Free

"People who say it cannot be done should not interrupt those who are doing it." George Bernard Shaw Monthly Green shoots: The Nasdaq is now higher 2% YTD and has recovered nicely after the week ending 1/5 slid 3.25%, as the last couple of weeks CLOSED at the top of the WEEKLY range with advances of more than 3 and 2%. Thoughts of the "missed" Santa Claus rally and the "first 5 days of January" indicator that supposedly forecasts negative returns are now behind us. Peaking at the MONTHLY chart of the Nasdaq puts sanguine feelings in bulls. It is acting well POST breakout above the cup with handle above 14446 and look for this to make a move toward the very round 16000 number in the first half or sooner, and that is just more than 4% from current PRICES. I am looking for it to duplicate with the S&P 500 did last week which was to hit all-time highs (notice how this chart shows the S&P 500, the purple line ahead of the Nasdaq for the last 2 years, but before that dating back to 2014 it was the Nasdaq leading). Is it a negative that it is trailing what the supposedly less dynamic, growthier benchmark, or is it just giving it a target to strive for? I think the latter and with the way semis are acting, especially NVDA (although it may prudently pause here after hitting its measured move to 600 from the bull flag breakout). Look for the Nasdaq to reach 16000 by end of Q1 and then maybe it will take a cue from how the S&P 500 acts at all time highs.

Size Matter? Small caps are often thought of as a leading indicator, and maybe they are, but for me, they are a good predictor of interest rates. Keep in mind the vast majority of smaller companies are unprofitable and rely on financing to stay afloat. The performance chart of the IWM compared to the major three US benchmarks shows a big divergence. Whether one believes the IWM is a good leading indicator or forecaster of interest rates this is not a good development. We will talk about the 10-year yield later in this note, but is the weakness in the IWM trying to convey that rates are bottoming? The WEEKLY chart shows the current 3-week losing streak with the completion of a bearish evening star pattern the week ending 1/5 that fell nearly 4%. On its MONTHLY chart, we highlighted several times that it did see a nice bounce near the 160 level, the area of a prior double-bottom breakout from November 2020. But notice how big monthly gains circled have led to very little follow-through in the past. The IWM is now 6% off its most recent annual peak, with the Dow, Nasdaq, and S&P 500 all at or 1% off their own. Is this shouting "risk off" in play? The benchmarks could use a healthy breather.

"To think too much is a disease". - Dostoevsky "SPY"tacular: The adage goes "It is not where you start but where you finish", and if we apply that to the MONTHLY chart of the S&P 500 below it was a great way to go out in November and December (to be fair we started 2023 off with a strong January advancing by 6.2%). Notice the nice follow-through last month after the break above the cup with handle, and we know the best breakouts tend to work right away so that is a good omen for 2024. The widely followed benchmark is now on a 9-week win streak and the last 2 WEEKLY candles were spinning tops suggesting some tiring, so a pullback here would be considered healthy (notice on the simple PRICE charts on that link that the Dow is the only one of the major 3 trading at all-time highs). Could that mean a continuation of some strength in the "growth versus value" debate, for the latter, that started recently as one can see where the action is over the last month's period? In my opinion, breadth is expanding and that is benign for all the major averages going forward.

Semi Significance: Semiconductors carry a lot of clout, and when they are acting well it is a strong overall tailwind for equities. Looking at the chart below of the SOXX, this, in my opinion, is amid a gravitational pull toward the very round 600 number (notice the bounce at the 500 figure in early December) and higher. Amazingly seasonality is strong, the ETF averages MONTHLY gains over the last 5 years for 10 consecutive months), but the easy money has now been made (will put a heavy emphasis on stock picking in Q1 '24) after the big historical November-December surge, for an average of almost 18%, not a typo. AMD and AVGO are the top holdings, with NVDA the third largest component (in the SMH it is by far the largest comprising more than 20%). AMD has broken above a bull flag pivot of 140 which carries a measured move to 165, and AVGO is now bull flagging itself following a 250 handle run in the middle of December, but watch for the bearish MACD crossover for a tactical pullback to buy into. NVDA will have a big say, but its chart has become very wide and loose, hallmark bearish traits, and one should remain cautious until a decisive CLOSE is recorded above the very round 500 number. Its WEEKLY chart has a much better look to it as it consolidates between 400-500 within a bull flag pattern.

"No one is hated more than he who speaks truth." - Plato Rolling "Index" Bull Market: We have mentioned the rolling bull markets in Q4 numerous times where different sectors will take a leadership role to give prior generals a chance to regain their stamina. Like musical chairs, if you will, between technology, financials, industrials, and real estate. We have seen a surge in the small caps with with the benchmark showing three gap ups, rare for an index, in such a short period on 11/2, 11/3, and 11/14. It is now setting up yet another bull flag formation with a break above 187.50 carrying a measured move to almost the very round 200 number. We all know how well the Nasdaq has done of late, but not getting much attention is the power the Dow has shown recently. Over the last one month period it has distanced itself from the S&P 500 and Nasdaq, and the daily chart below shows a bull flag. Of course, this is a PRICE-weighted index so take a look at the most influential names like UNH which is right at a cup base pivot, GS less than 2% from a double bottom trigger, and HD in an ascending triangle. All three of these are WEEKLY charts and in year-long plus patterns, so we could see a nice move into 2024. And for good measure do not discount AAPL, the largest company on the planet, just breaking above a bull flag pattern on the daily with a measured move to 215.