The Tough Switch….
What I am talking about here is the switch from hyped artificial markets, the kind of markets that we saw between August 2020 and January 2022, and the new demand markets which started evolving in May of 2022.
I see January 9th 2023 as an important date, the day I call the “Date that the FED became unhinged”. That was when the FED pushed Fed Funds rate to 110 basis points over average market based rates. The FF rate was 4.620 and average market rate was 3.772 on that day’s close. This morning before the opening we see the FF rate at 4.669 and the average market rate at 3.882, with the FF rate 79 basis points above market rates. What is important is that real growth is being shown in the economy and yet the Fed would appear to be stalling out in spite of the most recent FF hike. I will be watching closely at each release of the GPNOW numbers during this first quarter. I think they will be better than expected by the market.
For me from a trading standpoint, as we move into the new growth demand market I want to see which markets are performing during the FED unhinged period.
Below is the ranking of the 27 indexes and sectors that our model follows, using 1/9/23 as the start of this comparison. The first table is the top 14 and the second table is the bottom 13. You will recall that the sectors shown in gold color are the core part of our Climate Change Model. I also have shown the performance of 3 sectors in red as I view the performance of these sectors as problematic in the sense that they reflect old artificial market thinking, ie bitcoin, Wanna-Be Fangs, and Meme stocks. On the Plus side the EPCC designation (eureka-perspective climate change portfolio) is where my focus is at this time.
The sectors/indices in the bottom half illustrate what I am avoiding. “Comp market” refers to a composite index of stocks, commodities, bonds, and bitcoin.
Trading in the short term..
With the market having pierced the 200 day average it is very overbought at the moment. As such a backoff on the S&P into the 3890 to 4030 level is probable. I view that area as support keeping in mind that in this early stage of a New growth market, the biggest demand factor is the 80 % of the market that is either short or less invested than needed.