V&M Breakout Update - March 8th: Bear Bounce Fades Into February Breakdown
Summary
- The Market Momentum Gauges® turned negative Tuesday as SPY negative weekly outflows were above $2 billion for the third week in a row.
- The larger negative signal from February 3rd continues to follow the breakdown pattern from August 2022.
- Long term V&M portfolios are beating the major indices with Neg Forensic +11.5%, Piotroski-Graham value +15.0%, Pos Forensic +15.5%, Growth & Dividend March +0.9%.
- Update article includes Momentum Gauge signals, daily Economic Data, CFO insider trading, Daily Breakout tracker, Fed balance sheet tracker, and Portfolio returns.
- Weekly MDA Breakout portfolio is up 38.0% YTD and Bounce/Lag Momentum portfolio +24.8% following the signals.
- Looking for a helping hand in the market? Members of Value & Momentum Breakouts get exclusive ideas and guidance to navigate any climate. Learn More »
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V&M Breakout Update - New Bearish Signals
We have new bearish signals this week for both the broad market of 7,500+ stocks and the S&P 500 (SP500). However, sectors remain mixed while all weakening sharply again.
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S&P 500 Volatility
So far into 2023, the S&P 500 volatility remains extremely low. We have only had two days this year with over +/- 2% daily moves well below the average last year with nearly four days a month with big moves. I fully expect to see volatility pick up into Q2.
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SPDR S&P 500 Trust ETF (NYSEARCA:SPY) February-March roadmap shows the continuing breakdown from February negative signal. Bearish stair steps with lower highs and lower lows are likely to continue, with the market heading toward a test of March support levels.
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The Daily SPY chart shows the breakdown from the early February 3rd signal and again on February 21st. The similarities to the August 2022 topping signal remain strong, as we saw frequent bear bounces on the way to -16.2% declines into September last year.
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The ETF momentum gauge trading model switches between Bull/Bear combos following the positive or negative signals on the gauges. Members of my service have seen the following returns from the changing signals. These returns are further enhanced following the early warning signals (not shown). The last positive signal was too short to show returns.
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Long-Term Forecasts for 2023
Forecasts remain unchanged for a bearish outlook based on the impact of QT and rate hikes on markets in all my QT studies from 2018. I have added a new outlook article with the potential for a Debt-Ceiling standoff:
- Largest Market Topping Signal Since August As Fed Considers 50 Bps Rate Hike
- Value, Momentum Breakout View: Debt Ceiling 'Extraordinary Measures' And Fed's QT Program
- Cyclical Rally Faces A February Reckoning
- Forecasting The S&P 500 For 2023: Year Of The Fed-Pivot And More Record Volatility (SP500).
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Short-Term Portfolios/Models
The two weekly breakout portfolios are shown below, along with current 2023 returns. The ongoing competition between the Bounce/Lag Momentum model (from Prof Grant Henning, PhD Statistics) and MDA Breakout picks (from JD Henning, PhD Finance) is shown below with/without using the Momentum Gauge trading signal. The per-week returns equalize the comparison, where there were only 16 positive trading weeks last year.
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Long-Term Buy/Hold Portfolios
Positive Forensic portfolio is leading YTD returns +15.5% but off the highs as Momentum Gauges turn negative.
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You can find details on the long-term portfolios here:
Fed Balance Sheet Tracker
We can confirm the Fed reported another -$38.1 billion reduction in their balance sheet this week, with totals down more than -$468 billion since the week 21 peak last year with a $1 trillion reduction target. The Fed balance sheet has been reduced back to levels in October 2021. We will get the latest balance sheet update every Thursday after the close.
System Open Market Account Holdings - FEDERAL RESERVE BANK of NEW YORK.
Federal Reserve
Federal Reserve balance sheet reduction, actuals and estimates
The Fed cut their balance sheet another -$38.1 billion last week, with only three weeks with a larger cut since QT started last June. Next update from the Fed is Thursday.
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Daily Momentum Gauge Forecast
The Daily Market Momentum Gauges showing similar bear bounce activity as last August. The larger negative signal has returned after a short positive signal, declining from the highest positive momentum levels since August 2022. We are seeing very similar patterns to the August peak, with potential for negative momentum (dotted line) to reach prior September levels. Last August, the S&P 500 declined -16.2% to the September lows.
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Top CFO Insider Buys Versus Sells Last 10 days
The Top 20 CFO buys/sells activity shows extremely low purchase events by all CFOs in the last 10 days. Very few CFOs (8 so far) are buying stocks above the $30k level at what is considered a significant purchase level. The changing levels of buying are used as an early measure for a bullish signal, while selling activity remains extremely elevated and in large amounts in a bearish signal.
Typically, lower CFO activity tends to be a risk-off signal with increased market concern. $30k is a key significance level for best results based on my research: CFO Trading Anomaly: Top Buys Beating S&P 500 By 28% Annualized.
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I am always monitoring the markets to deliver the best signals and returns, with consistent double-digit annual returns for the past seven consecutive years. I hope this brief overview of our market models and signals helps you. Follow my weekly updates for more.
All the very best!
~ JD Henning, PhD, MBA, CFE, CAMS
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