“There are always two parties, the establishment, and the movement.” Ralph Waldo Emerson Round Number Abundance: Consider the bears as the establishment and the bulls as the movement. In 2023 technology bulls have taken the baton and it is crucial that they do not fumble it. The round numbers were popping up ubiquitously last week. In some of the bigger names META and TSLA were stopped at the very round 200 number, as were some other less followed plays like JBHT and FIVE. Others in tech include GOOGL which may look to fill the gap near par next week. Below is the chart of the QQQ and it may look to retrace back toward 300 next week before another possible leg up, as a breakout above an ascending triangle just below the round figure may provide some comfort. Keep in mind most breakouts are retested, but bulls do not want breakouts to linger back near the pivot point as that would be a red flag. An undercut of that 295 area would be considered a bear trap and a very sinister development, but for the first time in a while, it feels like the burden of proof is on the bears. Inside technology AAPL being a component in the PRICE-weighted DOW may have contributed to its holding up better than the Nasdaq until the start of 2023 as it comprised just 3% index (interesting that MSFT is now the top holding in the QQQ barely edging out AAPL at almost 12%, nearly 4 times the influence that it has on the Dow).
Industrial Purpose: As the industrial group treads water to begin 2023 up 2%, making it just the seventh-best major S&P sector out of 11, perhaps it is just taking a well-deserved breather before its next leg up. The chart of the XLI below shows just sticky the very round par number has been dating back to Q2 '21. Airlines and transportation services continue to be the best actors with the JETS now recording 3 straight WEEKLY CLOSES above the very round 20 number and they each CLOSED very tautly, all within just .13 of each other and we know breakouts from that type of tight consolidation can be very powerful. DAL is my favorite name there with a bull flag that aligns with the round 40 number. Lagging groups continue to be defense and railroads. The Canadian rails in CNI and CP are acting better than our domestic ones in UNP and CSX. One exception in the defense space is AXON which Monday attempted to break above a cup base pivot of 193.95 but reversed near the very round 200 number.
"Just when you thought it was over, it was really only just beginning," -Unknown Technology Renaissance: Bulls have been conditioned over the last year that each time they think the bear is over it swiftly reared its ugly head again. Can the scarcity of true market believers this time around, lathered in recency bias, actually be a good thing? The MONTHLY chart of the Nasdaq below is turning from a negative to a positive (of course there is one more session this coming Monday). I was a skeptic as I felt it was lingering too long riding its 50-day SMA, with now 8 months in close contact with the line, unlike the springboard it served as 3 times since early 2016. Last Friday on its daily chart it CLOSED above its 200-day SMA for the first time in over a year, and next week will be a true test for this nascent turnaround when AAPL REPORTS Thursday after the CLOSE (AMD META and GOOG also release numbers next week). The largest company on Earth, and the only $2T market cap has CLOSED at the top of the WEEKLY range the last FIVE weeks. And although volume was somewhat tepid, which is normal in an incipient rally as cynics abound, the volume will come later as bears are forcefully converted into bulls.
Resiliency: One has to admire the tenacity of the S&P 500 which has now CLOSED above its 200-day SMA to end the week for the fourth time since November 30th. Sure Friday CLOSED less than 4 handles above the downward-sloping secular line, but bears may be wondering if their time is limited. I still think you have to play this market on a tactical basis until we are decisively above that 200-day, but the technical landscape is improving. The burden of proof is still on the bulls, but the bears in the back of their mind must be playing with the thought that the longer the market refuses to go down the less bearish it is, almost like a time stop. And another positive is how the Nasdaq on a relative basis has been outperforming as seen on the ratio chart below. That does not mean both can not act well on an absolute basis, but perhaps tech will begin to broaden out the rally. In the last 2 weeks the Nasdaq was stronger up .5% last week as the S&P 500 fell .7%, and the week prior the Nasdaq was up 4.8% while the S&P 500 rose 2.7%. The bulls are gaining steam but must keep their eye on the ball.
Size Matters: In life, many like to root for the underdog. Often that role is filled by someone short in stature. The small-cap space is showing why many are becoming a bit excited about this nascent run in markets. This area is often seen as a leading indicator and a barometer for "risk on". With 2023 now two weeks in the Russell 2000 is showing the way. For a second consecutive week, it has outperformed the "big" three major indexes. Last week the IWM added a very healthy 5.3% while the Nasdaq, S&P 500, and Dow rose by 4.8, 2.7, and 2% respectively. The week prior it advanced by 1.8%, with the others gaining between 1-1.5%. A theme could be developing here and a big move was likely imminent with the extraordinarily taut WEEKLY CLOSES the 3 weeks ending between 12/16-30/22 which all finished within just 3 pennies of each other, not a typo. A move through 190 would negate the series of lower highs for the IWM dating back to the week ending 11/12/21. Risk appetite is growing.
"Everything has beauty, but not everyone sees it." Confucius Beauty Is In The Eye Of The Beholder: One man's trash is another's treasure. Is junk back in vogue? The PRICE chart below shows how the JNK is leading the S&P 500 and it may be a good sign. It could be market participants are expressing they are willing to take on a bit more risk. Last week the ETF recaptured its 200-day SMA and has now advanced 5 of the last 6 sessions. The fund rose 2.7% last week nearly doubling the rise in the S&P 500 and over the last month's period the JNK has added 1.3%, while the S&P 500 has declined 1.2%. It is also now back above the WEEKLY CLOSE ending 10/28 that rose 3% in the second-best WEEKLY volume dating back to the COVID lows of early 2020. For investors that can stomach the risk, the JNK is paying a dividend yield of almost 6%. It is still way too early to tell if the downtrend is over and quite frankly we will not know until hindsight, but some little positives are beginning to add up.