Weekend Report for Monday, March 4

Bottom Line:

From last week: 

The trend is up. The US indices are in a bull market. Bull markets are characterized by relentless ramps and minor, short-lived retracements. The current rally is not at all unique when compared to previous bull markets, and legs within those markets.

Traders, and analysts, have very short memories. Please take some time and go back and review bull markets and legs within those bull runs. I would suggest late 1994 as a great place to start.

EVERYONE is trying to pick a top. This is totally expected and exactly what occurred in every single bull market, and bull market leg, that any of us has experienced.

The SPX is making only minor 2 to 2 1 / 2% retracements. At some point it will no doubt have a deeper retracement, but in the meantime it may go up another 5-7%+ first. 

Pay attention to the simple, objective things that involve price action. We trade price.

Until the SPX (and other indices) begin making lower lows and highs the trend is up.

This is actually TRADABLE information in ALL time frames. It isn’t sexy or magic, but it works.

Keep it simple. 

Little has changed in terms of price action, but it should be noted that DOW has not taken out its recent pivot high. (both print and close) of 2/23. This is the type of divergence you tend to see at almost all intermediate term tops of significance. The problem is that you see a lot of false signals in which the lagging index (or indices) will catch up. 

It is potentially immediately bullish that the RUT closed above its late December high. 

There are also a couple of technical divergences that are discussed deeper in this weekend’s report, but bull trends are characterized by divergences that persist and persist and persist.

This is why it is critical to let the market, through price action, signal something may have changed. As of Friday’s close that “something” is if all four indices close below Friday’s cash session close.

PDF: Weekend Report_2024_03_04

VIDEO

Special note: This is an election year in the US and in many other countries. There are at least 64 other countries around the world holding national elections in 2024. What could go wrong? Markets are suggesting absolutely nothing. I live in the US so I’ll share my observation that we are setting up for the most contentious US election in any of our lifetimes. It is very important to point out that in the US there has not been a correlation between the party in power and stock market trends. However, markets do not like uncertainty, and never in our lifetimes are there as many potential uncertainties than currently surround the US political situation. There seems to be a similar uncertainty in other major countries. Meanwhile. buy the dip…?

By election year beginning in 1980, here are the significant declines that occurred during that year. The charts are yearly profile charts, but “split”. Each letter is one month (essentially a bar chart but using letters instead of bars:

1980: 21% – Began in Feb. Numerous 3-7% declines. Closed up for the year.

1984: 12% – Began in Jan. Very choppy year. Closed basically unchanged.

1988: Followed the ’87 crash in October. Very choppy with upside bias but numerous 6-7% declines. Closed higher for the year.

1992: 6% but very choppy in a 3-6% range all year. Closed higher.

1996: 5.8% decline that began in Feb., 11% decline that began in June. Straight up from a July low (25.5%, but still included more and deeper retracements than we have had since the October 2023 low) and ended up 20% for the year. This was the middle of the dot com multi-year rally.

2000: Bubble bursting year that included many declines of 13-20%.

2004: Numerous declines of 6% +. Very wide-swinging, choppy year. Big rally began in early November and continue into the end of the year. Closed up for the year.

2008: Big down year following bull market top in late 2007. Numerous severe declines from 10-30%.

2012: Two significant declines – 10% and 8%, but very choppy. Closed up for the year.

2016: Choppy but upside bias. Numerous 3.5-6.5% declines.

2020: Covid crash – Epic rally off the low, but still included many 3-5% declines.

2024: So far the largest decline from print high to print low has been 2.53% (that is also the largest decline since the October 2023 low). It occured and was over in 10 trade hours.

BUT! TRADE PRICE!! If/when there is something resembling even a normal retracement a downside level has to be taken out along the way. Watch those levels.

SPX

Upper KRA: 5200 (just because it is the next big round number)
Lower KRAs: 5091, 5057

NDX

Upper KRA: 18400 (next big round number)
Lower KRAs: 18064, 17833

DOW

Upper KRA: 39282
Lower KRAs: 38841, 38739

RUT

Upper KRA: ?
Lower KRAs: 2050, 2036

The Russell 2000’s close above its December high could be very bullish.

SPX Profile 

Below are comments from several weeks ago. Nothing has changed.

From the weekly perspective there has been one minor pocket of Balance since the October 27 low. It appears another distribution (range) began at the January lows in the indices. The relative lack of Balance, and the depth of retracement in that Balance is unusual and likely to eventually result in a top of larger degree than we have seen since that October low. Where that top may occur is a complete unknown (see above).

Internals

No change: 

NYSE internal data has not been helpful. It is never as useful in bull trends as in bear trends, and that is especially true in the present with only 5-7 stocks completely controlling the direction of the NDX, SPX and DOW.

The divergences between price action in the SPX and breadth continue to mount. But when it will matter resulting in some top of relative significance is a total guess.

What is newly notable is that closing NYSE breadth is in its most narrow range in years.        

VIX dropped all week as would be expected in a price run higher, but as of the close on Friday it is still making higher lows against higher price action. If the bull run continues into next week we will likely see multi year lows in the VIX as it will likely continue to decline.

                                                                                                                                                                                                                                                                                                                                                       

US 10-yr Notes

Notes are between levels.

US Dollar

No change: The Dollar has been in an extraordinary whippy day-to-day chopfest.

 

Gold

Gold is testing a critical level. Friday was a HUGE conviction day and should be bullish. Friday’s 2047 low is critical to the immediately bullish case. 

Crude

Crude bounced off the KRA identified in a previous Report and has had a choppy rally since. There is nothing obvious at the moment.