Home on the Trading Range

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return


SPY – The nearly 20% bull run for the S&P 500 (SPY) from the March lows is over. Now it’s time to rest up in a trading range for the next run higher. Meaning this is the natural course of things. To relax after a hard run…and then store up the required energy for the next sprint. The best part is how we can use these more range bound periods to buy the dip on some stocks with terrific upside potential. Let’s talk about how we will do just that in this week’s Reitmeister Total Return commentary.

 

We FINALLY saw the stock market take a step back after a seeming non-stop 5 month rally. Many investment commentators point to the Fitch ratings downgraded of US debt as the primary cause. However, if we are being honest with ourselves….this self off was long overdue. The Fitch announcement was just a convenient excuse to hit the sell button for a while.

Friday was an interesting session worthy of note. The Government Employment Report seemed like a Goldilocks announcement. Not too hot…not too cold…just right helping the S&P 500 rise nearly 1% early in the session.

Yet as the day progressed those gains melted off the board leading to a -0.53% session. Even more interesting was the S&P 500 (SPY) closing below 4,500 and now probably on our way towards 4,400 (more on that in the Price Action section below.)

Even though we don’t like seeing red on the screen…this is healthy. That investors took the opportunity of an intraday rally to take more gains off the table.

On Monday we got a solid bounce back as investors have gotten into the habit of buying every dip the past several months as that strategy has paid off handsomely. What they didn’t know was a surprise announcement on Monday that Moody’s was downgrading their ratings on a slew of small to midsized banks. This reawakened the Risk Off sentiment from last week with more investors hitting the sell button in earnest on Tuesday.

This is the classic swinging of the fear/greed pendulum. The greed of the rally up to 4,600 was overextended. Simply conditions were not that pristine to keep rising. This left investors vulnerable to any bad news for which Fitch and Moody’s were reminders that the overall market may be ahead of itself.

Another reminder of this is on the earnings front. As we come down the homestretch of Q2 earnings season we find that earnings estimates for the future have been trimmed for the next few quarters. Adding those 3 quarters together points to virtually no year over year growth.

The weak earnings outlook is NOT GOOD FUEL FOR A BULL RALLY

Especially true when the S&P 500 is already at a PE of 20. That is not necessarily overpriced…but it is rather fully priced. Thus, to reasonably expect more upside you need better earnings growth prospects for the future to compel higher prices without overly inflating PE.

This is a long way of saying that now is a logical time for the runaway rally to end and for us to enter a healthy consolidation period to digest recent gains. And thus be more selective about the stocks that should advance from here.

So Why Still Believe in a Long Term Bull Rally?

Because the Fed is providing more hints of a “dovish tilt”. That gained steam with the speech from Harken of the Philly Fed where he stated that likely no further rate hikes are needed. At this stage they just need to give the current high rates time to sink in and bring down inflation further. Then start thinking about lower rates.

Plain and simple, the future lowering of rates is a tail wind for the economy that increases the odds of better growth prospects (what is needed to push prices higher). Knowing that is on the horizon is a reason to be more bullish now.

On top of that you have more business people feeling optimistic about the future. Here is the chart for the NFIB Small Business Optimism reading on Tuesday morning at 91.9.

As you can see this is the 3rd straight month of improvement and the highest reading in quite a while. This increased optimism is a precursor to improving growth trends.

Think about this. First you feel good about something…then you act on that positive impulse. This is why sentiment surveys are considered leading indicators of future economic activity.

Putting it altogether there is stronger reasons to believe that recession will be avoided during this rate hike cycle. If so, then the economy should pick up from here…which lifts earnings prospects…which is necessary fuel for share price appreciation.

Price Action & Trading Plan

Here is the updated S&P 500 chart:

Moving Averages: 50 Day (yellow), 100 Day (orange), 200 Day (red)

Right now 4,600 is setting up as a spot of stiff resistance and now trying to find support on the underside for likely a trading range to form. My guess is that the 50 day moving average around 4,420 is about as low as stocks need to go.

