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Top Ten Charts to Watch for February 2025

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Let’s dive into February 2025 with the top ten charts to watch, each one offering a glimpse into the market’s heartbeat. This selection highlights what’s shaping the current narrative—so, are you ready to see what’s making waves?

First up: the semiconductor ETF, SMH.

Semiconductors like Nvidia and AMD have hit a few speed bumps lately, thanks to news from China’s Deep Seq AI. Did it derail them? Not quite. Despite a dramatic gap lower, SMH found solid support. Now, we’re watching closely: will it climb above 260 or slide below 235? The answer could set the tone for February.

Source: StockCharts.com

Costco’s story is all about momentum.

Blasting past the symbolic $1,000 mark, Costco is painting a picture of incredible strength. But can it keep up this record-breaking pace? February could reveal if this consumer powerhouse has more gas in the tank—or if it’s time to ease off the throttle.

Then there’s Alphabet, which feels like a puzzle.

Earnings disappointed, causing a slight gap down, yet the stock clings above its 50-day moving average. Is this just a hiccup on its upward path or an early warning of turbulence ahead? Alphabet’s next move could speak volumes about broader market sentiment.

Source: StockCharts.com

Travel giant Marriott keeps climbing.

With a smooth ascent past December’s highs, it’s feeding optimism in travel stocks. But how far can this momentum carry it? Marriott’s steady rise reminds us of the strength in consumer discretionary names, but we’ll see how long it can hold its ground.

Visa’s chart is textbook strength.

A classic cup-and-handle pattern and consistent higher highs make it a standout. Will resistance finally slow it down, or will it continue its strong upward stride? Visa’s steady march has our full attention.

Source: StockCharts.com

So, there you have it—the first five of ten compelling stories playing out on the charts. Each one shines a light on a different part of the market, and together, they paint a vivid picture of what February might hold.

Check out the rest of our Top Ten Charts to Watch over at our YouTube channel. And did I miss any that you would include on your own list of top ten charts? Don’t forget to drop a comment and let me know!

Thanks for reading, and don’t forget to check out CHART THIS with Dave Keller, airing weekdays at 5 PM Eastern, for daily market close review. If you’re ready to take your market knowledge to the next level, check out our Market Misbehavior Premium Membership for exclusive access to in-depth analysis, actionable insights, and strategies designed to help you navigate any market condition with confidence. Don’t miss out—let’s keep building your investing edge together. Join Now!

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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Trend Following: A Path to Strength in Investing

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Today, I want to share a key investing approach that has completely reshaped how I view the markets—trend following, or as I like to call it, relative strength investing. Let’s break it down together and explore why it’s become such an essential part of my strategy.

What Is Relative Strength Investing?

At its core, relative strength investing is about one simple idea: focus on strength, not weakness. When I first started out, I was all about trying to "buy low and sell high." It sounded great in theory, but in practice, I often found myself holding onto stocks that kept sinking lower. It was like trying to catch falling knives—not the most rewarding experience, to say the least.

Everything changed when I began working with growth investors and learned to spot signs of strength instead. By prioritizing stocks that were already doing well, I started seeing more consistent results. This approach mirrors how institutional investors operate—they look for strong, emerging trends and invest in them for the long haul. That’s the beauty of trend following: it’s about riding sustained waves of strength.

How to Spot a Strong Chart

What does a strong chart actually look like? Let’s use JP Morgan (JPM) as an example. After a solid 2024, it continued to climb in early 2025. A few key things stand out in a strong chart:

  • Higher highs and higher lows: The stock price steadily climbs over time.

  • Upward-sloping moving averages: These show the trend is on your side.

  • Momentum indicators like the RSI: When the RSI hits overbought levels during rallies but holds steady near 40 during pullbacks, it signals a healthy, bullish structure.

Source: StockCharts.com

But the most important clue is relative strength—a stock’s performance compared to the broader market (like the S&P 500). If you see a stock’s relative strength line improving, it means it’s outperforming the market—a key signal for any portfolio.

