(Please enjoy this updated version of my weekly commentary published May 27^th, 2022 from the POWR Value newsletter).

I believe there are 3 keys to discussing the bull/bear topic today; Fundamental, Price Action, Sentiment.

Let’s start with the fundamental view.

Taking it from the top GDP Now is done with all the May data ending up with a +1.9% estimate for Q2 GDP. Yes, that is definitely better than the -1.5% actual reading for Q1 GDP. But it is shaven down from the +2.5% reading just a week ago.

On top of that I read an article pointing out that 13 of 19 key monthly economic indicators came in lower than expected in May.

Yes, clearly they still point to what you see above in a positive GDP read, but coming in under expectations is a directional concept we need to appreciate because it could point to more disappointment in future reports.

The most notable singular report I would point to was Tuesday’s PMI Composite Flash report which is a pretty far reaching indicator scanning many aspects of the economy. That fell from 56.0 previously to 53.8 for May.

This is also the second worst reading in a year and 3 straight months of heading lower.

Putting it altogether we see that the economy is still growing…but many of the indicators are showing lower and lower results.

This fits in with the narrative that high inflation is harmful to the economy over time and indeed we may be seeing its negative effects still at large which I would call neutral at best for the fundamental picture, but becoming more and more bearish.

Price Action

I am not going to waste your time with a chart because I am already saying something you know to be 100% true. That is to say there have been COUNTLESS bounces since this correction began. Most were followed up by even more downside action.

Thus, hard to find a clear reason to have faith in this rally over others.

We are getting closer to the moving averages. Breaking above 50 day at 4,276 would be a nice start. But really hard to get enthusiastic til we see a clear break above the 200 day at 4,456.

Could it happen? Yes…but right now this just feels like another short lived rally before the pain train comes back to town.

Sentiment

Often we think of sentiment and price action as being one and the same. In this case I am going to share some thoughts about the mood on Wall Street.

In particular venture capital investors who are some of the shrewdest folks in town. And they are running for the hills as proven by articles like these:

Boom Times Are Over

Sequoia Coaches Start Ups to Cut Cost or Face Death Spiral

Venture Capital Firms Have Very Bad News for Startups

The point is to think of bearish sentiment as a virus that spreads over time. The more people infected with the idea, the more it becomes reality wave after wave.

Right now there are enough people…like truly some of the smartest investors…who have the virus and are spreading this bearish notion which increases the odds we will tip over into bear market territory.

No…it doesn’t guarantee that outcome. Because a long ride up on the wall of worry could counteract these ideas and kill the bear in its tracks.

Especially if rates continue to moderate as they are now…and especially if the dollar continues to weaken which is better for US exporters.

Add it altogether the odds of bear market have increased. In fact, I have recently tipped over the 50% likelihood mark on that being true leading to defensive measures in both POWR Value and Reitmeister Total Return portfolios.

I want to be wrong. I truly welcome the re-emergence of the bull. However, I will keep this more conservative stance in place a good while longer given the current facts in hand.

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All the Best!

Steve Reitmeister
CEO StockNews.com & Editor of POWR Value trading service

SPY shares closed at $415.26 on Friday, up $9.95 (+2.45%). Year-to-date, SPY has declined -12.30%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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