03-16-25 Tariff Concerns!

Friday’s rebound was driven mainly by Congress avoiding a government shutdown, which could have added more uncertainty to an already jittery market. However, tariff wars continue to weigh on the markets and persist until analysts can better gauge how reciprocal tariffs may affect future earnings. Investors are seeking safe havens, and gold has been a primary beneficiary. I hold a 15% position in a gold ETF, with the remainder in cash, waiting for a Follow Through Day (FTD).

FTDs can happen four days after a market bottom if a major index closes 1% higher on increased volume. An FTD signals that significant money is flowing back into the market, and I’ll be ready to buy stocks at their pivot points when that happens. Risk management is crucial during corrections. The S&P 500 dropped 10% from February 19, 2025, to March 13, 2025, officially entering a correction. The NASDAQ 100, Russell 2000, and OTC indices experienced greater declines than the S&P 500. The S&P 500 is down 4% year-to-date, so it’s important to be cautious.

The AAII Bear indicator has been over 55% for three consecutive weeks, a pattern that has only been observed once before—on March 4, 2009, which marked a market low. Friday could have been a market bottom, but we need more time to confirm. Junk bonds are performing positively this year, suggesting this could be a minor correction, but risk management remains key.

Inflation is cooling, allowing the Fed to cut rates, potentially boosting stock prices. Hedge funds have been more leveraged long in U.S. equities than at any point in the last five years, with Commodity Trading Advisors (CTAs) almost 300% leveraged in stocks, which contributed to the 2024 rally. Traders were essentially “pulling forward” gains based on strong earnings expected in 2025. However, the “Deep Seek Black Swan” event has led companies to adjust their AI spending, and analysts are revising earnings expectations, signaling that we may be nearing more certainty than last week. The market struggles with uncertainty and is already discounting future earnings, which impacts stock prices. Stocks with great fundamentals without the technicals are not actionable; patience and discipline win. Grace & Peace!

Love each other, just as I (Jesus) have loved you. John 13:34

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Dexter Lyons, Portfolio Manager
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Actively Managing Risk Since 1990!

03-09-25 Defense & Uncertainty!

The S&P 500 fell below its 200-day moving average (DMA) but bounced back above it on Friday, signaling support from institutional investors. The last two times the index tested this level were August 9, 2024, and November 3, 2023. It’s crucial that the S&P holds this key support level, or the market could face more significant challenges. Uncertainty is the market’s enemy, and escalating trade wars and tariffs could lead to slower growth and rising inflation—potentially resulting in stagflation. Tariffs will likely drive up costs across all goods and services, further fueling inflation expectations, which could ultimately hurt corporate earnings. Playing defense may be the best strategy to minimize losses in a bear market.

Many stock charts have broken down, and they will take time to repair. According to Investor’s Business Daily (IBD), we need a Follow Through Day (FTD) before considering new buys. An FTD occurs when the market rallies more than 1% on higher volume, four days after an up day, making Wednesday the earliest potential day to buy. However, I don’t see many stocks in favorable buying zones besides defensive stocks, which isn’t a bullish sign. I moved to all-cash (defensive) on February 21, 2025, and will wait for an FTD before re-entering the market.

On the global stage, Trump recently criticized Europe and Germany for not investing enough in defense and suggested the U.S. might pull out of NATO, leaving Europe to fend for itself. The European Central Bank (ECB) can’t monetize debt through asset purchases while inflation remains above target. Germany will likely need to tap into global credit markets, increasing competition for U.S. Treasuries, especially now that it may need to offer higher yields to attract investors. This dynamic caused a 3.5% drop in the dollar last week, as German yields surged due to increased government borrowing to finance military support for Ukraine. The higher yields on German bonds also led the Euro to rise 4.4% as investors sought higher returns in European currencies.

On Friday, the Atlanta Fed’s GDP growth estimate plummeted from 2.3% to a negative 1.5%, signaling the possibility of a recession that may have begun weeks before Trump took office. Consumer spending is declining, and the savings rate is increasing. In times like this, the risk isn’t worth the potential reward, so it’s better to step aside, wait for a solid market bottom, and watch for stocks to break out from sound bases.

Sin will have no dominion over you, since you are not under law but under grace. Romans 6:14

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Dexter Lyons, Portfolio Manager
337-983-0676  Dexter@ChristianMoneyBlog.net
Active Risk Management, CANSLIM Investing
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03-02-25 Tariff Tuesday – Bear Market Worries!

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
ChristianMoneyBlog.net

 

02-23-25 Caution!

Caution!

