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A nice turn up for stocks this past week. Last weeks drawdown from the top of -4.47% has now shrunk to only -1.69%. I had thought we might be due to hit a 10% drawdown since we haven’t seen one since October 2023. The action is a testament to how strong the Intermediate term trend is. All isn’t clear yet, 5489 is still the mark if we do get a 10% pullback.
January seasonality seems to playing out as expected. Very choppy. Gains in the past have picked up during the next 3 weeks. A 3 day weekend with unexpected news and an inauguration on Monday may be a catalyst for either direction.
During the last 20 years the probabilities of January being a winner are about 50/50 notching a record of 10 wins and 10 losses. We have had extreme gains of 7%, 6% and 5%, but have also seen negative monthly returns as low as -8%.
Might it be different with a new president coming to the white house? Here are the stats for the 1st quarter following an election.
1. The State of The Trend
Intermediate Trend Model (Weeks to Months)
The Intermediate Trend Model provides guidance to whether the Intermediate Trend (Weeks - Months) is Bullish or Bearish. In general, when price is above the 30 Week Simple Moving Average (SMA) the market is Trending positive over the Intermediate Time frame. When Price is below, its not Bullish.
Looking at the weekly price in relation to the 30 Week SMA is a good starting point when assessing the overall Environment. I like to start out by getting an idea of how the Intermediate trend is holding up. This week saw a nice turn up as price continues to trend above the 30W SMA (Yellow). The Intermediate signal remains bullish and will stay bullish as long as price holds above the 30W SMA. Until this fails, I’ll be looking for opportunities when the market pulls back and executing on the turn back up as was the case this past week.
Short Term Signal (Days - Weeks)
The Market Signal Model grades the overall market to help provide guidance on the state of the current environment. Ideal Long conditions are typically observed when the signal is on a Bull Level 1 - 3.
Current Market Signal: Bull Pullback
The market signal is a shorter term signal based off of momentum, along with shorter and intermediate term trends. After 3 waves down price is back above the 50D simple moving average (SMA), a basic measure of the average price over the past 50 Days. Often an indicator of strength of price, with price over the 50D SMA being stronger, and price below the 50D SMA being weaker. A move higher from here would most likely trigger a more bullish green signal. Some sideways movement before higher would be very constructive.
2. Deeper Into The Trend
I. Indices
After a negative week the prior week this week told a different story. There was strong positive price action across all the indices with mid caps leading the way back up. All the indices are in a bullish uptrend after a few lost there 30 Week MA last week.
Although the larger cap indices are still lagging, their RS lines have turned up. If the strength continues some may trigger leadership qualities next week. As of now there seems to be an undeniable strength in the Midcaps, which has now trickled into the small caps.
Internals have also improved in all the indices. Primarily in breadth, which indicates more and more stocks are participating in the rally. This is a good sign, and may give this rally some legs as more than just a few leaders are providing horse power
SP500
The SP500 dipped below the key area and right when everyone thought it was time to turn bearish buyers came in and ripped the market higher trapping the bears. It was the type of action a Bull would want to see. One more level to go before a convincing win can be booked for the Longs.
There are positives under the hood that can confirm that strength is on the Bulls side. Although the (A) The Alpha trend and (B) PMO are still bearish, (C-F). Breadth has returned to instill faith that the rally can continue.
NASDAQ 100
A Bullish break of the top of the downward tops trend line will need to hold into next week.
FANG+
Nice support off the 50D SMA, but still in range.
MIDCAP
The strongest move up by any of the indices. 1st invasion of the 50D SMA, seems a bit extended now.
SMALL CAP
Good RS but still seems weak compared to the Midcaps.
II. Intermarket
Yields DXY Stocks
The nature of Stocks vs. Bonds vs. The Dollar is clearly on display on this chart.
Point A/B vs. Point C. The inverse correlation continues. A weakening dollar could mean a tail wind for stocks.
Yields had been on a bullish run ever since the Fed announcement to slash rates on September 11th. (B) A check back to the top of the base puts price in a critical spot. If bullish on yields this would be the turn up spot for buyers to support and thrust price higher. Bears would like this spot to fail.
Calendar
Fed
The Fed futures are still pricing in 1 rate cut for 2025, despite the pop on Inflation data this past week. I’m starting to think this is a trading error and personally believe we may be in store for more than just one cut.
Commodities
CRUDE
(D) Price checking back to the top of the declining tops trend line at (C). A turn up here would be a bullish signal that price may extend higher.
GOLD
Running right into resistance at (A). (B) An Overbought trigger. My expectation is a slight pullback and then a re-attack of the resistance area.
