Technically the broad-based participation higher in multiple sectors in the last month is certainly a positive heading into 2024. While near-term risk/reward doesn’t seem favorable for those with timeframes less than two to three months, the recent overbought readings have not signaled any evidence of giving way. I’ll be watching for evidence of any hint of trend reversal in the days ahead. If this fails to materialize until January, than a larger than normal correction likely would occur into February of 2024.
US Equities and Treasuries look extended, but trends have proven resilient in recent weeks, with little or no evidence of any deterioration. While Treasury yields and US Dollar index have shown some minor 2-3 day signs of trying to stabilize, this hasn’t yet translated into any material bounce.
This week normally represents a sub-par week in December for risk assets. However, until some evidence of a reversal takes place, trends and momentum remain bullish but overbought. Given the DeMark-based exhaustion that could be possible on a daily and weekly basis this week in QQQ (See charts later in this report) I feel that all-time high levels in QQQ and SPX likely do represent a short-term hurdle.
At present, it’s important just to take stock of the fund flows happening in US Equities. The SPY shows all-time record inflows of greater than $20 billion last week, would seem to be constructive at a time when markets have pushed higher. This chart below from Bloomberg illustrates this recent record amount of money being put to work.
SPY ETF Fund Flows
Cash on the sidelines remains near record highs
Incredibly enough, despite a near 20% rally in the QQQ since late October 2023, just two months ago, the amount of cash on the sidelines remains at very high levels.
The ICI Money Market Funds Assets, which shows the total assets in money market funds for the week (total of taxable and Tax-exempt funds that reports to investment company institute) is now at $5.886 trillion, up from $4.73 trillion from late December 2022, and has accelerated rapidly in recent months.
Incredibly enough, the last two periods that marked the rapid run-ups in Money market cash were both 2006-2009 along with the early part of 2020, and both periods were marked by excessive downside volatility in risk assets.
Conversely, this latest run-up started near the bear market lows in 2022 and escalated 30% during a time of rising asset prices.
It’s thought that funds might begin to deploy cash in the new calendar year once rebalancing takes place, which might help to fuel the market rally even more.
Overall, while several prominent sentiment polls have turned more optimistic in the last few weeks, this gauge should be a source of comfort to market bulls, meaning that minor pullbacks in the weeks/months to come likely should be buyable given the global liquidity backdrop coupled with ample cash on the sidelines.
ICI Money Market Funds Assets
Homebuilder sentiment has started to lift coinciding with a drop in mortgage rates
Given my thoughts last week on Homebuilders likely outperforming in 2024, I thought it might be helpful to seeing how Homebuilder sentiment might be shaping up lately.
December data from the National Association of Homebuilders/Wells Fargo (USHBMIDX-Bloomberg) rose three points to 37, according to data which was released Monday 12/18/23. This could be helpful to signal some stabilization in housing demand after the recent decline to three-month lows in mortgage rates.
While interest rates are due to show some kind of bounce in the 1st quarter, my technical projections call for a decline to at least 3.25 sometime in 2024 and the possibility of 2.75% for the US 10-Year Treasury yield.
Overall, a rebound in homebuilder sentiment coupled with plummeting interest rates and an ongoing bullish technical picture for Homebuilder ETF’s like XHB bodes well for the possibility of further gains in 2024 for Homebuilder stocks.
As the monthly chart shows below, sentiment remains lower from late 2020 but has begun to turn higher this month. Any move over Summer 2023 peaks near 58 in this sentiment gauge would help this figure likely rise to above 70 sometime in 2024.
Bottom line, technically, the Homebuilders remain in good shape, and an increase in sentiment could be further helpful towards the Builders heading into 2024.
National Association of Homebuilders Market Index
QQQ could be set to display a rare confluence of daily and weekly exhaustion this week following recent rally
QQQ could face a difficult time immediately getting above 2021 peaks given the combination of near-term overbought conditions coupled with DeMark-based exhaustion on several timeframes as of this week.
Weekly QQQ charts could be set to show a rare confluence of daily and weekly 9-13-9 patterns as of this week (TD Sell Setup, followed by a 13 Countdown exhaustion signal followed by another TD Sell Setup) Monday’s close at $407.11 solidifies the daily count, and the weekly count would also be perfected barring a close this week under $389.12 (A decline of 4.4% would negate this from Monday’s close in the final four trading days of this week).
Thus, this week could represent the first time since the late October 2023 low that both daily and weekly exhaustion would happen in unison. This heightens the chance that all-time QQQ highs of $408.71 likely hold this week, which interestingly enough might also coincide with SPX holding its all-time high at 4818.62 from early January 2022.
In plain English, the fact that these exhaustion signals are happening potentially coinciding with a test this week of all-time highs creates a stronger confluence towards the possibility of a stalling out in prices in the very near-term.
Eventually, (translating in this case to early next year) I suspect that QQQ and SPX will both push back to new all-time highs to join DJIA. At present, the odds favor that all-time highs might act as resistance to both QQQ and SPX.
The weekly QQQ chart from Symbolik is shown below.
Nasdaq QQQ Invesco ETF
