Last week, the NASDAQ dropped 3.5%, bouncing off its 200-day moving average (DMA), which serves as key institutional support. This marks the third test of significant support levels since March 2023, so we must maintain institutional demand at these levels. Each time the market tests these key support zones (like the 50 and 200dma), the likelihood of them being held decreases. Institutional investors (hedge funds, pensions, sovereign wealth funds) drive our trends, and the long-term trend is still positive. However, these support levels must hold, or we could be headed for a recession or bear market.
There’s been an uptick in down days on above-average volume, signaling heavy selling from big-money investors. Knowing when to “hold em or fold em” is essential for meeting long-term financial goals. When the market isn’t rewarding risk, I stick to my rules, step aside, and wait for stocks to break out of sound base pattern price pivots. Smart money looks ahead six to twelve months and positions itself accordingly. The market is adjusting expectations for future stock profits in light of the 25% tariffs on Canada and Mexico (and 10% on China) set to impact Tuesday, March 4, 2025. The market doesn’t like uncertainty, so stocks are being sold off in anticipation of how these tariffs might affect corporate profits. The return of open, tariff-free international trade could push the market higher out of this trading range, but that is unlikely.
Gold has only dipped about 3% from its all-time highs, with investors flocking to it as a hedge against inflation and economic uncertainty. The U.S. Treasury has been issuing more short-term T-bills to service our national debt rather than long-term bonds, which has helped reduce mortgage rates, potentially boosting the housing market. Falling rates might also be a reaction to fears of a tariff-induced recession. Oil prices have been sliding since mid-January, possibly due to recession worries, likely leading to reduced oil demand. Consumer confidence dropped last week as expectations for slower economic activity grew. NVIDIA posted solid earnings, but the stock still fell below its 50-dma. Many growth stocks face technical breakdowns and need time to recover, so I’m staying patient and waiting for better setups.
The market’s primary concern is uncertainty, and this Friday’s job report could clarify whether we stay in a trading range or heading into a bear market. Friday saw many oversold stocks showing “undercut and rally” patterns, a sign of potential accumulation. That would be a bullish signal if these recent lows hold. However, if these levels break down with increased volume, I will adopt a more bearish stance and look for stocks or ETFs to short.
The AAII (American Association of Individual Investors) survey shows a record-high 60.6% bearish sentiment, and the CNN Fear/Greed index indicates extreme fear. These are often viewed as contrarian signals, suggesting retail investors have already capitulated, which could mean the worst is over. Tariffs on Tuesday could push us into a recession/bear market, or the market could ignore it and move higher. May God’s grace and peace bless you!
As each has received a gift, use it to serve one another as good stewards of God’s grace. 1 Peter 4:10
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Dexter Lyons, Portfolio Manager
337-983-0676 Dexter@ChristianMoneyBlog.net
Active Risk Management, CANSLIM Investing
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