Daily market review Dec 21, 2023 (latest NAAIM index 97.32 , explanation for Dec 20th intraday “plunge”)
Happy Holidays to everyone. Will we or will we not get the Santa Claus rally after we come back after Christmas Day ? ( I believe we will get it, but likely at a slow glacial increment pace compared to previous weeks. )
Broad market overview
Immediately after the “freakish” drop on Dec 20 , Market rally and closed in green, between 1.2 to 2.5%, in which Equal-weight outperformed Cap-weighted counterpart. Best performer being Semiconductor, up close to 2.5%.
Explanation for Dec 20th 2023 Intraday plunge
What was behind the Peculiar drop ? Likely due to Options buying/selling flow and options dealer inventory adjustment, the fact that index intraday plunge stop at gamma flipping line ( from gamma positive to Gamma negative ) lend credence to this theory.
I came across another piece of informative source to explain the price behaviour dynamics of Dec 20th, 2023 intraday “flash crash”
https://spotgamma.com/how-0dte-flows-drove-the-12-20-selloff/
S&P 500 11 sectors
All 11 sectors closed around +0.2 to +1.5%. Discretionary sector is the best performer @ +1.52%, while defensive sectors Utilities and Consumer staples are the worst performer, close at 0.18% & 0.7% respectively. This reinforce my view that dip is buyable and Santa Claus rally likely will happen next week.
There are too much at stake for big institutions, their performance chasing will continue till year end and possibly till Jan/Feb 2024. After horrendous 2022 returns and current YTD underperformance against benchmark so far, especially made worse by Aug – Oct market turmoil, every institution is hanging on to this rally for their dear life. ( record inflow charts from beginning of Nov - till now are proof of that, which are shown in my previous blog entries ) Therefore, current dip is likely buyable.
SPX rally and retrace %
Within S&P 500 uptrend/bullish impulse wave, the pullback is extremely shallow at about 2 - 3% only.
NDX rally and retrace %
Within Nasdaq 100 uptrend/bullish impulse wave, the pullback is extremely shallow at about 2 - 3.5% only.
NYSE market internals
Tuesday Dec 19, 4.16 to 1 NYSE Advancer to Decliner ratio ( 2316/556 )
85.8% UP volume day (853834901/994334940)
Wednesday Dec 20, 3.34 to 1 NYSE Decliner to Advancer ratio ( 2198/658 )
91.2% DOWN volume day (923960766/1011607104)
Thursday Dec 21, 4.17 to 1 NYSE Advancer to Decliner ratio ( 2295/550 )
89% UP volume day (746815997/829660814)
The NYSE TRIN reading plunge from 3.69 to 0.48 in 1 day, suggesting that this Dec 20 intraday ‘crash” is probably a 1-off peculiar event, which is why I believe this dip is likely buyable before the continuation of next week Santa Claus rally ( The real Santa Claus rally periods are Dec 26 till last trading day + first 3 trading days in the next calendar year. )
McCllelan Summation index
Nasdaq 100 McCllelan Summation index
S&P 500 McCllelan Summation index
By many technical metrics, momentum is “overbought” and breadth is incredibly overbought. (note: Momentum “overbought” in the 1st Bullish impulsive wave after market downturn is perfectly fine)
But is there a metric that shows that rally may still have room to run ? It turns out there are, SPX and NDX McCllelan Summation Index shows that McCllelan Summation index could reach 1500 before Indices pullback. ( Historical precedence ? Early Q1 to mid Q2 of 2019 and Apr – Aug 2020 ). So market likely may have some gas in the tank to increase a bit further.( note : I am suggesting a possibility )
NAAIM index
Investment managers are almost fully invested. Based on previous record, it could possibly go as high as 105 or 110 before pullback sets in.
In any case, the market increment pace from here onwards is likely to slow significantly compared early Nov – mid Dec period.
MOVE index
MOVE index is below 50day MA, and closed around 112, still waiting for it to close below 100. ( Lower MOVE index decrease bond haircut, causing an increase in collateral value of bond, leading to more fund available for big institutions, thereby increasing market liquidity. )
% of SPX stock above 50&200days MA
Market breadth is extremely solid ( but getting too solid for % of stock above 50days MA)
percentage of SPX-Stock above 200days-MA, currently at 75.8% .
percentage of SPX-Stock above 50days-MA, currently at 89.62% . getting past oversold level, suggesting near term consolidation. Reading did run up to 90% oversold level as of Market close by Dec 19, this is a potential short-term trigger for consolidation/pullback. But long term wise, it’s a bullish breadth thrust signal. ( 10% -> 90% )
10Year Yield (TNX)
10Y yield closed below 4% for 6 consecutive days.
Junk bond press higher after gapping up a few days ago, Junk bond movement could offer clue to Stock indices very near term movement ( Or they may move concurrently )
Bottom line
Near term : market may consolidate till end of this week, before resumption of Santa Claus rally next week.
Mid term : Market may rally till January/February, follow by tricky March – May period
Long term : 2H 2024 - Bullish
As always, we will continue to monitor the charts, assess the bullish/bearish evidence day-by-day to make appropriate capital allocation and investment decisions.
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