Romulus Report: The great illusionist

MARKET Watch

There have been some great magicians over the last 100 years.

Harry Houdini, David Copperfield, Penn and Teller. These illusionists fascinate audiences using quick reflexes and diversionary tactics that keep our focus away from what is really happening. We enjoy the show even though we know it isn’t real.

Perhaps the greatest magician of all time is not even a live person. There is something that deceives and tricks far better than Copperfield could ever dream of doing. The audience hates the show, but at times seems powerless to stop it.

Just like the magician, the job of the stock market is to trick us into believing that something is going on when the opposite is taking place.

The price of a stock goes up and that convinces investors to buy more of the stock. A slow motion look at the magician’s hands, however, reveals a different picture. The stock is going up but the volume is dropping, momentum is slowing and the big money players are selling into the rally. Investors should ignore a stock like this, but they get tricked by the price movement time and time again.

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Investors are at this exact point in the show right now.

Stock prices have moved up a bit over the last month and the advance was accompanied by slightly falling oil prices and interest rates. Sentiment has improved (albeit from extremely bearish levels) to a little less bearish. A vast majority of investment advisors (88%) expect stocks to go up from the mid-June lows into the end of the year. The absolute percent of inflation gains probably did peak in June, but it would be quite an accomplishment to keep posting 9% plus numbers every month.

The combination of lower oil prices and higher stock prices has some in the investment community going bonkers about a summer rally that will last the rest of the year. 2022 still has over five months left and it is difficult to see what may happen in the fourth quarter.

However, I know there is one more trick the stock market magician can pull out of his hat before this year ends. It is not a trick the audience will enjoy.

Stocks remain locked in the downtrend that has been in place since the beginning of the year. Do not be fooled into thinking everything is ok just because oil prices have dropped a bit. There is something more sinister at work here. At any point between now and the end of September the highest probability outcome is for the S&P 500 to at least visit the lows of June 17th, and most likely to pierce them.

The bear market is still alive. Act accordingly.

Remember:

Wealth, like Rome, cannot be built in a day. But, like Rome, it can be lost in a day. Watch for future announcements from Romulus about profitable market moves, important indicators, and major market swings. For trading education, mentoring, or to beat the markets with Romulus' trading group, contact romulusteaches@yahoo.com. About the author: In his real-life existence, Romulus started on Wall Street in 1994 and traded for a hedge fund for 13 years. Since 1994, he has called every major market top ahead of time and profited from them, including the break of the Dot-com bubble in 2000, the market crashes of 2008 and 2009, and the Covid crash of 2020. Since 2020 he has been working with investors and traders to actively manage their portfolios by growing wealth, not risk, as a teacher and mentor working with Backpack Trader, a stock trading educational company.