On Friday, the S&P 500 index fell by 1.71%, reaching its 50-day moving average support level on above-average trading volume, indicating potential distribution. The NASDAQ index experienced a 2.2% decline and failed to secure institutional support, dipping below its critical 50-day moving average. The Russell 2000 index, representing small-cap stocks, is trading beneath its 200-day moving average, while mid-cap stocks barely hold above this level. Factors contributing to this downturn may include options expiration, weak consumer demand forecasts from Walmart, and Microsoft’s cancellation of AI contracts, which included penalties. Many leading growth stocks suffered significant losses, resulting in numerous damaged charts requiring time to recover. A rebound is anticipated on Monday; however, further selling could push the S&P 500 down an additional 3.5% before it finds its next support level. High-volume declines are warning signs that often precede bear markets. Should the indexes consistently trade below their 50-day moving averages, I will explore short-selling opportunities.

Since January 10th, 10-year Treasury yields have declined, approaching the 4% support level, signaling economic weakness. The dollar began to weaken following the Federal Reserve’s decision to pause rate cuts on December 18th. Crude oil prices have dropped to around $65 due to increased supply, potentially coupled with weak demand. Consumer discretionary stocks (XLY) have fallen below their 50-day moving averages on significant volume, while consumer staples (XLP) have rallied, reflecting a shift in sentiment and a slowing economy. Homebuilders (XHB), often viewed as an economic indicator, peaked weeks ago. Although gold has remained stable near all-time highs, gold stocks faced substantial losses on Friday. Regional banks (KRE) have also fallen below their 50-day moving averages on high volume, indicating weak consumer loan demand under financial strain. While China appears stable, trust in a communist government is questionable. Reduced government spending constitutes one-third of GDP and could hinder economic growth. The favorable economic conditions are diminishing; prices remain high, inflation persists, and signs of economic slowdown may lead us toward stagflation, which is concerning.

Wednesday is judgment day for NVDA as it releases earnings for its Blackwell chip demand after the Deep Seek China news of a more efficient AI program. The indexes have been in a trading range since December 18th, so NVDA’s earnings and guidance could be a game changer for AI and economic growth. I am short-term bearish but remain open-minded, seeking to make money and avoid life-changing losses. May God’s Grace & Peace Bless You!

Blessed is the one who perseveres under trial because, having stood the test, that person will receive the crown of life that the Lord has promised to those who love him. James 1:12

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Dexter Lyons, Portfolio Manager
337-983-0676  Dexter@ChristianMoneyBlog.net
Active Risk Management, CANSLIM Investing
ChristianMoneyBlog.net

 

02-16-25 Headed Higher!

The S&P 500 and NASDAQ are approaching historical peaks, and I anticipate they will break out and resume their uptrends after basing (going sideways) since December. The market has absorbed the negative news regarding interest rates, inflation, tariffs, and geopolitical conflicts, which now appears poised for further gains; thus, we are positioned to participate in the next phase of this bull market. Our portfolio comprises a well-diversified selection of approximately 27 stocks, with significant allocations in the gold, software, and medical sectors. I have been strategically limiting losses to around 5% of our cost basis while taking profits near 10%, yielding favorable outcomes. Artificial intelligence remains the prevailing theme, and numerous stocks are adjusting to the transformative efficiency results from Deep Seek, indicating that it may take some time for the market to realign with the new leaders. I plan to follow the big money by looking for stocks advancing on above-average volume.

Gold is currently experiencing institutional accumulation as it approaches $3,900 per ounce, supported by above-average trading volume. Recently, Trump issued an Executive Order (EO) instructing the Treasury to devise a plan within 90 days for establishing a sovereign wealth fund (SWF). This EO can potentially prompt the United States to reassess its reported gold reserves from $45 to $3,900, shoring up its balance sheet. It is possible that some of this gold has been loaned out (hypothecated) to other countries, and the creation of a SWF could necessitate the re-hypothecation of gold back to Fort Knox. This repatriation of gold to its rightful owner (the US) may account for some of the recent surge in gold prices to record levels.

The Chinese government now permits insurance companies and citizens to purchase gold for their accounts. Traditionally, gold has served as a reliable store of value and a safeguard against inflation. Gold and the stock market are likely headed higher! May God’s Grace & Peace Bless You!

Grace was given to each of us according to the measure of Christ’s gift. Ephesians 4:7

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Dexter Lyons, Portfolio Manager
337-983-0676  Dexter@ChristianMoneyBlog.net
Active Risk Management, CANSLIM Investing
ChristianMoneyBlog.net