Weekly market review Nov 13 - 17 Part 1 ( Latest on CTA Equity Positioning, Institutional flow data, Historical review of market breakout without pulling back, market overview )

Market was mostly backing and filling near range high, and those waiting for pullback are getting frustrated .  

Weekly entry will be written in 2 parts to be published separately,

Part 1: CTA Equity positioning, latest institution equity flow data, historical review of market breakout without pulling back, market overview

Part 2: Review of relevant macro charts

Latest info on CTA Equity positioning

Latest chart (source : Goldman Sachs FICC dated Nov  14) shows that Commodity trading advisor (CTA) have initiated more buying, and these buying flow has edged CTA equity positioning closer to 0. CTA equity positioning flip was the most drastic in more than 8 years. They are likely to be next wave of buying volume in the coming days, as more of their trend following signal turn green.  Therefore dips are buyable ( in fact so many who haven’t got in are waiting for the pull back, but whether they could get one is anyone guess. )

BofA FMS survey equity inflow

According to BofA data, Equity inflow saw the 2^nd largest inflow in 2023. And Financial sector equity started having inflow after multi month outflow.

NAAIM exposure index

Latest info on NAAIM exposure index = 72% mark. This shows that institutions were the buyer behind the big surge in previous 3 weeks. Big institutions have vested interest in the continue progression of this rally, so dips are buyable

Retail buying volume

This data is a bit dated, but I believe it is still applicable and there isn’t any material changes as Retail investors are either still unaware or are kicking themselves&waiting for a pullback. If majority of Retail investors are not involved in this major turnaround rally, then there isn’t any weak hand to be shaken.

Chasm between Institution and Retail investor

From above BofA chart, at a period when individual investors are hesitating, stalling/reducing their equity exposure in October, Institution are swooping in and aggressively buying stock in end October – mid November. This is the biggest difference between us and BIG guys. I am guilty on this as well, because I DID NOT aggressively ramped up my equity exposure ( even though I had some exposure ), this is clearly an improvement that I have to work on, I must pay closer attention to some technical trigger point in the future.

Pullback in the near term  ?

If everyone is waiting for a pullback, then likelihood of market giving it to the majority wish is low.  

The easy part is waiting for a pullback and buy when there’s pullback.

But what if we don’t get a pullback and market continue ramping up higher. The challenge now is assessing IF and WHEN we can get a pullback.

We need to be prepare for this possibilities by looking back at previous market episode to get a better sense of how things may potentially evolve.

1962 bear market

Brief history of 1962 bear market, flash crash from March to June 1962, and Cuban Missile Crisis from Oct 16 – 28, once Cuban Missile Crisis were resolved, market skyrocketed higher. There are Similarities with today market

1)      This is the 1 of the 2 market scenario where 2 Zweig breadth thrust occur. ( the other scenario is current market , with 2 Zweig breadth thrust, albeit with one Zweig breadth thrust miss by 1 day mark ).

2)      3 weeks after the market-bottom reversal-rally,  the 20day & 50day-MA were still turning up and crossing over slower 100day-MA.

In 1962, after end October bottom, the market rallied relentlessly in November, Stalled&went sideway in December ( resting on 20Day-MA ). Market then rallied again from early Jan till mid Feb, and retraced subsequently in a shallow manner from Mid February to early March ( pull back by 4.6% and retest 65day-MA ), rallied again till May 1962 and stalled in June. Market then retraced by 5.3% till end July ( had a short stay below 100Day MA ). Thereafter, market rallied again from mid July to Mid September, went sideway from mid September onwards, had a retracement of 7.6% from Mid October to End November ( retest 200day-MA ),  and then rallied again till end December.

1982 bear market

Brief history 1982 bear market : record high fed fund rate in 1981 was set by Volcker to battle sky-high inflation, the tightening level were too much for market & the economy. Market bottomed after fed fund rate were cut to around 10%. 1 similarity with current market,

1)      3 weeks after the market-bottom reversal-rally, the 20day & 50day-MA were still turning up and crossing over slower 100day-MA.

In 1982, after end august market bottom, market rallied relentlessly till mid October. Market then stalled trap in big range from mid October to December before shifting to a phase of stairstep rally from Jan to End March. ( all the while retracing only to 50Day Ma during this period ). Market then rally from Early April to early May, before stalling from early May to early June. Subsequently, market was rangebound till year end.

Within the relatively big range in the 2^nd half of the year , market rallied from Early June to Mid June before stalling till mid July. Then market had a retracement of 7.6% from Mid July till Mid August. Then market rallied to a high of 172 in Mid October, before retracing 6.5% from mid October to Early November .

1998 bear market

Brief history of 1998 bear market : Post LTCM crisis, market rallied for one and half month before stalling out. 1 similarity with current market,

1)      3 weeks after the market-bottom reversal-rally, the 20day & 50day-MA were still turning up and crossing over slower 100day-MA.

After rallying up to new all time high, market stall for the remainder of 1999.

I will attached the following charts for Readers review without much commentary because market were stalling after CPI surge.

Broad market review

S&P 500

Last remaining model 21day-EMA cross above 63Day-SMA for SPX, every model turned green around last Thursday Nov 16

Trend following model

For newer reader, this is not a trading signal per se, but more of a process/weight of the evidence approach to approximate the Commodity trading adviser (CTA) Trend following model “signal occurrence speed”. Because CTA usually employ a range of trend following model to long/short the market.

Nasdaq 100

Bollinger band 63Day-MA + 2SD

Rationale for this model are explained in previous blog entry (Weekly market review Oct 31 - Nov 3 part 2) if new readers would like to know more.

MOVE index

MOVE index closed at around 113 , would like to see it moving closer to 100 in the coming days. ( 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. )

10Year Yield (TNX)

10Y yield still hover around 50day-MA and resting at 2^nd Uptrend line, perfectly possible for 10Y yield to retest 4.7-4.8 level further before breaking down further. ( US Indices might retrace if 10Y yield retest 4.7 – 4.8 )  A break below of 2^nd downtrend line and 50Day-MA will provide further fuel for rally.

NYSE market internals

Wednesday Nov 15, 1.24 to 1 NYSE Advancer to Decliner ratio ( 1587/1275 )

Thursday Nov 16, 1.62 to 1 NYSE Decliner to Advancer ratio ( 1761/1086 )

Friday Nov 17, 2.36 to 1 NYSE Advancer to Decliner ratio ( 1994/842 )

% of SPX stock above 50days and 200 days MA

Market breadth is healthy,

percentage of SPX-Stock above 50days-MA, currently at 71.4% .

percentage of SPX-Stock above 200days-MA, currently at 54.2% .

Sector performance over 1 week basis

Consumer discretionary rank 3^rd, while Utilities ranked higher than financials, industrials, Technologies, Communications, although Consumer staples was at the bottom on a 1-week basis, from Nov 13 – 17.  I had some mix feeling about this, Staples has more defensive tone than Utilities and rank last,  so it’s still acceptable near term.

Industrial

Transportation

Financials

Homebuilder

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.

The bold & intelligent readers among you who took action and got involved in this market rally can pat yourself in the back and have some great profit to look forward to in the coming weeks and months.

Disclaimer : The information presented here are for research and education purpose only, and does not constitute investment advice, trading recommendation, author shall not liable for any action taken by any individual/company with regards to the information presented here or any part of the website - https://marketcycleedge.substack.com/