally useful to observe forward returns after each such occurrence. While the chart below suggests previous instances left much to be desired across nearly all timeframes, Wednesday’s action did provide some ammo for an argument that this instance may be different, at least in the short term.
Source: Nasdaq Dorsey Wright
With Wednesday’s gain, the Nasdaq Composite (NASD) returned to a positive trend on its default point and figure chart. Furthermore, other major domestic equity indices have now all printed consecutive buy signals after returning to positive trends earlier last month. The recent action has allowed the U.S. Equity Core Percent Rank to solidify its lead over a weakening money market, jumping to over 90% after Wednesday. This deteriorating money market is most likely a more direct result of a now strengthening International Equity group. With the U.S. dollar (DX/Y) on the verge of printing a now third consecutive sell signal, International Equities should continue to see some much-needed relief from a cooling greenback. While we have seen Domestic Equities rally, and subsequently break into positive trends multiple times this year until ultimately breaking down to new lows, the weight of the evidence seems to be shifting towards a more risk-on, equity-focused nature for the time being. As we wrap up the end of the year, we will continue to monitor these macro themes for any new leaders emerging to start 2023.
The current reading for the Nasdaq Dorsey Wright PR4050 Cash Trigger is: Money Market = 54.93% & U.S. Equity Core = 92.25%. 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.
Below is the most recent DALI (Dynamic Asset Level Investing) Indicator showing Cash maintaining the top spot, while Commodities, International Equities, and Domestic Equities battle for the remaining top spots.
Switching to the economy, below is the most recent High Frequency Data Tracker from First Trust Advisors showing the 2019 level, month-over-month (MOM), and week-over-week (WOW) comparisons of 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 12/2/22. 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 portfolios 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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