Weekly Market Review Oct 30 - Nov 3 2023 part 1 ( Dawn of new bull market, Huge institution buying interest, new criteria for sustainable bull market )
Weekly market review will be divided into 2 parts and published separately,
Part 1: Oct 31- Nov 3 week in review, new assessment criteria for sustainable Bullish
Part 2: Breadth, various Sector, Bond charts review
Since August, the dark cloud of high 10Y yield had been hanging over market and foreshadowing a crashing economy/market. But once market consensus of Treasury refunding duration mix were proven wrong and Fed wa perceived as less hawkish, 10Y yield started falling like a rock&closed at 4.56% and DXY broke below 105.50 -107 range and closed lower at 104.90.
Simultaneously, stock market rally started gaining momentum and every US indices rose by around 5.5 – 8.5% off the low, with small cap rising by more than 8%. Naturally, every investors was wondering whether this is a dead cat bounce or a true recovery ? This question was answered emphatically on Thursday and Friday, where we had NYSE A/D breadth thrust on both day and registered a first back-to-back 80% UP volume day on Friday.
Recall that in previous weeks, we were planning for various bullish/bearish macro scenario, with the objective of preparing ourselves mentally to take action accordingly ( make adjustment/cut losses/go long )
So far the situation pan out as follows ( realized scenario & technical indicators in red Font ),
Bullish Scenario 1 : 10Y Yield peak and reverse/ Retest 5% and roll over
Bill Ackman is in the Fed Investor advisory committee & gave presentation to NYFED chair John Williams on Oct 19th.
Ackman was betting on long duration bond fall ( yield UP ) and curiously stopped in October.
Yellen mentioned : “So I think it’s perfectly possible that we will see longer-term yields come down, but nobody really knows for sure.”
https://www.newyorkfed.org/aboutthefed/ag_financial_markets
https://www.newyorkfed.org/medialibrary/media/aboutthefed/pdf/2023/October-2023-IACFM-presentation
https://finance.yahoo.com/news/bill-ackman-says-covered-short-151015249.html
Scenario 5 : Shift in Fed tone
While Fed chair Powell didn’t declare victory on Inflation war, he was less hawkish and showed flexibility.
Aug – Oct market turmoil were resolved by Dry up in selling and followed by Panic buying ( Divergence in NYMO, NYSE A/D breadth thrust, back-to-back NYSE 80% UP Volume )
Wednesday Nov 1, 2.03 to 1 NYSE Advancer vs Decliner ratio
Thursday Nov 2, 7.87 to 1 NYSE Advancer vs Decliner ratio (2583/328)
89% UP volume day ( 936360922/1042924461)
Friday Nov 3, 4.97 to 1 NYSE Advancer vs Decliner ratio (2416/486)
81% UP volume day (828452107/1021116025)
In terms of reversal sign, it doesn’t get any better than this simultaneous combination. Buying of this scale can only be done smart money and big institution. Bull market has resumed and the correction since end July is OVER.
So all in on Monday Nov 6? not so fast…
For short term trading, risk -reward ratio is very poor, we may see retracement next week since market has run up so much ( retracement could be as deep as 200Day-MA ). But dip in the coming days are buyable.
for long term asset allocation, it’s time to put some of your capitals to work.
The Breakaway gap is formidable and we don’t expect it to be exceeded immediately, the 3 possible path of market near term movement are indicated in the chart above.
Most of the reversal conditions below set out in previous week were all realized,
In the coming weeks, I will assess the next phases of bull market rally against the following conditions.
Here’s a preview of the charts of those new criteria,
MOVE index
MOVE going below 100 support level would mean the rate worries has been straining the market will be complete brushed aside.
Equal weighted SPX vs Cap weighted SPX
Market is strongest when the breadth is broad. When cap-weighted SPX was rising from Mid Oct – Early Feb, End May – End July, Equal weighted were rising simultaneously during the same period. We need Equal weighted SPX to do the same going forward. In terms of relative strength chart ( in bottom chart ), Equal weighted SPX must either be flat or rising against Cap weighted SPX.
Consumer discretionary outperformance against Consumer Staples ( on equal-weighted basis )
For a healthy and sustainable bull market, Consumer should be making more discretionary spending, and Consumer discretionary sector ETF price should be rising relative to Consumer staples sectors( on Equal-weighted basis)
Transportation
Transport sector should be closely watched because it is an important signal in Dow Theory to confirm the rise/fall in DJIA / XLI index and over health of industrial sector. The price should recapture previous swing high at 15250
In upcoming part 2 of the market weekly review, we will review all the price charts, breadth, momentum and bond charts.
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/