MSCI World index has moved back to new all-time highs

Divergence between the top performing stocks within Technology and the broader market could eventually lead Stock indices to consolidate.  Yet, currently, we’re seeing the opposite, as groups like Industrials and Healthcare have both pushed back to new all-time highs.  A minor broadening out in sector performance has happened, and this week has brought about a rally back to new all-time highs for MSCI World index along with a breakout in Equal-weighted SPX to the highest levels in nearly two years.  While many have avoided chasing some of the highflyers that have dominated performance, there’s been precious little sign of these stocks turning down.  Conversely, the broader market has now begun to show signs of mean reversion higher after a weak January.    

Overall, as I’ve discussed over the past week, the divergence between Cap-weighted SPX and Equal-weighted SPX does not necessarily mean that markets are vulnerable.

SPX has now approached 5000, which is psychologically important, but has little to suggest any instead of no real relationships as to why this should hold technically.

Meanwhile, MXWO World index has just moved back to new all-time highs.

Equal-weighted S&P 500 ETF (RSP 0.10% ) has also broken out today, (Wednesday 2/7/24) to the highest levels since early 2022.  This looks important and positive.

Overbought momentum won’t be a sufficient reason to expect US stocks roll over given that several broad-based gauges are now pressing back up to new all-time high territory.  Until/unless SPX gets below 4845, trends are positive and SPX likely should push above 5000 into late February.

DeMark counts on weekly charts look to be potentially two weeks away from another possible time of exhaustion, which might have more importance this time than a few weeks ago.

Overall, I believe the chart below has far more significance technically than what the SPX’s approach of 5000 says about the US Stock market.

Invesco’s RSP is on the verge of exceeding a reverse Head and Shoulders pattern going back since mid-December 2023.  This looks bullish, despite that RSP finished at $158.39 on 2/7, vs. its $158.49 on 1/30/24 and $158.41 on 12/28/23.

This breakout looks imminent and should help the broader market continue its recent success.  I anticipate an eventual rally to test all-time highs from January 2022 at $164.90

Equal-Weighted S&P 500 ETF

MSCI World index has pushed to new all-time highs on its weekly close above November 2021’s close

Not much to discuss here outside of illustrating that the World index has just pushed back to new highs. 

Thus, this isn’t just a US Technology issue.  Globally, indices in countries like Japan, and many European countries are scaling new heights to match what US indices have been doing.

I find it difficult to fade markets at new all-time highs, particularly when it’s a Global benchmark like the MSCI World index.

While an “eventual” correction is possible in March/April timeframe, this should occur from higher levels.

MSCI World Index

Steel stocks remain some of the better performing parts of Materials sector

While the Materials sector has struggled lately with the rise in the US Dollar, Steel stocks have largely thrived, with patterns on VanEck Steel ETF showing a steady uptrending pattern of higher lows since it bottomed in October 2022.

Despite Materials sector’s negative performance in early 2024, many Steel names look technically attractive and should be an area to overweight for this year.

My favorite technical names in this space are: STLD, NUE -0.76% , CRS -0.14% , USAP, RS 0.10% , ZEUS, and CLF -0.91% .  All of these look technically appealing at current levels and a few of them such as NUE, ZEUS, and STLD, are breaking out of current patterns and might experience some short-term outperformance vs. their respective benchmarks.

SLX, the VanEck Steel ETF below, should push higher to test January 2024 peaks after an initial failed breakout attempt above 2023 highs.

As shown below, that area near $76 lies right near the upper trend channel of a larger consolidation pattern, but recent weakness makes SLX, and many of its underlying constituents, attractive at current levels.

VanEck Steel ETF

SMCI gave some clues of an impending breakout which are important lessons for investors to heed

The chart below highlights Super Micro Computer (SMCI -1.83% ) before its recent breakout, which has defied gravity in its parabolic rally of over 90% just since 1/19, or 13 trading days ago.

I’ll break down below what I considered to be some of the key reasons why this was included as a “Super SMID Granny Shot” name for consideration.  (This does not imply that future picks will have the same success, and is merely a breakdown of my analysis of this name prior to inclusion.  As shown below, there is much subjectivity that is involved in picking stocks technically which is not all based on momentum readings.)

1. Technicals had been getting stronger short-term, following SMCI’s rhythmic pattern of higher lows following its October 2023 bottom.  (These higher lows had been advancing at roughly 10% between each bottom as part of the consolidation pattern since last August into January.)
2. SMCI’s entire consolidation from August 2023 into January 2024 followed a sharp 283% rally from April 2023 into August of last year.  This was important, in demonstrating that SMCI had experienced a prior history of a very sharp advance.
3. The fact that the entire consolidation since last August happened near the top quartile of SMCI’s advance from last Spring was thought to be important and positive.  (The entire consolidation retraced just 38.2% of the rally from April 2022 into August 2023, which kept the stock in good technical shape.)
4. Its consolidation pattern proved to be very symmetrical, and following the initial test of August 2023 peaks in early January 2024, the selloff proved brief, pulling back to a much higher low, before pushing higher on 1/19 to exceed $360 on all-time high volume.
5. The range from low to high on the actual breakout day alone proved quite bullish, over 35% on one day’s trading alone on the heaviest volume ever for SMCI, 23 million shares.

(Note, this breakout had not yet happened when the stock was selected to be a Super SMID Granny Shot name.  However, huge range breakouts on heavy volume, in my view, tend to be quite positive.)

While I did not anticipate the extent of the rally to follow, the fact that SMCI had moved up so aggressively from last Spring to Fall and then broke out on very heavy volume was promising.

Using price projection techniques related to the length of the most recent advance from April 2023 into August 2023 (Note, not 2022, but 2023) the initial target could be $732.

An additional target might materialize near $762.   I expect that both might have importance in the weeks and/or months ahead.

Below is the SMCI chart from July 2022 into 1/17/24, which preceded the breakout on 1/19 by two trading days.  Note:  The breakout did not even begin until SMCI crossed above prior highs at $360.

Super Micro Computers Equity