January 19, 2023
Good morning,
Yesterday’s reports on retail sales and industrial production, which followed weak ISM (Institute of Supply Management) reports for manufacturing and services a few days ago, suggest the economy has taken another step toward recession. In response, bond yields plummeted yesterday (yields down, prices up for bonds), as did U.S. stock prices. This was the first crack in our all-asset rally. Not surprisingly, stocks cracked first. The S&P 500 was off -1.56% yesterday and Futures have been down as much as -1% this morning before the opening.
Is the equity market rally over? Not officially, but the technical evidence does not yet support the notion that the current rally is anything more than another bear market rally. Two more short-term technical breadth thrusts did fire over the past three weeks of market rally, but what is missing is any confirmation from intermediate-term technical signals. The start and finish of last year’s bear market rallies lined up unusually well with the short-term overbought/oversold sentiment evidence. That indicator is currently high neutral this morning but was overbought (bearish) on Tuesday’s market close. It may mean there is a little room left in the current rally but overbought or close to overbought is not bullish overall.
I suspect the “a continuation of the trading range we have been in for the last six months” quote from last Friday’s Morning Note is gaining currency.
Be well,
Mike