EB Daily Market Report - Quick Update - Friday, August 25, 2023
I want to provide you a quick market update and also discuss our portfolio DRAFT from yesterday. First, let's talk DRAFT.
Portfolio Draft
We made a few changes with the draft for this upcoming quarter. First, there was much more weight put on the weekly chart, as opposed to the daily chart. We're trying to stay away from stocks that have really surged and show weekly PPOs at or near their 5-year highs. We're also adding more stocks to the portfolios as some stocks will be given a 5% weighting in the portfolios, while others continue with the 10% that we've used exclusively in the past. Instead of having 10 equal-weighted stocks in each portfolio, we'll have 11 in the Model Portfolio, and 15 in both the Aggressive and Income Portfolios.
All 3 Portfolio ChartLists have been updated, but I'm currently annotating each stock's weekly chart. After that's complete, we'll update our website for everyone to view/download. I'm also in the process of making a few changes to my "War Room" Excel spreadsheet, but that will be made available for members this weekend.
Market Update
Well, the Fed has spoken. Fed Chief Jay Powell took to the stage from Jackson Hole, WY, and delivered his annual speech. After last year's speech, we saw a HUGE selloff as Powell warned of "more pain ahead". This year, he recognized the progress that's been made vs. inflation, but repeated that the Fed's job is not done. He said inflation remains too high and that the Fed is prepared to raise rates further, if necessary. He also noted that risks are two-sided. Raising rates too much could have negative implications for the economy, while not raising rates enough could allow inflation to become entrenched.
All in all, this is just about what I expected from the Fed. But will it be enough to reverse the last month's selloff? Well, that's the million dollar question.
Personally, I'm not changing my strategy. I want to see the S&P 500 continue to trade at or above its 20-week EMA. The S&P 500, at last check, traded at 4381 and the 20-week EMA sits at 4337. The biggest price support on the S&P 500 is at the breakout above the August 2022 high at 4305. Therefore, I say the current range of support runs from 4305-4337. If the S&P 500 trades into the 4200s, I'll move to cash until a reversal brings us back above both those levels.
Keep in mind that the S&P 500 is less than 5% under its recent high. Yes, everyone thinks the sky is falling again, but none of my go-to signals suggest a major selloff here. I'd be shocked. As I said a little over one month ago, the stock market was vulnerable and subject to a period of consolidation/selling. The fact that we're down 5% isn't an earth-shattering development. The stock market rarely goes up day after day after day into the stratosphere. We needed a break and, in my opinion, this is healthy for the longer-term and especially as we approach the very bullish Q4.
We remain in a seasonally-difficult period (July 17th close through September 26th close), but there are pockets of historical strength during this summer period and next week happens to be one. Here are the S&P 500 annualized returns for each day next week (since 1950):
- Monday, 8/31: +10.85%
- Tuesday, 9/1: +26.69%
- Wednesday, 9/2: +62.42%
- Thursday, 9/3: +4.54%
- Friday, 9/4: -40.02%
Clearly, a strong afternoon rally today (with the Fed now out of the way for a few weeks) could set the stage for further buying early next week. We'll see.
Have a great weekend and I'll be back on Monday with your next DMR.
Happy trading!
Tom