This sets up for a trading range where we likely swim around for a few months before the typical holiday rallies of November/December kick in giving us a real shot at the previous all time high of 4,818.

This sets us up nicely for a stock pickers market which is my favorite. Meaning where the overall market is kind of lukewarm…but those with a stock picking advantage find way to carve out profits.

In our case, the POWR Ratings is a big advantage in our corner to find stock picking profits in any market environment…especially an environment where the leaders are overripe and investors will rotate to more attractive, underpriced plays.

What To Do Next?

Discover my current portfolio of 5 stocks packed to the brim with the outperforming benefits found in our POWR Ratings model.

Plus I have added 4 ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead.

This is all based on my 43 years of investing experience seeing bull markets…bear markets…and everything between.

If you are curious to learn more, and want to see these 9 hand selected trades, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Picks >

Wishing you a world of investment success!


SPY shares fell $0.10 (-0.02%) in after-hours trading Tuesday. Year-to-date, SPY has gained 18.23%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

 

 

 

Stock Market Gets “Fitch Slapped”

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return


SPY – The S&P 500 (SPY) seems to have hit a wall at 4,600 thanks in part to the surprising downgrade of US debt by the Fitch ratings service. Not only is that taking place, but investors also go served up the 3 key monthly economic reports that have market moving impact. Steve Reitmeister reviews this latest news to update his market outlook, trading plan and preview of 7 top picks. Get full details below…

 

Forgive my inner child for laughing so hard at this. But one of the greatest investment terms was coined this week in that the market got “Fitch Slapped”.

Meaning that the Fitch ratings downgrade for US debt slapped the investment world into submission this week. Not just a long overdue softening of stock prices as the S&P 500 (SPY) retreated from recent highs. There was also a reversal of course of long term bond rates as they headed higher once again.

Beyond that we also got served up the Big 3 economic reports this week. So there is much investment news to digest to plot our course in the days and weeks ahead.

Market Commentary

Plain and simple, the Fitch downgrade of US debt was the “Easy Button” excuse for a long overdue sell off. I don’t believe anyone is terribly worried about a debt crisis occurring any time soon.

That’s because there are several other large developed countries with as high if not higher levels of government debt vs. GDP. One of them will most certainly topple before the US like Japan, Italy, Spain, UK etc.

Yes…when those problems start to bubble up, THEN it’s time to get worried about US debt problems coming next which would be bad news for both the stock and bond market. In the meantime we are still in the midst of a new bull market where some recent gains needed to be taken off the table.

With the Fed looking ready to end the rate hike cycle, investors just want to make sure that the soft landing doesn’t devolve into a recession. To help us gauge that investors will look closely at the Big 3 economic reports this week.

First up was ISM Manufacturing on Tuesday. The 46.4 is no doubt a weak showing. But investors care more about the direction of things and what that means for the future.

As such, that reading was a step up from 46.0 in the previous month. Plus New Orders jumped from 45.6 to 47.3 which points to things getting better in the future.

On Thursday we got the ISM Services reading at 52.7 when 52.0 was expected. On top of that the New Orders was a healthy 55.0 which points to even better readings down the road.

However, if I were to point to a negative in these reports, both showed a noticeable drop in the Employment readings: 44.4 and 50.7 respectively. Combine that with the JOLTs report this week showing another reduction in job openings and it could be a sign that the jobs market is about to weaken.

Remember the changed language from the Fed at the late July meeting. They no longer expect a recession to emerge before their fight against high inflation is over. However, they do still predict a softening in economic growth and a slight increase in the unemployment rate.

That employment piece is a hard plane to land because often when the unemployment rate starts to rise…it keeps getting much worse than expected. That will means investors will probably be most focused on the employment part of the economic picture to best determine how bullish or bearish they want to be.

