Market Whispers - At a crossroads...
Markets: Beachman's portfolio tactics based on his read of the markets
The SP500 index did some major damage control last week, rising 4.6%, while the Nasdaq gained an impressive 6.7%. Take a look at the SP500 chart below. It broke above a YTD downtrend line and moved higher than the 5,500 resistance level that we have been monitoring for weeks. We now have a BUY signal on the daily chart and are getting close to being overbought.
The index is about 10% above the recent lows and about 10% below YTD highs.
So we are at a crossroads…
I am left to wonder if I should change my bearish thesis and buy the dip.
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Table of contents
Overall market conditions
Beachman recommends
Beachman’s portfolio stance
Important dates
Market signals
Radically different environment
Beachman’s plan
Overall market conditions
Trend: Trying to recover.
Risk level: Very high.
Investor sentiment: Fearful.
Beachman recommends
Each week, I share a recommendation for an app, a book, a website, a podcast, a publication, a movie…anything that I find interesting and useful from an investing and financial management perspective. I don’t get paid to do this. Beachman’s Newsletter has and always will be an ad-free publication. So here goes…
CNBC radio
95% of CNBC’s content is a waste of time…more of a financial “entertainment” channel rather than a helpful service for investors and traders. But that remaining 5% of what they produce is sometimes valuable and insightful…especially when we get important macro updates like the monthly jobs report or the CPI & PPI inflation reports or even when there a Feds or Treasury speech or press conference that we need to tune into. I pay attention when they have Steve Liesman, Stephanie Link or Josh Brown on. You can listen to CNBC’s live broadcast for FREE via their radio channel…which can be accessed from their website or even through Amazon Alexa.
Beachman’s portfolio stance
68% long. 31% hedged.
Focused on establishing my hedges.
Trimming and raising cash in line with my 2025 market roadmap.
2 medium term trades in place (See current trades at Beachman’s Salty Trades).
Important dates
Apr 30th - Q1 GDP report.
May 1st - ISM manufacturing report.
May 2nd - Apr jobs report.
May 5th - ISM services report.
May 7th - US Feds interest rate decision and press conference.
May 16th - Monthly options expiration.
For short term trade ideas, check out Beachman’s Salty Trades.
On the daily, you can find Beachman in four places…
Beachman’s Substack chat line here
Beachman’s Substack feed here
Beachman’s X feed here
Beachman’s Threads feed here
Please check out the must-reads listed on the About page and the Roadmap page.
Market signals
Now that the SP500 is above the critical 5,500 resistance level, we need confirmation that it will hold that level when there is downward pressure…meaning…5,500 needs to act as support or else we will slide back to previous lows quickly.
We also need to see higher trading volume and more new highs (bottom section on the chart). You will notice that both these signals are very low right now.
The Nasdaq has a tougher bar to cross. It needs to rise much higher and break above 485 before we have any confidence that tech stocks are a buy again. The lower trending daily volume is not ideal.
Small caps need to break above their 200 weekly moving average (purple line) before anything good can be claimed. It is in a serious death cross downtrend. Does anyone want to own these puppies?
Bitcoin is trying to put on a show and there could be something to consider here. There was a major thrust up about 7 trading days ago on much higher volume. While this seems to be stalling in the mid-$90k, all the moving averages are now trending higher on stronger momentum.
What else am I watching?
The next 10 days will give us important macro information that needs to be factored in my 2025 roadmap. See those dates and reports listed above.
There has been lots of front running of tariffs YTD. Pre-ordering of goods from manufacturers, consumer stock piling in anticipation of higher inflation, inventory building of raw materials and parts by businesses etc. Early indications (from shipping and transportation sectors) are that this is now tapering off. But we need to see confirmation in the actual relevant macro reports.
Consumer expectations for higher inflation are at a 45-year high.
Q1 GDP growth was initially estimated at 2.4%, but is now forecasted at less than 0.5%. Consumers account for 68% of total GDP.
Manufacturing readings fell back into contraction territory in March and are expected to drop further in April. Services metrics are barely holding on.
Non-farm jobs created last month is forecasted to drop to about 130k, much lower than the 228k new jobs in the prior month.
Radically different environment
As I considered all these charts and market signals, an update from Bridgewater hit my inbox. It clearly articulated the current landscape and what I have been writing about since Feb this year.
Here is how they puts it…
“…we are now facing a radically different economic and market environment that threatens the existing world order and monetary system. We have been transitioning to this world for several years, but now the shift has sharply accelerated and become chaotic. This new macroeconomic and geopolitical paradigm is turning past tailwinds into headwinds and reshaping global flows of capital.”
“…We have been through many big economic shifts over Bridgewater's 50-year history, so we don't speak lightly when we say that this looks like a once-in-a-generation one. Facing a new reality, everyone must adapt. Those who adapt fast and well will gain at the expense of those who adapt slowly and poorly.”
“Today, we see three interrelated dynamics at the core of this new reality: 1) a new geopolitical and macroeconomic paradigm, 2) an urgent threat to investment portfolios from this paradigm shift, and 3) a once-in-a-generation technological disruption.”
“Many portfolios are increasingly vulnerable to 1) any weakness in growth, 2) central banks not being able to ease into problems, 3) equity underperformance, and 4) US underperformance relative to the rest of the world.”
“We expect a policy-induced slowdown, with rising probability of a recession. The Fed is less able to ease proactively into the slowdown a stagflationary risks rise; other central banks will lead the easing cycle. US corporates are under threat, while strong earnings remain priced in. We see exceptional risks to US assets, which are dependent on foreign inflows.”
This is an important reality check as markets throw out bullish signs.
So far, we have not secured any meaningful trade deals. The most critical contract between China and the US is not even being negotiated. The US has to put in place new pacts with about 90 countries in less than 90 days. That is literally impossible.
Even if deals are struck, there has been a deep erosion of trust with our trading partners. Deals can be made but they can also be rescinded with a tweet. Other countries will build in safe-guards and insurance leading to higher prices for US consumers, lower margins for US companies and less foreign investment in US assets.
Markets are pricing in a rate cut in the May Feds meeting. On what basis, I cannot fathom.
Consumer sentiment and business sentiment is dropping fast. The former was recently reported by the much respected University of Michigan. The latter is being confirmed by NFIB reports, ISM reports, CEO surveys and Q1 earnings reports, specifically forward guidance.
Beachman’s plan
So is it safe to buy the dip?
Buy more or sell more or hold here?
Add more hedges or take off hedges or hold here?