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Anticipation August 7, 2022

Posted by Tom in Thoughts.
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August 5, 2022 – A good week for the market, but let’s take a step back to catch our breath.  And speaking about market breath (yes, a play on words) last week was very positive.  Whether you look at the number of stocks above their 50 day moving averages or up / down volume things were looking pretty darn good.  The advance was broad, across large to small cap stocks, and deep, just about everything participated.  But (and there’s always a ‘but’), the Fed is still going to raise interest rates and inflation for now is still present.  Is the market anticipating good things happening in the next 6 months, because it always looks ahead, or were we just ‘oversold’ and due for a snap back rally?

click on chart to enlarge

I’ve drawn in roughly two scenarios in green and red on the chart above.  The green is the optimistic route.  The low is in and interest rates will increase but not by much with inflation slowing.  The red route is a less optimistic view with things improving at a slower rate, with perhaps one more trip lower.  I’m thinking that the low for the year maybe ‘in’ but we can expect volatility so that a steady rise will not be ‘in the cards’.  What is the strategy right now?  I favor a “scale in” approach where we put money to work an increment at a time and place it in areas / sectors that are leading the way.  It’s still a time to be cautious and selective.

Looking at the Short Term Sector Strength table below –

Seeing Technology based sectors at the top of the list provides us with a number of opportunities to invest in market leading companies.  One step at a time, this likely will not be a straight line to a new top.  What could mess this up?  Well, next week we continue with earnings reports and new CPI (Consumer Price Index) data comes out Wednesday morning.  Any of these could spook the market and a pullback would be typical.   Let’s watch the volume on down bars for clues as to whether the selling is minor or indeed profit taking after a strong rally.

Have a good week.    ………..  Tom  ………….

Price chart by MetaStock; table by http://www.HighGrowthStock.com. Used with permission.

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