No one complains when the stock market is on a big bull run. Instead, we just celebrate the increase in our portfolio and net worth.
However, going up and up and up like a helium balloon is not a normal. Typically, the stock market often does more of a dance with 2 steps forward and 1 step back.
That is why I say this is a “healthy pause” for the market to digest recent gains and get rid of some built up excesses. This gives us time today to update our trading plan for how to outperform in the months ahead.
Market Commentary
First, let’s check out the price action as the S&P 500 (SPY) has fallen below the 50 day moving average for the first time in several months. Plus, we are having a test of the psychologically important 5,000 level.
Moving Averages: 50 Day (yellow) @ 5,119 > 100 Day (orange) @ 4,931 > 200 Day (red) @ 4,672
Both Wednesday and Thursday tested the 5,000 level before bouncing into the close. Yet that support does seem a tad tenuous with a likely exploration below coming.
Given recent higher than expected inflation data along with Powell comments to affirm that they are not happy with the recent progress on the inflation front means that rate cuts are further in the future. The debate now rests on whether July or September is the starting line. But there is a growing number of analysts how are beginning to question whether it will even take place this year.
That is especially true if recent tensions between Israel and Iran ignite into a larger conflict. Typically that comes with higher energy prices that would further fuel unwanted high inflation.
This all points to this likely not be the last test of the 5,000 level. Underneath that is the 100 day moving average at 4,931. And further below would be a test of the long term trend line (aka 200 day moving average) at 4,672.
In my last commentary I said that I highly doubted we need to go that low at this time. However, that 200 day trend line will be closer to 4,800 by the end of May. That does sound like a plausible downside level. Yet without a recession in the air there is no logical reason to head below. Unfortunately, the market is not always logical, meaning that there is a wide range of possible outcomes as we move forward.
On a positive note, stock valuations have gotten 10% better. Half of that improvement comes from the recent sell off. The other half comes from earnings estimate increases for the rest of the year as analysts see a pick up in the earnings growth rate. This all leads to a more 10% more attractive PE for the overall market.
News of an improved earnings outlook is one of the best pieces of fundamental news in a long time. That’s because earnings growth is the best fuel for share price appreciation. Yet it has been in short supply as the last few quarters have come with earnings estimate cuts for the future. If this turning of the earnings tide continues it could indeed serve as one of the better catalysts for more upside in 2024 moving into 2025.
It is hard to say exactly when this healthy pause will end. Probably when investors have greater confidence in when inflation is truly under wraps and the Fed will move ahead with their first rate cut.
The data to support that notion may still be 2-3 months from now. My recommendation is to prepare for a trading range with 4,800 as the low and the recent highs of 5,265 as the high.
Too many investors consider a trading range as a period of no gains in their portfolio. Certainly that is true for the market averages. But our goal as investors is not to buy average stocks...instead we want the very best stocks.
That is where our reliance on the POWR Ratings comes in very handy to point out the top stocks. Remember that our A rated stocks are the top 5% of the 5,300 stocks analyzed daily by our quant system measuring 118 different factors for each stock.
Those in the top 5% have achieved gains nearly 4X higher the market average going back to 1999. Interestingly some of the periods of greatest outperformance for the POWR Ratings is precisely what we see now. That being when the market stalls out and investors become more selective to just be in the best stocks.
Read on below to appreciate which of those top POWR Ratings stocks I am selecting in my portfolio....
What To Do Next?
Discover my current portfolio of 12 stocks packed to the brim with the outperforming benefits found in our exclusive POWR Ratings model. (Nearly 4X better than the S&P 500 going back to 1999)
This includes 5 under the radar small caps recently added with tremendous upside potential.
Plus I have 1 special ETF that is incredibly well positioned to outpace the market in the weeks and months ahead.
This is all based on my 44 years of investing experience seeing bull markets...bear markets...and everything between.
If you are curious to learn more, and want to see these lucky 13 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 were trading at $499.86 per share on Friday morning, up $0.34 (+0.07%). Year-to-date, SPY has gained 5.49%, 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.
Investor Alert: Healthy Pause for Stock Market StockNews.com
