The Market: Fear, Fed, and Factors at Play

October 29, 2023 Update

Oct 29, 2023

One more negative week in the markets. Let’s start with the equal weight SP500 (RSP 0.00%↑) that breaks below the consolidation area I have been watching for months. At the same time, price keeps distancing from all moving averages on high volume. All bad signs. See below:

Looking from a wider perspective the RSP 0.00%↑ has about a further 6% to lose from current levels to test the lows from Sept-Oct 2022

The high volume indicates an increase in fear, captured by the Greed & Fear index (see below):

Normally, it would be a good idea to start slowly accumulating at this level of fear. The problem is that it can stay in the extreme-fear territory for several weeks. Look above how it stayed for some weeks above the “extreme-greed” level in June-July this year.

On the positive side, the 10-year treasury yield stepped going up. Yet is too early to claim victory. the trend is still UP.

Also, the price of Oil (below) has stabilized at around $90, which is a positive in such a difficult geopolitical environment.

Now what concerns me the most is that the FED keeps shrinking the total amount of money supply in the system after a period of stabilization (see below):

Less money supply = higher interest rates (price of money).

The credit market for businesses keeps getting tighter (see below the number of banks tightening credit standards:

Delinquency on credit cards is on the rise to concerning levels:

While Q3 was a very strong quarter for the US economy as it grew at 4.9%:

While valuations are getting to “fair” levels overall and companies are mostly reporting Earnings positive surprises, what really matters is the Outlook for the last quarters where the majority of companies are reporting less positive outlooks (guidance):

My point of view in bullet points:

Although inflation is low and should keep heading lower, the economy stays strong, employment levels are high and so the risk of seeing “higher rates for longer” are concrete;
Higher rates for longer increase the probability of a recession;
Many indicators are pointing to tighter credit market conditions;
A sense of a slowing down economy is reflected by lower earnings and revenue guidance;
The geopolitical picture speaks to uncertainty;
All in all, this is a market that needs more time and the odds right now point to further downside but I don’t like to make assumptions, so I prefer to see how it will unfold;
In the meantime, I keep working on my watchlist of “opportunities” waiting for the right setup to get back into the market.

PORTFOLIOS:

I am left with 1 position per Portfolio.

LARGE CAP MOMENTUM CAP (link):

Here I have PDD 0.00%↑ only incredibly still in the green. I am not touching my Stop Loss order.