Daily market review Jan 4th, 2024 (Selling ease off somewhat pending NFP data, small & mid cap , equal-weighted outperform Cap-weighted counterpart)
Broad market overview
Bad news is market is selling-off again for 4th day in a row actually ( starting from Dec 29th ) , but the good news is Selling has eased off somewhat compared to the previous session. Most likely market is waiting for Nonfarm employment data to make the next directional move. So Jan 5th is the decisive session.
The DJIA is flat, S&P 500 fell by a mere 0.3%, NDX fell by 0.5% , Equal-weighted performed slightly better than cap weighted counterpart, small&mid cap is also flat.
S&P 500 11 sectors
Defensive sectors is outperforming offensive sectors, saving grace is financials and industrials are performing better than defensive sectors.
Santa Claus rally period and First five Day
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.
So far S&P 500 first 3 days performance is -0.57 , -0.8 , -0.34 for a total of -1.71%, so can the 4th and 5th trading day combine to erase -1.71% ? it’s a somewhat tall order, because it has to put in 0.86% for next 2 days just to negate the red closing in the first 3 days.
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 FYI, 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, Apple watch trademark lawsuit 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 early 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 give us one of the lenses to look at private sectors collateral pool utilization. MOVE index close at 121, still 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
4680 - 4700 is the make or break level to watch in the Jan 5th 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 5th, 2024 trading session
=> is there follow through after breaching 20day-MA, (will it travel to 50day-MA )
=> how many session it will stay below 20day -MA ( stay below 20D Ma for 2 consecutive session )
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 )
Thursday Jan 4th, 1.03 to 1 NYSE Decliner to Advancer ratio ( 1427/1386 )
The following sections are for Paid subscribers.
=>Institutional Flow and Options dealer gamma backdrop to consider
=>AVWAP charts
=>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 fund ), institutional flow can be broken down as follows,
=> Discretionary/actively managed fund
=> Systematic fund ( CTA trend following algorithm and Volatility targeting fund )
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