Weekly market review Jan 2nd – 5th, 2024 (Positive week streak ended at 9th consecutive week)
Broad market overview
Bad news is market is 9 consecutive week winning streak has ended, but mitigating factor is that Selling pressure seems to stall for 2nd day in a row.
On Friday trading session, most major indices are flat, ending between flat to 0.3 percent.
S&P 500 11 sectors
Financials, communications , utilities are the top 3 performers on Friday. While Staples and real estates are dead last.
Santa Claus rally period (-0.6%)and First five Day (likely close in negative )
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 signals, e.g first 5 days barometer , January barometer.
So far S&P 500 first 4 days performance is -0.57 , -0.8 , -0.34 and +0.18 for a total of -1.53%, so can the 5th trading day alone erase -1.53% ? it’s close to impossible to erase that in just 1 day.
In the very near term,
If Santa Claus Rally and first-5-days barometer are both negative, then some caution is warranted for this year, and we may have to tamper our positive expectation for this year.
What then do we make of the market at this point ?
Renowned retired institutional analyst Walter Deemer used to say, “ the Stock market will do whatever it has to do to embarrass the greatest number of people to the greatest extent possible. “, what better way to do it than starting the year on a negative note after a 9 week melt up rebound ? With all the loud-mouthed retail crowd and half-past-six traders/financial advisors laying claim to bullish 2023 year end rally, perhaps market god has been infuriated by these crowd ? or that certain information edge has lost its effectiveness when everyone is looking at the same data ? I don’t have the answer at this point. We will need a few more years of data to answer this question as to whether certain metrics has lost it’s edge ( or not ).
Apple downgrade (to 2nd largest holdings in SPY ) and technical charts
Additional FYI,
=> as of Jan 4th 2024, Apple is the 2nd largest holdings in SPY ETF (6.76% ), overtaken by Microsoft (6.95%)
=>Barclays analyst is well known for their dislike of Apple for quite some time.
=>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.
Apple technical charts
Apple is at a somewhat important juncture now, and it's near term direction is important in determining the extent of current indices pullback.
1) between 50% and 61.8% Fib retracement of Oct 27 - Dec high price swing
2) 200D MA
3) 10% Market correction benchmark ( which I personally don't adhere to, but mainstream media like to report 10% = correction, 20% = bear market..so readers have to make their own judgment )
Anyhow, several early pullback warning signs has been shown in my previous blog. 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 116, below 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 8th trading session.
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 8th, 2024 trading session
=> is there follow through after breaching 20day-MA, (seem hesitant in going down to 50D MA at this point)
=> how many session it will stay below 20day -MA ( stay below 20D MA for 3 consecutive session )
NYSE market internals
Thursday Jan 4th, 1.03 to 1 NYSE Decliner to Advancer ratio ( 1427/1386 )
Friday Jan 5th, 1.19 to 1 NYSE Advancer to Decliner ratio ( 1527/1285 )
The following sections are for Paid subscribers.
=>Institutional Flow and Options dealer gamma backdrop to consider
=>AVWAP charts ( with newly added Apple AVWAP charts )
=>10Y yield charts
=>previously mentioned near term warning signal
=> Sector ETF choice for the month of January to outperform SPY ( with new added buying flow as supportive evidence )
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 algos and Volatility targeting fund )
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