So that brings us around to the final, and most important part of the Big 3 economic reports. That being the Government Employment Situation report on Friday morning.

This was pretty much a Goldilocks type result. Not too hot…not too cold…just right.

The inline showing explains why stocks are bouncing Friday morning after a spate of recent weakness. However, it is was not all rainbows and lollipops.

The blemish is that the Fed has been very focused on wage inflation which has been too sticky. Indeed it stuck at +4.4% year over year when investors expected it slow down to 4.2%.

Even the month over month reading was higher than expected at +0.4% which points to nearly 5% annualized pace. This single point could have the Fed being a bit more stubborn with their hawkish rate plans.

Trading Plan

At this moment there is no reason to doubt that the bull market is still in place. However, stocks have been going up virtually non stop since March. That puts us in overbought territory…which makes now the perfect time place in which to see a 3-5% pullback before advancing higher.

This is healthy and normal. What pros often call “the pause that refreshes”.

I think the 50 day moving average (yellow line below) at 4,400 is a likely short term destination for stocks on the downside. This would help frame a comfortable 200 point trading range with 4,600 on the high side.

 

chart of 50-Day-Moving-Average-8-4-23

 

Note that I don’t think the S&P 500 ends the year much higher than the 4,600 level we just touched. Rather, most of the large caps leading that index have already had their fun. Instead I see the gains broadening out with small and mid caps taking charge.

Remember that the Russell 2000 small cap index is still about 15% under its all time highs. Compare that to the idea that small caps outperform large caps over the long haul. Meaning its time for some reversion to the mean and these deserving stocks getting more investor attention.

What To Do Next?

Discover my current portfolio of 3 hand picked stocks packed to the brim with the outperforming benefits found in our POWR Ratings model.

Plus I have added 4 ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead.

This is all based on my 43 years of investing experience seeing bull markets…bear markets…and everything between.

If you are curious to learn more, and want to see these 7 top picks for today’s market, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Picks >

Wishing you a world of investment success!

Steve Reitmeister… but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com & Editor, Reitmeister Total Return

 


SPY shares were trading at $451.30 per share on Friday morning, up $2.46 (+0.55%). Year-to-date, SPY has gained 18.90%, versus a % rise in the benchmark S&P 500 index during the same period.


 

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

 

August Stock Market vs. Big 3 Economic Reports

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return


 

SPY – The new bull market is hand as the S&P 500 (SPY) moves ever closer to the all time highs. However, that doesn’t mean we can fall asleep at the wheel as the health of the economy is always part of the stock investment equation. As such let’s review the Big 3 economic reports on the menu in early August and what that tells us about the market outlook and adjustments to our trading plan. Read on for the full story below…

This week we get served up the Big 3 economic reports to give us a wide ranging view on the health of the economy.

Typically, these are market moving events. However, with stocks on such a tremendous bull run, then the good news is likely priced in and the risk remains to the downside.

The first of those reports came in today, ISM Manufacturing. So let’s discuss the results along with a preview of the other 2 to shape our market outlook and trading plan.

Last week the key event was the Fed announcement on Wednesday 7/26. I gave a pretty thorough analysis of the event in this commentary.

The summarized version is that there is good reason to believe the Fed has made their last rate hike. Further, they have improved their future economic outlook to where they believe inflation can be tamed without creating a recession.

Investors already assumed that to be the case which was the catalyst behind the nearly non-stop rally we have enjoyed since mid March. That is when fears of the banking concerns started to go away allowing the S&P 500 (SPY) to bounce from 3,855 to the present level that is getting ever closer to the all time highs.

With the Fed announcement by the way side, plus Q2 earnings season in line with modest expectations, now attention turns to the Big 3 economic reports that kick off each new month.

ISM Manufacturing got things started on Tuesday morning. It is hard to say with a straight face that the 46.4 reading is good when everything below 50 is a sign of economic contraction. However, it is a step up from the even weaker 46.0 last month. More importantly, the New Orders component rose from recent weakness which generally means future readings will be higher as well.