Real-Life Examples of Strength

Let’s look at a couple of examples:

  • Meta Platforms: After hitting a low in October 2022, Meta turned things around in a big way. Its transition from underperformance to consistent outperformance showed that improving relative strength often signals a major shift.

  • Palantir: Early 2023 was tough for Palantir, but it rebounded with momentum indicators turning bullish. Its relative strength started climbing, proving that stocks making new highs often hold promising opportunities.

Seeking Alpha

I owe a lot of my insights to Seeking Alpha. Their tools and data have been game-changers for my process. Their quant model evaluates stocks on a variety of factors—like valuation, growth, profitability, and most importantly, momentum. This focus on momentum aligns perfectly with a strength-first mindset.

One standout tool is Alpha Picks, which curates stocks using Seeking Alpha’s quant methodology. The results have been impressive, and it’s a fantastic resource for finding strength-focused opportunities.

Parting Thoughts

As we move through 2025, remember: buying strength isn’t risky—it’s strategic. Focus on stocks with strong price momentum, improving relative strength, and upward trends. Don’t be afraid to invest in stocks at new highs—they often signal even more growth ahead. Whether it’s JP Morgan, Meta, or Palantir, trend following consistently leads to resilient investment opportunities.

Want to dive deeper? Check out Seeking Alpha for a special offer on Seeking Alpha’s Alpha Picks. Embrace strength, and you’ll likely find yourself on a path to greater success.

Thanks for reading, and don’t forget to check out CHART THIS with Dave Keller, airing weekdays at 5 PM Eastern, for my daily market review. If you’re ready to take your market knowledge to the next level, check out our Market Misbehavior Premium Membership for exclusive access to in-depth analysis, actionable insights, and strategies designed to help you navigate any market condition with confidence. Don’t miss out—let’s keep building your investing edge together. Join Now!

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

Volatility in the SPX: A Choose-Your-Own-Adventure Market Outlook

The VIX might be signaling low volatility, but investor emotions tell a different story. The markets have been a whirlwind from mid-December to mid-January. We saw the S&P dip below the key 5850 level before quickly bouncing back above 6000 by last week’s end.

This week, we’ve seen the major equity averages surge higher, with the S&P 500 and Nasdaq 100 threatening new all-time highs. Stocks like NFLX are posting blowout earnings results, propelling our growth-oriented benchmarks onward and ever upward.

So, what’s next? As we look ahead to February and March, the big question is: does the S&P resume its strong uptrend, reclaiming its momentum to hit 6200, 6300, or even 6400? Or does the market revert to a downward path, with mid-January’s sell-off signaling deeper trouble? The Fed’s next meeting could throw a wrench into things, potentially dampening market sentiment and dragging the S&P toward its 200-day moving average.

To navigate these choppy waters, we’re diving into probabilistic analysis with a fun, choose-your-own-adventure style exercise. Here’s the plan:

  1. Consider the possibilities. Explore four potential scenarios for the market over the next six weeks.

  2. Choose your adventure. Decide which scenario feels most likely and think through its expected impact on your portfolio and investment strategy.

  3. Engage with the community. Cast your vote in the comments below and interact with others to broaden your perspective.

Let’s Reflect Before We Predict

Back in late October, just before Halloween, the S&P broke above 5850, and we asked if it could reach 6000. Out of the four scenarios we outlined then, the market initially aligned with a bearish outlook. But it didn’t last long, quickly flipping back to the most bullish trajectory.

This exercise isn’t about being “right.” It’s about stretching your thinking, preparing for uncertainty, and sharpening your decision-making with probabilistic analysis.

Now, let’s examine four possible scenarios for the S&P 500, starting from the January 17th close around 5997.

Scenario 1: Super Bullish

The rally is back on, with the S&P soaring to 6500 in six weeks—a solid 8-10% jump. This scenario relies on stellar earnings, minimal impact from a strong dollar, and mega-cap growth stocks leading the charge. The Fed meeting becomes a non-event as growth stocks reclaim the narrative, signaling an end to bearish sentiment.

