Category: Newsletter

While today's missive will explore why "reverse repo" is continuing to cause banking stress, the markets took a bit of a breather this week, as we suggested would be the case.

We live in interesting times as investors push stocks higher as recession indicators send a strong warning. However, that rise is not broad-based and is a function of a topic we posed in November 2022.

Despite concerns of a banking crisis, the markets triggered multiple buy signals as the market rallied for a second week. These buy signals follow our early February article discussing the "sell signals" at that time.

This week, financial stability was rocked by bank solvency issues starting with Silicon Valley Bank and spreading through Credit Suisse. With that, the market took out the support at the rising trend line and the 200-DMA, which violated our stop-loss levels, where we reduced exposure to equities. With all of the previous bullish support levels broken, the next logical level of support is the December lows. A failure there will then set supports at the June and October lows.

This past week, the market took a double whammy from Jerome Powell's testimony and concerns about a crack in the regional bank sector. We discussed the latter in yesterday's Daily Market Commentary

We discussed in last week's message that the recession countdown started, and if that is the case, forward earnings remain at risk. Such has implications for investors as valuations remain elevated.

As the recession countdown begins, the market finally took notice of rising yields and the continued talk of higher rates. In last week's message, we discussed that while the bulls were betting on a "no recession" scenario, the market was beginning to question that bet, and a deeper sell-off was coming.

In last week's message, we discussed the bulls were ignoring the Fed's continued hawkish stance on monetary policy. We were also concerned that the correction had likely started in the short term as our MACD sell signal had triggered.

In last week's message, we discussed the bullish signals the market was giving despite the Fed's continued hawkish stance on monetary policy. The commentary remains vital to this week's analysis as our primary short-term "sell" indicator has been triggered for the first time since early December. While that sell signal does NOT mean the market is about to crash, it does suggest that over the next couple of weeks to months, the market will likely consolidate or trade lower. Such is why we reduced our equity risk last week ahead of the Fed meeting.