The market has pulled back with news that AI could get out of control, rising oil prices, and the likelihood that the Fed will raise rates this week. Three negatives combined to put downward pressure on investors. However, we believe the market is reaching oversold conditions, so we hope to find an area of support soon. In other words, we see this as a buying opportunity.

This is nothing new on AI, but I think the bigger eye-opener is a bit different than most, including myself, thought. Many people thought that it would cause massive unemployment, which as time passes, does not look to be the case. Their fears, as we are learning, are more along the lines of AI taking over the codes for nuclear weapons, cyber-attacks, shutting down the electrical grid, and the list goes on. The talk over the weekend was about governments around the world who need to step in and build guardrails, so to speak. We will save everyone the suspense; governments will not step in until it blows up in everyone’s face. So, if you do not have some form of risk management system like the HCM-BuyLine®, for Heaven’s sake get one!

Oil prices have jumped, and several refiners, including Phillips 66 (PSX) and Marathon Petroleum (MPC), now look overbought and somewhat parabolic. Given the strength across the broader energy sector, we are looking to lock in profits in some of our energy holdings.

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On the buy side, CrowdStrike Holdings, Inc. (CRWD) appears to be breaking out, and we believe it looks like they are ready to move higher. Shopify Inc. (SHOP) has pulled back to its 100 DMA and is building up momentum.

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The new Fed Chair Warsh, in his last statement, has indicated a rate hike is in the cards this week, so we expect a quarter point rise in rates at the next Fed meeting.

But let’s close on a very optimistic note:

  • In the past 10 sessions, as all will know, oil has risen more than 20% while U.S. 10-Year Treasury Bond yields have risen more than 30 basis points. A rare circumstance.
  • Bond yields rising along with oil have caused a short-term drop, or a period of volatility, which corrected itself in 2 to 3 months followed by a very nice rally in stocks.
  • This has happened 12 times since 1983. Every single completed episode produced a positive SPX return at +12 months, ranging from +13.6% to +28.4%.

All that to say, we are looking for the market to be somewhat sloppy with a strong year-end rally.