Category: Newsletter

Last week, the ongoing "can't stop, won't stop" bullish trend remained firmly intact. That was the case again this week, as the market tested the 20-DMA, the bottom of the trend channel, early in the week, which sparked buyers to push the index to all-time highs by the week's end. At the same time, volatility remains compressed, with the deviation from the 200-DMA growing. As shown, the breadth of the market and momentum are both negatively diverging from the rising market, which historically serves as a warning.

Last week, we discussed the ongoing bull rally following Nvidia's blowout earnings report. That remains the case this past week. While the overall market traded higher into the end of the week, setting new all-time highs, the bullish November trend remains intact. While the market remains confined to that narrow rising trend channel, the MACD "buy signal" remains elevated, and an apparent deterioration in the market's momentum remains.

The rally continued this past week, spurred higher by Nvidia's blowout earnings report Wednesday night. After a brief test of the 20-DMA, the market surged to new all-time highs on Thursday, confirming the ongoing bullish trend. As shown, the 20-DMA continues to act as crucial support for the market.

The market rebounded mid-week from the disappointing inflation report but stumbled again on Friday after producer inflation. The market's momentum remains strong, and investor optimism is very high. The only question is what causes a short-term correction to reduce the deviations between the market and the 200-DMA, as shown above. Stocktrader's Almanac provided a clue.

Last week's newsletter discussed the ongoing bullish trend of the market. That unstoppable advance, driven by the mega-capitalization stocks on Friday, topped the psychological 5000 level on the index. With the strong momentum carrying that particular group of stocks, the index will likely try to push higher over the next few days. However, as shown, the market is back to more extreme overbought levels, and bullish sentiment has reached "greed."

We have discussed the need for a market correction over the last few weeks. On Wednesday, the FOMC statement sent the stock lower as Jerome Powell eliminated the possibility of a rate cut by March. However, a stellar employment report on Friday, which would suggest the Fed stays on hold longer, sent the market surging to all-time highs.

The MACD "buy signal" is firmly intact, although at a high level, suggesting the bullish bias remains. While the market is overbought in the short term, corrections will likely remain mild with 4800, where the market broke out, remaining essential support.

Last week's newsletter discussed the failure of the first five days of January and what that historically means for the rest of the year. That consolidation likely ended on Friday, with the market breaking out to set a new all-time high for the S&P 500.

Unfortunately, the S&P 500 Index failed that initial test of the New Year by providing a negative return over those first five trading days. As shown in the chart below, the implications of the failure are potentially lower returns for the entire year.