Bottom line for this week:
The indices and accompanying technicals (see below) have reached levels suggesting, at a minimum, caution pressing longs.
The indices are all at various stages of pressing CRITICAL upper KRAs (Key Reference Areas).
Please don’t interpret the above as bell-ringing bearish. A fair case can be made that we are in the early stages of a new bull market.
Daily KRAs:
Strong bull/bear trends are characterized by all four indices in the same relative position. Presently, while very short term this is the case among the indices, intermediate term there is stark disparity confusing to either a strong bull or bear case.
The DOW leads the bullish case. It is well above its 200 day MA. Its retracement off the December high was very shallow.
The NDX leads the bearish case. It is still below both the well publicized 2022 downtrend line and its 200 day MA.
The RUT is above its 200 day MA and looks poised to break above the critical KRA at 1880-1906.
The SPX has closed slightly above the 2022 downtrend line and its 200 day MA.
Now is not the time to get stubborn or stuck on a narrative.
I discuss each of the charts below individually in the video. Levels highlighted are CRITICAL.
Internals
From last weekend’s Report:
Breadth expanded to its largest daily close since November 10. This is likely the momentum peak of this rally phase, but by no means does that necessarily imply we are anywhere close to a price high of any significance. Note Friday’s closing breadth was considerably below the momentum generated on November 10, which is another reason to watch carefully for price action to continue to validate the apparent upside breakout.
What we want to watch for next week is continued price strength. Strong closing breadth for the past month has coincided with short-term market highs. If this is a “real” upside breakout, we should see immediately higher prices into next week.
What we should NOT see is a closing -2000 Breadth reading anytime soon.
All four indices validated the Initiaitive upside break and breadth momentum thrust seen Friday, Jan. 6.
The NDX and RUT have six consecutive up closes as of Friday.
NYSE closing breadth has six consecutive positive closes.
The 10 day MA of NYSE advancing issues on Thursday closed at its most extreme upper level since June 8, 2020.
The 5 day MA of NYSE advancing issues closed at its most extreme upper level since Feb. 5, 2021.
IF we are in a bear market we are almost certainly near a significant top. But….Note the extreme 10 day MA breadth reading last late July. The SPX rallied another 5.68% prior to a top. But also note the SPX got very choppy (Balance) for several days prior to the last ramp into the rally high.
IF we are in a new bull trend current extreme breadth readings will likely be worked off more through time than price.
The NDX and RUT have six consecutive up closes as of Friday.
NYSE closing breadth has six consecutive positive closes.
The 10 day MA of NYSE advancing issues on Thursday closed at its most extreme upper level since June 8, 2020.
The 5 day MA of NYSE advancing issues closed at its most extreme upper level since Feb. 5, 2021.
IF we are in a bear market we are almost certainly near a significant top. But….Note the extreme 10 day MA breadth reading last late July. The SPX rallied another 5.68% prior to a top. But also note the SPX got very choppy (Balance) for several days prior to the last ramp into the rally high.
IF we are in a new bull trend current extreme breadth readings will likely be worked off more through time than price.
In either case my guess is that at a minimum the market will soon become more two-sided on a day-to-day basis.
From last weekend’s Report:
It HAS to be “different this time”….
…if this is a strong Initiative break to the upside. The previous five times breadth has reached current levels the market sharply reversed.
Now we are seeing divergences between price and breadth on new rally highs. This is normal and typical for a bull trend, and it doesn’t necessarily imply a top of significance.
Under a bullish scenario intraday contractions in breadth should not exceed -1200 or so, and price “damage” should be relatively mild.
A -2000 CLOSING breadth reading would be an initial signal a top of significance is in place.
From last weekend’s Report:
VIX should very soon drop below 20 if Friday’s rally really has legs.
VIX closed at 18.35 on Friday, its lowest close since Jan. 12, 2022. This is another technical indicator that is suggesting we are very close to a top of relative significance, or in the early stages of a new bull market.
Gold
There is no “resistance” in Gold until near all-time highs.
Crude
Crude is approaching an important upper KRA.
US Dollar
The US Dollar has likely put in a long term top.
US 10-yr. Notes
111’28 is the critical downside level in Notes. There is no “resistance” above last week’s high from an Auction Market perspective until near 121’00.
