Date: August 14, 2023

Pullback Not Over But Multi-Day Bounce Setting Up

Good Monday morning everyone. Mine began by being 5 minutes early. So, I decided to move a bag of fertilizer from the front of the garage to the back. I had to squeeze by my car which didn’t look to difficult. But it is a Monday morning. On the way to the back I smashed my left hand into my side view mirror of my car. Seeing stars quickly ensued. Then the swelling, throbbing and transition to black and blue. That will teach me to be early! Hoping that’s the low point of my day.

The mild pullback in the stock market continues. So far, it has been orderly and very predictable. That is unlikely to continue. The first leg down should be ending about now. That red line on the chart below is the average price of the last 50 days, aka, the 50 day moving average. Nothing magical or mystical, just a way to smooth price and see the trend over the intermediate-term. You can use 30 days or 60 days or 49.25 days. It doesn’t matter. 50 days is widely watched and the computer driven algorithms can manipulate price enough to fake trades into or out of a trade.

As I said, a bounce is likely, like I wrote last Wednesday. We had a huge bounce Thursday morning that failed. And we saw prices make a new low for the pullback on Friday. I have written that because we are in a bull market, I am always interested when the S&P 500 falls 5% from its closing high. I have found that routine 5% pullbacks in bull markets are often solid entry points since they occur with some regularity. There is nothing special about that number. In today’s case, we are looking at 4360, but please don’t get too focused on that single number. I would expand it to a range centered on that number.

Again, a multi-day bounce should be close at hand. I don’t think it’s the bottom, but I don’t have high conviction on that just yet. I am keenly focused on the semis and looking to add to our position for a trade. Notice below how the 50 day was meaningless from a trade execution standpoint.

From Scotland, it’s not often (or ever) that I have encountered animals in the middle of my golf round. But in Scotland at Brora, sheep have run of the course, except for the greens where there is an electric fence around each surface.

On Friday we bought RYPMX and PMPIX. We sold PCY and HYG.


Paul Schatz, President, Heritage Capital