3 min read

Market Update: Batten Down Hatches?

July should be great for the markets! But we have to be prepared for yet another selloff to finish out June. We have a divergence of markets - small cap stocks have done very well, but big-cap stocks?Not so much.
Market Update: Batten Down Hatches?
Photo by Marcus Woodbridge / Unsplash

I just wanted to weigh in with a few observations about the stock market, good and bad, so you know where I stand...

I'm excited about the possibilities for the stock market - very bullish actually - once we get past the month of June (more on that below).

Oil Prices

CNBC's Jim Cramer said the other day that the only "dip" anyone should buy is in oil and energy stocks. Someone else said on Twitter that the trend in oil prices is "unstoppable."

But that's what everyone always says at the top of any market.

There's a case to be made that we're being set up for what chartists call a "double top" in oil...something I noted in a handful of tweets this morning:

Terrible Consumer Sentiment

I encourage you to read this article by one of my favorite data-based stock market writers, Mark Hulbert, a few days ago...

Via Marketwatch.com

The most recent report on US consumer sentiment was one of the lowest on record, hitting 58.4 in May.

When that happens, it is hugely bullish.

As Hulbert notes, the last time consumer sentiment was this awful was in the summer of 2011.

Over the next 12 months, the S&P 500 rose almost 19%.

So the second half of this year should be really good. That's my expectation until proven otherwise. But the missing piece of the puzzle is the next 3 remaining weeks of June.

Big Selloff Ahead?

The one thing we have to be prepared for is yet another selloff as this month drags on.

The reason I say this is because we have a divergence of markets going on. Small cap stocks have done very well the last few weeks, rising as much as 13% after yesterday's session to the top of the trendline...

click to enlarge

But the major indexes like the S&P 500 only rose 9% through the highs of the current rally and haven't made a new high since June 2nd.

And big-cap stocks haven't found their mojo. Most, like Meta Platforms (FB), keep "getting sold" each time they try to move higher - you can see it in the yellow highlighted sessions in the chart below.

I'm not exactly making a market prediction - but the odds (in my opinion) point in the direction for a steep selloff from here. Frankly, it's the kind of thing you'd want to see at the end of a correction or bear market, to prepare the way for a more sustainable bull rally to come.

It's better to be prepared and have these negative expectations play out (or not) - then to caught by surprise, and not be prepared at all.

click to enlarge

Portfolio Review

For premium subscribers, the goodBUYs portfolio is in great shape thanks to our police of not taking big losses. We cut losses quickly and let our winners run (which isn't very far in this environment lately).

We're down -6% while our benchmark, the iShares Morningstar Small Cap Growth ETF (ISCG), is down -25% over the same time frame.

The portfolio is about 75% in cash. The rest is in 6 stocks. Of those, 5 are in positive territory, up as much as 15% as of today's close. Our one loser is only down a fraction.

Make no mistake though - if we see a bigger market selloff in coming days, all of these positions will fall. But I think we're close enough to a bottom that we can stay with these stocks. I'd rather focus on filling out the rest of the portfolio if and when the market gives us a chance to buy more positions at low prices.