The Data Point I Use to See the Market's Next Move

by Andrew Zatlin April 18, 2023 2:30 pm ET

Every time Charlie Brown would try and kick the football, Lucy would pull it away...

Leaving poor Charlie on his butt feeling foolish. What's this got to do with us?

Right now, most investors are like Charlie, lining up for another kick (a growing stock market)...

But sure enough, an overlooked data point is ready to pull a "Lucy" and leave them feeling foolish. Let me explain...

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

The Data Point I Use to See the Market's Next Move

Earnings season is underway. And at first blush, everything looks bullish:

The banking crisis has been resolved.
The economy seems strong.
And inflation is easing.

Time to celebrate, right? Not so fast...

We're being set up for that classic "Charlie Brown races for the football, only to have it pulled away by Lucy" moment.

Here's what I mean...

April Showers Bring May Rate Hikes

Traditionally, the markets sag in May. May marks the end of earnings season, and a lot of traders start taking vacations. Hence, the popular phrase, "Sell in May and go away."

This year, though, there's an extra reason to be bearish: a looming interest rate hike.

The likelihood of a rate hike in May stands at 89%. And when rates go up, that's bad news for the stock market. (Rising rates make it more expensive for companies to borrow, and therefore grow and invest in their business, which weighs on their share prices.)

But there's a twist this time around...

The Market's Outlook: Good Grief

You see, the mainstream media says that the U.S. economy is strong and stable, hence the reason for optimism.

But as usual, the mainstream media has it wrong. In fact, the economy is weakening. The second quarter is shaping up to be a rough one...

And Lucy is about ready to pull away the football once again.

The thing is, this false promise in the market presents us with a unique opportunity. I'll talk more about that in a moment. But first, let me explain why so many analysts are wrong.

The Steel and Oil of the Digital Era

It all centers around semiconductor activity.

You see, hardly anyone appreciates the power that semiconductors have when forecasting our economy.

Semiconductors are ubiquitous these days – they're everywhere. They're the steel and oil of the digital era. Everything either has a semiconductor in it or was made by something that has a semiconductor in it... And I mean everything, from singing greeting cards to your refrigerator.

The thing about these conductors is that their production process takes about six months:

It takes half a year to go from raw silicone to a chip that's embedded into a car or television. That means by looking at semiconductor activity, we can get six months of forward visibility. In other words, today's semiconductor activity equals tomorrow's economic activity.

The Market's 'Crystal Ball'

In fact, if we take semiconductor wafer activity and layer it against America's gross domestic product ("GDP"), you'll see it correlates closely:

Keep in mind that this semiconductor activity is lagged. So in reality, this is a great barometer of future GDP.

Right now, semiconductor activity suggests that the economy is weakening rapidly. Wafer shipments have collapsed to levels not seen since 2020. And as you can see below, sales of two of the world's largest semiconductor manufacturers – Taiwan Semiconductor Manufacturing (TSM) and United Microelectronics (UMC) – have collapsed:

Here's Our Opportunity

Most analysts will tell you that everything is fine.

What I'm forecasting is the typical slowdown in May, followed by a mid-summer rally. You see, as everyone else discovers this weakening data, the Fed will not only cease additional rate hikes, but it will even consider a rate cut!

Any rate cut would send the stock market soaring. That's the event we want to get positioned for.

Over the next few months, identify stocks you want in your portfolio, and then sit back as they fall while the market comes to grips with this economic data.

That'll present the perfect opportunity to buy them at a discount and cash in when the market rallies later this summer.

In the meantime, if you're a Moneyball Pro subscriber, I'll share some ideas on where to put your money to work now to best weather this upcoming market plunge.

We're in it to win it. Zatlin out.