Last week, the S&P 500 recorded a loss of -0.8%, with particularly significant losses observed on Thursday. This marked the first time in a long while that a week ended with a downtrend. Investors are closely monitoring this development as it may signal a shift in market sentiment.
Our last position, which we placed, has been active since February 16th. The position is currently up by 3.4%. You can find free access to our buy and sell signals below.
Since the beginning of January, the S&P 500 has been in a trend channel defining its strong uptrend. A larger correction of 5-10% has been overdue for weeks and will only occur if the trend channel is broken downwards. However, this week, the trend channel was indeed breached, which could be an initial sign of a possible end to the uptrend. It remains to be seen whether this breakout will continue. The S&P 500 rose back to the trendline on Friday and is now testing it from below. As simplified in the chart below, the S&P 500 is currently at a critical juncture. It could either rise back above the trendline and continue its upward trend, or fail to reclaim the trendline. In the latter case, the uptrend would be over, and a correction would likely follow.
The macro environment remains negative, with various signals from the Risk Level Indicator (RLI) increasingly confirming this. My baseline scenario anticipates rising stock prices until the recession in the USA or a credit event in the spring of 2024. Particularly noteworthy is the Federal Reserve’s Bank Term Funding Program (BTFP), which was launched after last year’s banking crisis to assist banks facing difficulties due to high interest rates. This program has expired, and banks now must gradually repay the loans to the Fed over a year. The RLI will detect emerging issues in a timely manner and adjust the risk level accordingly. At the moment, a somewhat defensive allocation in stocks is recommended.
The world of finance is complex and includes many technical terms. For explanations of these terms, I recommend using the Investopedia dictionary.
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