However, given the importance of full disclosure I will admit that the Employment component falling to 44.4 could be a sign that the jobs market is finally about to weaken. However, that would not necessarily lead to a sell off as that was expected at some point during this aggressive rate hike cycle.

More likely investors will see that as a sign that wage pressure will abate…which leads to a lower overall inflation picture…which means the Fed will start lowering rates soon rather than later making the future economic and stock market outlook that much brighter.

The next of these Big 3 reports is ISM Services which taps into a much larger swatch of the economy. Previously that spiked from 50.3 to 53.9 in the July reading. This time around investors are expecting a more modest 52.0 reading.

Not great. But not terrible for an economy where the Fed is still slamming on the brakes with the highest rates in over 20 years.

Honestly, anything north of 50 for this report would be a green light for bullish investors. Below that would strike a note of caution. But likely nothing more than a very small sell off.

Coming down the homestretch, on Friday investors will digest the monthly Government Employment Situation report. Remember that the jobs market has been surprisingly resilient over the past 17 months as the Fed has been raising rates. That is why once again the market is expecting healthy job adds in the neighborhood of 190,000.

Equally important to the number of job ads is the reading for wage inflation. That was a bit too hot at 4.4% year over year according to the July reading. That is expected to keep moderating at this meeting which will only further embolden the Fed to prepare for an end to the rate hikes and future decreases. That more accommodative stance will be better for the economy…and better for stock prices as they will look more attractive as interest rates decline.

Price Action & Trading Plan

Now let’s check in with the following S&P 500 price chart to see what it is tell us:

 S&P 500 price chart Continue reading "August Stock Market vs. Big 3 Economic Reports"

Bull or Bear or Neither?

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.

Click Here to learn more about Reitmeister Total Return


Six months ago, stocks made fresh lows of 3,491. Since then, we have seen a hefty bounce to our current `perch at 4,137.

So are we in still in a bear market…or has the new bull emerged?

That vital discussion, along with our trading plan with top picks, will be at the heart today’s commentary.

Market Commentary

Technically speaking we are still in a bear market. That is because the definition of a new bull market is when the S&P 500 (SPY) rises 20% from the lows. Here is that math:

3,491 October Lows x 20% = 4,189

However, some will say that was only an intraday low and more appropriate to measure based upon the closing low of 3,577 set on October 12. That would mean stocks would need to break above 4,292 to be considered in bullish territory.

The point is that we are getting closer to a bullish breakout. Yet where we stand at this precise moment is a state of limbo which is what creates a trading range.

One could say it’s as wide as the recent lows of 3,855 up to 4,200. But I think most of the near future will be spent in a tighter range of 4,000 to 4,200.

SP500 Continue reading "Bull or Bear or Neither?"

When Will The Balloon Pop Again?

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.

Click Here to learn more about Reitmeister Total Return


By far the most popular article I have written in years was from last week because it crystalized what so many of us are feeling. Here it is again:

The WORST Stock Market Ever!

Unfortunately, everything said then is just as true now. That being that the only trend is NO trend. And that is true even after a few solid days in the plus column.

Gladly, we can add a few key updates to help us plot our trading plan for the days ahead. That is what is in store in this week’s commentary below…

Market Commentary

Let’s start with a helpful analogy that will frame our discussion today. And that is to appreciate that the stock market is quite similar to a helium balloon.

Meaning that its natural state is to float higher unless it is being held down by a stronger, negative force that pushes it lower.

Please read that again so it sinks in.

Now if we pull back to the big picture, we can easily appreciate that state of floating higher is true because 85-90% of investment history is framed by bullish conditions where going up is more likely than going down. However, we find this picture to also to be the case during bear markets when negative events are removed.

Consider the start of the year…how the market climbed day by day in January. Perhaps it was because there was really nothing negative to hold stocks down. Continue reading "When Will The Balloon Pop Again?"