Is The Market Cautiously Rotating at New Highs?

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Last week started with the anticipation of how the market would respond to its prior week’s pullback from the enthusiastic post-election rally.

Even without a boost from NVDA’s earnings report, the stock market resumed its bull trend in some encouraging ways.

First, as you can see in the daily chart below, the Russell 2000 (IWM) small caps had a strong week, and it bounced off of its recent breakout highs.

This pattern of retracing to the prior breakout highs is bullish, and the SPY has a similar pattern.

Additionally, while the SPY rallied, the equal-weight S&P 500 (RSP), shown below, closed at all-time highs which is considered healthy bull market action.

In Keith’s video, you’ll also learn that the mid-caps and value stocks are also leading and closed at new highs.

 

A Happy Thanksgiving

Looking into next week’s holiday trading, there are some interesting seasonal trends for the short-term trader to consider.

As you can see from the chart below, this week has a bullish bias leading up to Thanksgiving, then the day offer is weak.

So far, November has followed its seasonally bullish pattern, which you can see from the chart below tends to be most bullish in the latter half of the month. Although, strong Novembers do have a pattern of weakness in the final days.

Are Investors Cautious?

There’s no debate about where the biggest bulls are – in Bitcoin and other cryptocurrencies. As you can see from the weekly chart below, last week was the third week of explosive price action toward breaking the $100k mark.

While Crypo’s rally, much of the stock market at new highs, and strong flow of funds into stocks (see chart below) would suggest a giddy “risk on” environment, the AAII sentiment readings aren’t confirming the enthusiasm.

As you can see in the chart above, money is flowing into stocks, but the table below shows that the AAII sentiment survey reveals that bearish sentiment has edged higher since the election, and bullish sentiment hasn’t moved up substantially.

The chart below shows that these sentiment numbers are far from any extreme. However, the bearish numbers are on the high end, and the bulls are on the low end of their respective ranges over the last year.

If bull markets peak with euphoria, we’re certainly not there.

The market was also able to digest the latest NVDA earnings report without any extraordinary volatility that many traders have come to expect.

Is this cautious optimism?

 

Looking Forward

With earnings winding down and the year-end closing in, it’s the season for new projections and predictions.

Since earnings are ultimately what drive stock prices let’s start there.

According to Factset…
“The S&P 500 is reporting earnings growth of 5.8% for Q3 2024. However, for Q4 2024, the estimated earnings growth rate for the index is expected to more than double to 12.0%. If 12.0% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q4 2021 (31.4%).”

The chart below puts that in perspective. It’s big.

Even more impressive is what analysts are expecting for 2025 – four more quarters of double digit growth. The estimates for the 2025 quarters are 12.7%, 12.1%, 15.3%, and 17.0%.

Let’s hope they are right because forward-looking valuations are on the high side of historical ranges, as shown in the chart below.

It’s a good time to make sure you have a tactical investment plan in place. There are plenty of reasons to be bullish, but there are also a lot of signs of the market shifting. You’ll see more evidence of this in Keith’s video this week.

If you have any questions or interest in tactical systems, strategies, tools to help your active investing, etc. contact Rob at [email protected].

Have a great week and Happy Thanksgiving!

 

 

 

Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral.  The video analysis dives deeper.

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Risk On

• Markets had a strong week across the board, up between +1.9% and +4.4%, led by small and mid-cap stocks. (+)
• All sectors were positive on the week with the biggest theme being the strength in Gold Miners and Homebuilders. (+)
• The biggest theme regarding the global macro picture was that energy, including clean energy, and precious metals were up significantly. (+)
• The McClellan Oscillator regained positive territory for both S&P and Nasdaq. (+)
• The modern family had a strong rebound this week with retail and regional banks exploding to new recent highs and semiconductors, while positive on the week, clearly losing some leadership and closing in a warning phase. (+)
• Bitcoin rallied to almost $100k, highlighting where speculative money is going with the dollar rocketing back to its 2022 highs, potentially about to break out of a multi-year sideways pattern. (+)
• Color charts (stocks above key moving average) are showing IWM with strong leadership across short, intermediate, and longer timeframes.(+)

Neutral

• The risk gauge weakened due to the strength in gold and relative weakness in lumbar. (=)
• Gold exploded higher, reclaiming its bullish phase, most likely as a result of three factors: oversold condition, geopolitical stress, and inflationary pressures from rising commodity prices.  (=)
• Seasonal patterns in the key indexes may have topped with the exception of IWM, which still has some more potential upside. (=)
• The 1-month vs 3-month volatility ratio closed above 1.10 and remains positive. Volatility remains elevated as the market hits new highs, indicating some remaining nervousness in the markets. (=)
• Value stocks flipped positive relative to growth on a short-term basis. A bit concerning, growth stocks relative to the S&P baseline flipped negative over a shorter analysis period. (=)
• Seasonal patterns have become significantly distorted as the market sorts out the consequences of the new presidential administration, with the biggest exception being Bitcoin which is totally in alignment with its seasonal pattern.. (=)
• A mixed read on market internals for the S&P, despite strength in price, with a little weaker action in the Nasdaq Composite. (=)

Risk Off

• Despite the strength in the market, volume patterns, especially in the Nasdaq, are neutral or negative, failing to confirm the recent positive market move. (-)
• Foreign equities across all other continents widely lagged the U.S. markets with many in bear phases. The worst relative performance of foreign equities to U.S. equities since before the 2008 financial crisis. (-)
• Soft commodities closed at its highest level in over a decade, indicating inflationary pressure. (-)
• Semiconductors are below their 6-month calendar range lows. (-)
• Contrary to the Fed guidance, interest rates might be indicating that additional cuts may not be in the cards. (-)
• Despite the rally, on an intermediate and longer-term basis, the number of stocks above some key moving averages remains flat to negative for the S&P. (-)