BTC
(A) Attempting to move out of the base and threaten new highs. (B) Overbought but no trigger. Bullish until there is a trigger.
Growth Vs. Value
Growth vs. Value taking a break on this weeks move up. This is likely due to a reemergence of strength in Value more so than a weakening of growth.
What do we have so far? We have the Bulls regaining a key level above the 50D SMA. Industrials really flexing. Midcaps maintaining last weeks thought on strength and a broadening market moving into a 3 day weekend.
III. Sector and Theme Strength
World Markets
The Nasdaq and the SP500 continue to lead the world, as they have done for most of the past year. Why look anywhere else? I wont until I need to.
Sector Cap Breakdown
Sector ETF:
Gold was the only winner in The Four Horseman sector scan last week, which is a proprietary strength scan that includes a Bullish Intermediate Trend, Leadership qualities measured by relative strength vs. the SP500, Short Term Trend Strength and Momentum. This week, Utilities, Industrials, Financials, Energy join Gold as the dominant players. Utilities continue to impress on the backs of stocks like CEG, VST, and TLN. A strong move by oil fuels Energy, while a decent earnings week from banks have pushed financials up.
But, undoubtedly, Industrials are the champ this week. Notice Industrials with Aces across the board.
What a difference one week makes
This week:
Last week:
Industrials - (A) A quick turn up off the 30 Week SMA is a set for the Intermediate Trend to go for new highs. (B) Seasonality wise not the strongest week or 2, so short term power would be against the norm. (C) Price threatening the 50D, a slight rejection here would fall in alignment with seasonality. This might strengthen the set up for higher. (D) RS strength as the SP500 turns up off the bottom, bringing additional confirmation that this may be the place to play if the rally continues. (E) An Alpha Signal Bullish trigger, price is attempting to start a new uptrend. (F) Perfect placement for a momentum turn up at multi-month lows. (G-I) Strong Bullish Breadth can be the power that allows inter sector leadership to share the burden. (J). Coming out of an oversold area stocks are regaining their 50D SMA, this is Bullish pressure that can continue for a bit if stocks continue to trend. (H) Short term RSI is overbought, but no trigger yet, and overbought can stay overbought for a while.
Group Level Four Horseman Scan
The following is a scan of GISC LVL 3 and Major Industry ETFs that meet the following criteria: Leading RS Line, Positive PMO, Bullish Alpha Trend, and Intermediate Uptrend. The qualifying GISC LVL 3 and Major Industry ETFs are sorted by Up on weekly Volume (Positive weekly gain on higher volume than the previous week) = True.
Looking at the Four Horseman scan on the group level gives us a bit more of Getting a granular look. at what areas might be driving the sectors.
Notable Group Charts
Independent Power & Renewable Electricity Producers
A choppy uptrend, but an uptrend never the less. Supported by continuous higher lows.
Electric Utilities
Electronic Equipment
Has been a winner since the November 2023 swing up, creating several bases on way to highs. Look like its ready for another move as price retakes and consolidates above the 50D SMA.
Key Stocks: CLS
Consumer Finance
Another strong trend since the November 2023 swing up. The group is sitting at new highs.
Key Stocks: LX, SOFI
Banks
Key Stocks: BBAR, GGAL
SMH - Semiconductor ETF
This group continues to consolidate chopping back and forth since may/june. A couple stocks look poised to take the leadership reign from NVDA.
Key Stocks: MRVL, AVGO, ALAB
NUKZ - Nuclear Theme ETF
Notable Stocks On Watch
MRVL- Strong looking base at the top of the local high.
AVGO- Might be the new Mega Chip leader, nice declining tops trend line
APP- The previous leader still consolidating after 400% gains
INTA- Tightening up just below resistance.
DECK- A strong move out of a cup base and now consolidating sideways in a flat base.
RBRK- An IPO that made a nice move, a bit choppy but a nice double bottom base
USO- Tremendous strength from the bottom now forming a pivot at the top of the base.
VST- Pulled back to the Top of the base and found support, a nice set up
NBIS- An IPO that has already gone on a nive run, now forming the handle of a Cup Base.
EARNINGS:
Earnings Full Force.
3. Final Thoughts:
Following the 3 waves down turn up, in house, we took a bit of an aggressive stance on adding exposure to leaders. A hold above the 50D SMA is paramount to continued faith in the rally. A short consolidation, followed by an explosion up would be ideal. This would be key to switching to a confident Green Bullish Signal.
Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources believed to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the stocks they discuss. The information and content are subject to change without notice.