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.
Why Are We in Limbo?
The threat of recession still looms large. This was reinforced Wednesday because the FOMC minutes discussed their fear of recession later in 2023 because of residual damage from banking issues.
On the other hand, we have heard about the threat of recession since early 2022...and it keeps NOT happening.
This has led many traders to not hit the sell button too hard on any whispers of recession. They have been faked out too many times on that in the past only for the market to bounce back ferociously as no recession unfolded.
This is creating an upward bias in the market the last 6 months. Yet will be hard to see too much more upside until the bears are thoroughly convinced that no recession will be in the offing.
Meaning the clear new bull market breakout will not happen until more bears are convinced of an improving forecast. When more of them turn tail and start buying in earnest is when the new bull market will begin.
BUT WHAT IF A RECESSION DOES FORM?
Indeed, those recessionary storm clouds still linger especially as the Fed’s primary goal is to stamp out inflation by “lowering demand”. Lowering demand is just a fancy way of saying they want to slow down the economy.
In a perfect world that is a soft landing near 0% GDP before the economic growth engines restart. In that scenario we have already seen the stock market lows and the next bull market would emerge.
However, just as likely is that all the steps to “lower demand” actually spark a recession with negative growth, job loss and yes, much lower stock prices (below the October lows).
Recent shocking declines in ISM Manufacturing, Service and Friday’s Retail Sales report do paint the picture of an economy potentially tipping over into negative territory. And again, remember that the FOMC minutes did point to their increased concerns that the recent banking issues will be harmful to the economy likely leading to a recession by end of the year.
As long as these serious threats linger, then there will be enough people rightfully bearish to prevent the overall market from heading much higher.
The sum total of this stand off between bulls and bear is a trading range environment likely with serious resistance at 4,200 as was found in February. I don’t even believe the May 3rd Fed announcement has the muscle to change that outcome.
Thus, I could see this trading range scenario in place for a good part of the summer until investors can better determine the true likelihood of recession.
Range Bound Trading Plan & New Pick Coming Monday
One of the classic investor sayings is that we do not have a stock market as much as we have a market of stocks. Meaning that each individual stock has the potential to rise no matter the overall market environment.
It is much easier to appreciate the virtue of this saying when you understand that over 2,000 stocks were in positive territory in 2022 even as the bear market got its claws into most others. And amazingly over 1,000 of those stock rose 50% or more.
This begs us to always be on the lookout for the very best stocks and funds to outperform. And in my 43 years of investing experience nothing does a better job of that than the POWR Ratings scan of 118 different factors that point to a stock’s likelihood of future success.
So even though I fully appreciate the potential for recession and deeper bear market, I still want to be pinpointing the very best stocks and funds to hold in our portfolio.
What To Do Next?
Discover my balanced portfolio approach for uncertain times. The same approach that has risen well above the pack so far in April.
This strategy was constructed based upon over 40 years of investing experience to appreciate the unique nature of the current market environment.
Right now, it is neither bullish or bearish. Rather it is confused...volatile...uncertain.
Yet, even in this unattractive setting we can still chart a course to outperformance. Just click the link below to start getting on the right side of the action:
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!
SPY shares rose $0.69 (+0.17%) in after-hours trading Friday. Year-to-date, SPY has gained 8.26%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
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.
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