Investment Flow Chart Analysis - 3-10-2023

Once again, I am updating the Investment Flow Chart Analysis as of Friday, 3-10-2023.

The methods described below borrow heavily upon the lessons learned from Ernie Zahn, Ralph Hansmann and William T. Golden at Cornell, Linder & Co. & Ben Graham during my time on Wall Street in the 1960’s utilizing fundamental research including Point & Figure charting.

Since then, I have incorporated ideas from William O’Neil’s CANSLIM methodology, Ian Woodard and High Growth Stocks as well as Stock Charts.

The first decision is to determine what the daily, short-term or long-term trend of the investment market is. To make this determination, look at the 50- and 200-day simple moving averages on a weekly chart as shown below to determine if both the NASDAQ and the S&P 500 averages are either both positive, both negative and/or split.

As can be seen in the above charts of the NASDAQ and the S&P 500, the two indices are below both the 20- and 50-week simple moving average lines, so the presumption is that the market has negative momentum .

Friday's close for the NASDAQ was below the previous weekly low suggesting that a negative movement was underway. Friday's close for the S&P 500 also saw the average below the 50 day MA although the trend was upwards.

Now, the question is whether the negative trend will continue. The NASDAQ is below and  the S&P 500 is above their 200-week lines .

So now the question is whether to:

1. Be long,

2. Be short, or

3. Be on the sidelines.

Remember pigs get slaughtered.

The daily charts show recent daily action in both the NASDAQ and the S&P 500 using the Elder impulse system. News during the past few hours does not suggest that we will get a positive bounce off the trend line.

The longer-term trend shown in the first set of charts suggests a market that has run out of steam.

The IBD market call has changed to  "Market in Correction". The Accumulation/Distribution chart is shown below. The number of “A” rated stocks according to IBD during the past four weeks rose quickly above the green line but fell back below the green line on 2-09-2023.  On Thursday, 3-09-2023, the line fell below the red zone.  The methodology which I use has a rule that states that when the line falls below the green line, profits need to be taken. Further, when the line falls below the red line, the trading portfolio should be in cash. 

The Strategic Investing Portfolio added several positions during the past week but has also closed all but three positions as of Friday evening. In running the various screens in both IBD stock screener and StockCharts, we have found few positions in which to recently invest. We maintain very tight selling points on our positions.

We continue to run the various IBD and StockCharts screens each day but the current political and economic conditions suggest that prudence is justified.

The shuttering of two major banks in the last 36 hours should raise flags for investors ...  investing at the moment contains a high element of risk.  However, changing the rules to prevent a breakdown in the markets has been around for centuries. The bullion banks and the commodity exchanges have changed the margin requirements multiple times to prevent them from going bankrupt. Doesn’t anyone remember the Hunt’s foray into the silver market back in the 70’s and how the exchange survived?

Nothing is new …. Just a new group of sheep to be shorn.  Based upon the economic fundamentals, the recent week reminds me of the tulip craze markets of bygone time ... crypto anyone?  As Minsky said ... it only takes one grain of sand to destroy ....

Fred Richards

10 March 2023 p.m.