- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).
The current Market Meter average of 1.86 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: the Slightly Bearish range is from 1.50 to 2.50). This 1.86 total is slightly higher than the 1.57 of the prior analysis done two months ago.
So what is our current Covered Calls investing strategy? Based on the Covered Calls Advisor's "Slightly Bearish" Overall Market Meter (see right sidebar on this blog's homepage here), the corresponding strategy is to "on-average establish Covered Call positions that are between 2% and 5% in-the-money and with short-term (i.e. one month or less) option expiration dates".
The Federal Reserve's policy of Quantitative Easing (i.e. QE) during recent years provided a consistent tailwind to the stock market's performance. Since the Fed has now reversed policies to: (1) regular increases in the Federal Funds rate to try to eventually return the rate of inflation back to their 2% target has now begun to have some affect. As expected, this is also now beginning a noticeable deceleration in corporate earnings growth rates compared with their growth rates of the prior two years; and (2) Quantitative Tightening which will likely have the effect of being a headwind (the opposite effect that the QE tailwind was) for the stock market. In addition to "don't fight the Fed" and the current "Slightly Bearish" Overall Market Meter sentiment, a third fundamental factor of concern is the current ten consecutive monthly declines in the U.S. Leading Economic Indicators (LEI) Index. Based on the extent of this decline, the Conference Board is now expecting a recession to occur in 2023. So, these 3 fundamental stock market headwinds most likely portend a difficult stock market investing environment in the months ahead this year. So going forward, I plan to continue with my "Slightly Bearish" guideline to "on-average establish Covered Call positions that are between 2% and 5% in-the-money and with short-term (i.e. one month or less) options expiration dates".
Finally, I normally update my Overall Market Meter quarterly, but my current sense is that every two months would be preferable this year, so I am marking my calendar to conduct the next Overall Market Meter update in early May 2023.
Best Regards to All,
Jeff Partlow (Covered Calls Advisor)
partlow@cox.net
