Weekend Report_2023_11_05

Bottom Line:

There were signs of a potential low in the US stock indices over the past couple of weeks. It can be helpful to review the conditions leading up to last week’s rally.

Structurally, the indices were in vertical development from an intermediate-term perspective, and fairly “deep” into that phase. We KNOW that a vertical phase of market development is ALWAYS followed by some retracement/Balance. We can’t ever know for sure exactly when, or where this “stopping” and then development will occur, so strategy and tactics have to be adjusted for this reality.

Also note that the indices stopped sort of in the middle of nowhere as opposed to some magical level, or Auction Market level. Lesson: price action trumps EVERYTHING else.

Breadth was a helpful tool. The indices rallied after the 10-day MA of NYSE advancing issues reached a level from where the indices have rallied in every instance since 2020. Be aware that at some point Breadth will become even more “oversold”, so again, PRICE action must always be used to confirm ANY market signal or narrative. 

Momentum into Friday’s close has been incredibly strong suggesting any retracement(s) over the next week or so will likely quickly lead to higher highs. The SPX gapped up four of the last five trade days and all gaps remain open as of Friday’s close. If the SPX were to continue the rate of change established at the October 25 low, we will see new all-time highs by next Friday. 

Now, after the incredible ramp of last week, the indices are likely to become more two-sided. At this juncture I am expecting to see a series of higher highs and lows that include deeper retracements (even if only intraday) than we saw last week.  

VIDEO

The 5-day MA of NYSE advancing issues is at an extreme. Highlighted are previous recent similar instances.

Price/breadth has a specific “personality” in a bull trend following a lot of momentum. Any negative intraday breadth should be monitored for at least a short-term buying opportunity.

SPX Profile

The indices are too vertical to sustain the current rate of change for long. My guess is that a more two-sided market will begin very soon (black outline).

I’ll update again in a day or two.