Dividend Stocks

Danger Alert: The 200-Day Moving Average Just Waved Another Red Flag for Stocks

October 20, 2023
92 Views
4 Min Read

Moving averages don’t tell you about trend.

Read that again.

Moving averages do NOT tell you about trend.

What they do tell you about is volatility and, when it’s a long-term moving average, it can tell you about a potential recession.

This is not opinion. In my 2016 award-winning paper “Leverage for the Long Run,” one of the findings is that going back to 1926, stocks are less volatile on average when above a moving average than when below.

I have continuously noted that all my intermarket signals point to the latter half of October as being high risk. We are there now, and as of this writing, just about to cross the 200-day moving average.

Why does this matter? Because, at the same time as this is happening, the ratio of lumber to gold is weakening, utility stocks are showing near-term strength, the dollar is moving higher, and small-cap stocks are on the brink of death. We are in it – we are in the high-risk juncture.

And the reality is that if we do break the 200-day moving average, we may already be in a recession right now.

Again, this is not an opinion. Historically, when below a 200-day moving average, odds favor that a recession is underway. It’s not impossible to believe that we are in a recession now, and unfortunately, policymakers will not realize it until it’s too late.

The Bottom Line

There is no melt-up. We are in an extremely high-risk juncture and everyone is still complacent in large-cap tech stocks. To think what happened in 1987, with the stock market crashing AND Treasury yields collapsing, can’t happen in 2023, is beyond absurd. The Federal Reserve does not know what’s really going on and how much damage it has caused. It created the inflation we are facing now. It is creating the future deflation that I believe you’re about to see through a potential severe collapse in stocks.

This isn’t about me being some perma-bear. I’m looking at objective metrics that have historical relationships to equity tail events. I am very specific on time frame. I have gone through complete hell because of Treasuries, but that time I believe is now over.

Bear markets make fools of bulls and bears. The risk is here now.

On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgments as of the date of writing and are subject to change at any time. Information within this material is not intended to be used as a primary basis for investment decisions and should also not be construed as advice meeting the particular investment needs of any individual investor. Trading signals produced by the Lead-Lag Report are independent of other services provided by Lead-Lag Publishing, LLC or its affiliates, and positioning of accounts under their management may differ. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors and employees expressly disclaim all liability in respect to actions taken based on any or all of the information on this writing.

Michael A. Gayed is the Publisher of The Lead-Lag Report, and Portfolio Manager at Tidal Financial Group, an investment management company specializing in ETF-focused research, investment strategies and services designed for financial advisors, RIAs, family offices and investment managers.

InvestorPlace readers that are new subscribers to the The Lead-Lag Report can receive a 30% discount.

Newsletter