Weekend Report for Monday, June 16

PDF: Weekend Report_2024_06_16

Bottom Line:

Not much has changed over the past few weeks. We continue to have outperformance in the NDX/SPX vs all other indices as divergences persist.

There is a lot of chatter about the increasing divergences among the US stock indices.

The reality is that last week’s acceleration higher in the NDX and SPX makes it feel a bit more extreme than it actually is, so far.

The retracements in the DOW and NYA are so far relatively shallow for a bull market. The RUT is also down “normally” off its yearly high. The all-time high in the RUT was in November 2021, 18.50% above Friday’s close, but this is a longer term issue.

It is inevitable that something “gives”. Major bull trends do not see this much disparity among the indices for long. Current price action isn’t going to continue in this pattern. We’re going to see the NDX/SPX slow its current rate of change to the upside that includes some retracement or we’re going to see some relative outperformance in the other indices as they play catch-up.

I am seeing a lot of analogs suggesting this is similar to 1995, which was the kick-off year that culminated in a major top in 2000, five years later. The major problem I see with this comparison is that all the indices traded in lock-step for the duration of 1995 until they all formed a choppy short-term top in July of 1995 that persisted into the end of the year.

I am always leery of analogs because I have yet to see one play out as it appears to be forming. However, it would not surprise me at all to see something similar occur with the NDX and SPX with a top this summer and a broad trading range occurring.

Internals

The 10-day MA of NYSE advancing issues is testing its late May low. I suggested at that time it was a level from where rallies, some quite substantial, often begin. That was the case in the NDX and SPX. Obviously the SPX and NDX are dominated by the high-cap mega tech companies.

On the chart I have substituted the RUT for the SPX. It is much more highly correlated, especially over the past couple of years, with breadth and breath-type indicators. If the 10-day MA of NYSE advancing issues reaches its typical lower extreme around 1050-1000, and the RUT is train at or near 1938-1900, it could set up a great reward/risk trade. 

NOTE: Assigning a “resistance” level to any market trading in all-time highs is beyond silly, to be very kind. Market activity determines important levels through the activity of market participants. Magic does not, though it does make your money disappear.

SPX Levels

NDX Levels

DOW Levels

RUT Levels