Daily market review Jan 3rd, 2024 ( Across the board selling, Cap-weighted outperform equal-weighted, small & mid cap counterpart )
Board market overview
Holy Moly, selling-off for 2nd day in a row, what is happening ? S&P 500, DJIA fell by 0.8%, NDX sold off by 1% , Equal-weighted sold off by 1.5%, small&mid cap sold off by around 2.5%.
S&P 500 11 sectors
Utilities is outperforming other sectors ( except for energy ), although staples didn’t perform well. Technologies closed at -1%, Discretionary close at -2%, although communications perform reasonably ok at -0.4%.
Santa Claus rally period outcome
Santa Claus Rally period closed at -0.6% for S&P 500. ( Dec 26 – last trading day in December + first 2 days in January ). As famous seasonality founder Yale Hirsch used to said “ if Santa Claus should fail to call, bears may come to Broad and Wall, “
Will it herald in a bearish year ? We can only reach a verdict after getting final figure from several other signal, e.g first 5 days barometer , January barometer, etc.
In the very near term,
If Santa Claus Rally and first-5-days barometer are both negative, then further caution is warranted.
If Santa Claus Rally is -0.6% and first 5 days are positive, then we can still relax a bit more and look at January barometer for final verdict.
Apple downgrade
Additional information, Barclays analyst is well known for their dislike of Apple for quite some time. Also, Apple Sales slowdown, consumer lesser waiting-time in getting Iphone 15, China Government sector Ban etc…. These concerns have been there for several weeks, why only downgrade it on 2nd January ? These are no easy answers to these questions.
In any case, writers and readers of this blog give more weight to the technical analysis to glean the signal from noise. Because sometimes, Analyst upgrade and downgrade is occasionally timed to facilitate certain institution objective.
Anyhow, the warning sign has been shown in my previous blog, notably defensive sector has been outperforming offensive sectors and pulling the SPX higher of late. Therefore, this short term pull back should not come as a surprise.
MOVE index
Move index allow us to look at private sectors collateral pool utilization in a summarized manner. MOVE index close at 124.5, above 50days MA.
( 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. )
S&P 500 overview
4700 is the make or break level to watch in the Jan 4th trading day
if 20Day-MA is breached, then we need to watch out for the following level.
- 4550 - 4600
- 50days MA
Based only current set up, highly unlikely to retest CPI gap
Nasdaq 100 Overview
Things to watch out on Jan 4th, 2024 trading session
=> Is there follow through in selling after breaching 20day-MA, (will it travel to 50day-MA )
=>Short stay or long stay below 20day-MA / how many session it will stay below 20day -MA
NYSE market internals
Tuesday Jan 2nd, 1.11 to 1 NYSE Decliner to Advancer ratio ( 1496/1347 )
Wednesday Jan 3rd, 2.59 to 1 NYSE Decliner to Advancer ratio ( 2028/782 )
The following sections are for subscribers.
=>Institutional Flow and Options dealer gamma backdrop to consider
=>previously mentioned near term warning signal
=> Sector ETF choice for the month of January to outperform SPY
Institutional flow and Options dealer gamma backdrop to consider
Institutional Flows are what push the market directionally one way or another. ( in terms of directional movement & volatility impact, and their subsequent adjustment in reaction to realized volatility). Furthermore, we are increasingly an option dominated world, which means Option impact on the underlying asset market should be taken into consideration.
So how exactly is the institutional flow affecting the equity?
To explain further,
Institutional inflow into Equity has been tap out around mid Dec. ( especially those systematic , Volatility targeting/control fund ), and institutional flow can be broken down as follows,
=> Discretionary/actively managed fund ( inflow around end Oct, early Nov 2023 )
=> Systematic fund ( CTA trend following algos and Volatility targeting/control fund , inflow around 2nd week of November. )
To read the rest of the sections, kindly become a paid subscriber to access the full market review report.
Paid Subscriber can get in-depth, actionable, Breadth, Sentiment, Flow & all other timely technical signal to optimize your trades from short , mid and long term perspective.