The future outlook for the stock market (SPY) is getting more and more confusing… no less. Why is this? What does this mean for stocks in the coming weeks? And what is the best trading plan to stay ahead of the curve? 40-year investment veteran Steve Reitmeister shares his views in the comment below, including his top 7 stocks in the market today. Read more below.
Six months ago, the stock made a new low at 3491. Since then, we have seen a significant bounce to our current level of 4137.
So, are we still in a bear market… or is there a new bull market?
This vital discussion, along with our best picks trading plan, will be at the heart of today’s commentary.
From a technical standpoint, we are still in a bear market. This is because the definition of a new bull market is when the S&P 500 (SPY) rises by 20% from the lows. Here is the math:
3491 October low x 20% = 4189
However, some will argue that this is just an intraday low and is best measured based on the October 12 close low of 3577. This would mean the stock would need to break above 4292 to be considered bullish territory.
The fact is that we are approaching a bullish breakout. However, at this particular moment, we are in a state of uncertainty that creates a trading range.
You could say that it is as wide as the recent lows from 3855 to 4200. But I think that most of the near future will be in the narrower range from 4000 to 4200.
Why are we in limbo?
The threat of a recession is still high. This was reinforced on Wednesday as the FOMC minutes discussed their fears of a recession in late 2023 due to residual damage from banking problems.
On the other hand, we’ve been hearing about the threat of a recession since early 2022… and it continues to NOT happen.
This resulted in many traders not pushing the sell button too hard due to recession rumors. They have been fooled too many times in the past, only for the market to bounce back violently because there was no recession.
This creates an upward bias in the market over the last 6 months. However, it will be difficult to see too much upside potential until the bears are fully convinced that a recession is not in sight.
This means that another clear bull market breakout will not occur until more bears are convinced of the improved outlook. When more of them turn tail and start buying in earnest, then another bull market will begin.
BUT WHAT IF A RECESSION BEGINS?
Indeed, those recessionary thunderclouds still linger, especially as the Fed’s primary goal is to tamp down inflation by “decrease in demand“Reduced demand is just a fancy way of saying they want to slow down the economy.
In an ideal world, this would be a soft landing around 0% of GDP before the engines of economic growth restart. In this scenario, we have already seen stock market lows and the next bull market will appear.
However, it is just as likely that all the “demand reduction” moves will actually trigger a recession with negative growth, job losses and, yes, much lower stock prices (below October lows).
The recent shocking decline in ISM numbers for manufacturing, services and Friday’s retail sales report paints a picture that the economy could turn into negative territory. And again, remember that the FOMC minutes did indicate their heightened concern that the recent banking problems would hurt the economy, likely leading to a recession by the end of the year.
As long as these serious threats persist, there will be enough legitimately bearish people to keep the market as a whole from moving much higher.
The sum total of this bull/bear confrontation is a trading range environment, likely with significant resistance at 4200 as found in February. I don’t even believe May 3rdrd The Fed’s statement has the power to change that outcome.
So I can see this trading range scenario in place for most of the summer until investors can better determine the true likelihood of a recession.
Range trading plan and new pick on Monday
One of the classic sayings of investors is that we don’t have a stock market so much as a stock market. This means that each individual stock can rise regardless of the overall market conditions.
It’s much easier to appreciate the merits of this saying when you realize that over 2,000 stocks have been in positive territory in 2022, even though the bear market has latched on to most others. And surprisingly, more than 1,000 of these stocks have risen by 50% or more.
This encourages us to always look for the very best stocks and funds in order to outperform them. And in my 43 years of investing experience, nothing does it better than POWR ratings are scanned for 118 different factors. which indicate the likelihood of future success of the action.
So while I am fully aware of the potential for a recession and a deeper bear market, I still want to identify the very best stocks and funds for our portfolio.
What to do next?
Discover my approach to a balanced portfolio for volatile times. The same approach that rose significantly above the rest in April.
This strategy was developed based on over 40 years of investment experience to appreciate the unique nature of the current market environment.
Right now it is neither bullish nor bearish. Rather, it is confused… changeable… uncertain.
However, even in this unattractive environment, we can still chart a course for superiority. Just click on the link below to get started right:
Steve Reitmeister Trading Plan and Best Decisions >
I wish you success in the investment world!
Steve Reitmeister…but everyone calls me Reity (pronounced “Right”)
CEO of StockNews.com and Editor of the Reitmeister Total Return
Shares of SPY rose $0.69 (+0.17%) after the close of trading on Friday. Since the beginning of the year, the SPY has gained 8.26% compared to the percentage increase in the benchmark S&P 500 over the same period.
About the author: Steve Reitmeister
Steve is better known to the StockNews audience as “Rate”. In addition to being the CEO of the firm, he shares his 40 years of experience investing in Reitmeister Total Return Portfolio. Learn more about Reity’s past, along with links to his latest articles and stock picks.
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