Santa has come early; DJIA at new All-time highs; Ho Ho Holy moly!
- DJIA at new all-time highs while RSP, NDX lie right near key resistance
- Performance data shows reason for optimism in 2024
- Healthcare’s snapback is a temporary positive, but looks short-lived
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Technically the snapback in multiple sectors in the last month is certainly a positive heading into 2024. Unfortunately, US equities show RSI readings at elevated levels and the risk/reward scenario certainly hasn’t improved after a ~13% rally in the last seven weeks.
US Equities and Treasuries have largely extended further than what was believed possible a few weeks ago and DJIA has now reached new all-time highs while NASDAQ 100 index and QQQ are right below November 2021 peaks. Equal-weighted SPX is also right at July 2023 peaks while six of 11 sectors are testing their intermediate-term downtrends from 2021.
Overall, despite my 2023 targets having been achieved, my short-term analysis has been too defensive in recent weeks given the combination of the following:
- Cycle composites have shown the possibility of weakness into late December
- Lackluster momentum and breadth readings have been present since mid-November.
- DeMark readings on daily charts were premature to act upon given no weekly Setups
- Slowdown in the growth trade resulted in Technology failing to keep up with sectors like Financials, Discretionary and more recently, Healthcare’s performance in the last month
Bottom line, the trends have proven resilient in both Equities and Treasuries and there hasn’t been sufficient evidence of trends giving way to expect a short-term reversal. I still suspect that this is possible in the back half of the month, as seasonality could very well flip-flop the normal December seasonality for Stocks.
However, until markets show a pullback to multi-day lows at a minimum, it will be early to act upon what any “Non-Price” related indicators might suggest about markets being prone to a correction, in my view.
Furthermore, I continue to find the charts of Equal-weighted indices to be of value when trying to figure out if trends should reverse, or follow-through to the upside. While SPX did in fact exceed $4600 along with DJIA having pushed up to new all-time highs on Wednesday, the Equal-weighed SPX (shown by Invesco’s RSP 0.10% ETF) is right up to July highs and has not broken out. Overall, this looks like a tough spot technically, but whether or not the back half of December will bring about a correction remains a difficult call for the seasonally bullish month of December.
Getting above Mid-July highs in RSP would certainly give rise to the idea of a “Melt-up”, along with watching those six sectors which are all challenging their respective downtrends.
However, I am skeptical that NDX, RSP move back to new highs, as well as TNX immediately getting below 4.00%. The next week should help answer these questions as to whether markets can push current overbought conditions to even higher levels.
The intermediate-term view has certainly grown more constructive in the last seven weeks technically. However, the short-term prospects for further upside acceleration are just challenging without a broad-based breakout across multiple sectors and indices, which has not happened. Equal-weighted S&P 500 (RSP 0.10% ) is below.
Equal-Weighted S&P 500 ETF
Performance data gives bullish investors something to cheer for the holidays
The combined effort of Real Estate, Discretionary, Financials, Technology and Healthcare have all been helpful towards driving breadth and momentum higher since October at a time when these sectors have all trounced the cap-weighted SPX index.
As this table shows below, the returns based on 1-month performance, are clearly quite positive on all the sectors above, and this makes a strong case for broad-based mean reversion in many of the beaten-down groups like Healthcare and Financials, former laggards which have now begun to participate. Performance like this is a reason to expect October 2022 lows should not be revisited in 2024 and markets can likely turn in good performance next year.
Healthcare- Can this Rally be trusted?
Healthcare in Equal-weighted form (as per Invesco’s RSPH 0.11% ETF) has now shown nearly the same performance as Technology on a rolling one-month basis. (++9.31% over the last month, vs. +9.67% for Technology.)
This sector was bound to snapback eventually, but yet the question remains: “Is it right to trust this move and is it right to overweight Healthcare?”
My ratio chart of Equal-weighted Healthcare (RSP 0.10% ) vs. Equal-weighted S&P 500 remains below the key downtrend which would allow for more intermediate outperformance.
While I do suspect that a larger period of positive mean reversion is likely for Healthcare, I still have not been able to lift my ranking for the sector from Neutral to Bullish. As seen below, Healthcare has only shown minor stabilization and no real evidence of breaking its existing relative trend with the market. Thus, this very well might prove to be short-term in nature only.
Equal-Weighted Healthcare / Equal-Weighted S&P 500 Ratio
My 2nd Half scenario conclusions for 2023 in Review
On the eve of my 2024 Technical Outlook, which will take place tomorrow, Thursday, 12/14/23, I thought it might be useful to revisit comments I made for the 2nd Half Technical Outlook back in early July.
As with all reports, not all of it came correct, as Healthcare and Energy failed to show much 2nd Half performance (Though Energy did rally sharply into September before weakening substantially in the last two months ).
My 2023 technical target given in January 2023 was SPX-4500, which I raised to 4700 in July. My 2023 technical target for Bitcoin was $40,000.
I look forward to sharing my thoughts on Thursday 12/14/23 for 2024.
