Short-term SPX Peak should be near;  DXY could strengthen into March

Near-term trends look to be turning down following a test of December 2023 peaks across multiple US indices on Thursday.  Weakness over the next week looks possible, and could kick off a larger decline which extends into March.  At present, 4682 from early January looks important, and could provide some support on weakness over the next 1-2 weeks.  Meanwhile, both US Dollar and US Treasury yields could extend further to the upside in January.  Both Healthcare and Financials look to be at resistance and this could prove to be a headwind for Equities over the next month.  Bottom line, the risk/reward for new trading longs looks poor, while daily closes back under SPX 4739 gives more proof that a selloff is getting underway and should lead to an immediate test of 4682.

I feel Thursday’s CPI print was a short-term negative catalyst for US stocks and directly lines up with mid-January peaks shown in my Seasonality chart back on 1/4/23.   My recent notes have discussed reasons for possible consolidation in 1st Quarter(1Q) 2023, and this directly lines up with minor breadth deterioration, bullish sentiment, bearish 1Q Seasonality, not to mention a negative trajectory shown by short-term cycles over the next couple months.

While I remain quite optimistic that pullbacks will bring about attractive opportunities to buy dips, I sense that our October-late December 2023 rally might require a 50%-61.8% retracement before a push back to new highs can occur.   The risk/reward for new investments doesn’t look appealing at current levels for those with a 6-8 week timeframe.   

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