Staying Objective in a Market Filled with Mixed Signals

US stock markets have rallied off of the lows established in the beginning of the month, even after the failure of Silicon Valley Bank, Silver Gate Bank and Signature Bank of New York. The surprise banking crisis initially set a scary tone for the month of March. However, the economy is showing more signs that it is starting to slow, while inflation is starting to show its return.

The chart above shows the month of March as a green candle stick, which is somewhat bullish, but the CCI is indicating that a near term change may soon be at hand, as the markets are very overbought.

Just this week, higher than expected jobless claims once again illustrated this slowdown in the economy. However, regulators acted swiftly to restore confidence in the banking system. First, by covering the deposits by FDIC insurance beyond the $250,000 limit. Second, the Fed only increased interest rates by .25 percent rather than the .50 that was previously expected.

Even though the Fed and regulators acted quickly to restore confidence, approximately 5 trillion in deposits were moved to money market accounts. Stocks led by $NVDA also started to rise back to previous highs. NVIDIA’s rally was super charged by all the excitement over its AI technology.

$NVDA has been the leader of this rally, but it is now showing a divergence between CCI  and price; there is also a possible crossover of the MACD signal line. These both indicate that the market leader is getting ready to reverse potentially. These potential warning signs are always best to heed.

The market seems to be diverging from what the Fed is indicating and what the data is implying as well. This is something to be wary of, when there’s a divergence between Fed messaging, the data and what the market is doing it is something to take note of, and to be cautious of.

Until these indicators are in alignment, it is best to trade cautiously and do what it seems many investors are doing, staying in money market accounts until the way ahead is clear.

Written by Michael DiGioia, Director of Education
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