Republic Risk: All Systems Go? And Buffett's Message to Markets

Our Russell 2000 signal turned positive on Thursday, helping to pull the market into a remarkable Friday rally as capital rushed back into the equity markets. Now one asks: Is this sustainable?

Equity Index Strength Is GREEN on the S&P 500 and GREEN on the Russell 2000

Each morning, we assess the full flows of the market by measuring statistical metrics on a very specific number of stocks to determine broader sentiment and the momentum trend. When these readings turn red, we focus on cash, trade positive sectors, or take inverse positions against indices.

As explained last week, we saw positive turns on Wednesday's Daily MACD readings for the SPY, QQQ, and IWM. That can be an early signal. In this case, it was. The Russell 2000 turned positive on Thursday. The NASDAQ and S&P 500 finally turned positive at the open on Friday, with the surge fueled by the weak economic data on Friday. 

For now… and not for long… but for now… bad economic news is good news for the equity markets, as it suggests the Federal Reserve may be done with interest rate hikes. Should jobs and wage numbers contract, the speculation will turn away from “How High” on rates… to “How Long” rates will stay at current levels. 

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Key Takeaways:

• Berkshire Hathaway's Q3 featured a record operating profit and swelling cash reserves to $157.2 billion despite a net loss. This could be an important warning signal for the equity markets heading into 2024. In recent times, Buffett’s dramatically increased cash holdings, we’ve seen volatility follow.

• South Korea announced a plan to ban short-selling of stocks for the remainder of the year. That should work out…

• Saudi Arabia and Russia agreed to extend oil cuts until the end of 2023. WTI crude is up more than 1.6% this morning, supporting Permian Basin favorite stocks like Permian Resources (PR) and Occidental Petroleum (OXY) and the Tortoise Independence Fund (NDP), which owns the bulk of players in the basin.

• The United States rolled out its 50^th weapons package for Ukraine. After the Pentagon punches its membership card, it gets a free sub. It’s nice to know that I will work my entire life… and some mid-level Ukrainian bureaucrat could steal hundreds of thousands of dollars next week and funnel them to hidden accounts in Cyprus for his retirement. That said, RTX Corporation (RTX), which we’ve discussed since the Israel attack, is now up 18.5% in a month. Sell put spreads.

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Dear Fellow Expat:

We start this morning in no particular order. Usually, I’ll start with commentary before moving into other sections. But there’s a chart that I need you to see…