Scenario 2: Mildly Bullish

The pullback is over, and we see a steady rally toward 6100-6200. Growth stocks might stay range-bound, but sectors like financials and industrials step up, reflecting a rotation in market leadership rather than a full-blown surge.

Scenario 3: Mildly Bearish

The market struggles to regain 6100, facing downward pressure. Defensive and value sectors hold their ground, but the S&P retests January lows around 5700-5800. A cautious Fed outlook suggests the uptrend is losing steam.

Scenario 4: Super Bearish

The downtrend resumes, breaking below the 200-day moving average toward 5500. Growth stocks falter, defensive sectors show relative strength, and the Fed’s inability to calm fears weighs heavily on sentiment.

Thanks for reading, and don’t forget to check out CHART THIS with Dave Keller, airing weekdays at 5 PM Eastern, for daily market close review. If you’re ready to take your market knowledge to the next level, check out our Market Misbehavior Premium Membership for exclusive access to in-depth analysis, actionable insights, and strategies designed to help you navigate any market condition with confidence. Don’t miss out—let’s keep building your investing edge together. Join Now!

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

The S&P 500: What’s Next After Breaking 5850?

Let’s talk about the big move we’ve been anticipating—the S&P 500 has finally dipped below our “line in the sand” at 5850. And then just as quickly, the SPX popped right back above this key support level! Here’s what stands out as I’m reviewing the chart of the S&P 500.

A Market in Red

As of last Friday, January 10, the market wasn’t exactly painting a pretty picture. The S&P 500 was flirting with lower numbers, and no sector has been spared. Growth favorites like tech? Down. Sturdy value plays like financials, industrials, and healthcare? Also down. Across the board, it was all red.

If you’ve been following along on my market recap show, CHART THIS with Dave Keller, you know we’ve been keeping an eye on the market’s weakening breadth since mid-December. This latest break below 5850 is just another confirmation of what’s been brewing: key sectors are losing steam.

Why the Close Matters

So, after a key breakdown, what happens next? First, we need to confirm that this break below 5850 is the real deal. It’s not just about dipping below that level during the day—it’s about where the market closes. Why? Because closing prices carry more weight when assessing trends.

Source: StockCharts.com

For example, we’ve seen the S&P dip below 5850 a few times recently, only to rally back and close above it. Without a true close below that level, the market has kept the bears at bay. But if we do see a close below 5850, and the market follows through in the days after, that’s when things could start getting interesting.

After inflation data came out this week, we saw the SPX pop back above 5850 as investors considered the possibility of further rate cuts in the coming months. We feel 5850 remains the most important level to watch, because we are one lower high away from confirming a clear bearish trend for stocks.

Setting Downside Targets

If the S&P closes back below 5850 and momentum continues, where could it go? That’s where technical analysis gives us some tools to work with. Here are three ways we can identify potential downside targets:

  1. Head and Shoulders Pattern:
    There’s a possible head-and-shoulders top forming on the S&P chart. Even if it’s not textbook-perfect, it’s worth noting. By measuring the distance from the “neckline” of the pattern to the “head” and projecting downward, we land at a target of around 5600.

  2. Fibonacci Retracement Levels:
    Taking the August swing low to the December high, the 50% retracement level aligns almost exactly with 5600. This alignment adds another layer of confidence to 5600 as a significant support area.

  3. 200-Day Moving Average:
    The 200-day moving average, a long-term trend indicator, hasn’t come into play for a while. Right now, it’s sitting near 5570. By the time a potential decline reaches this level, it could align closer to 5600, further strengthening this target.

When these methods point to the same general area, it’s a signal to pay attention.

The Big Picture

So, what’s the takeaway?

  • Keep an eye on how the market closes relative to 5850.

  • Watch for follow-through in the days ahead.

  • Look for key support around 5600, but stay flexible as market dynamics evolve.

The goal here isn’t to predict exact levels but to stay tuned into the trends and adjust as the story unfolds. And as always, the charts will guide us.

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Thanks for reading, and don’t forget to check out CHART THIS with Dave Keller, airing weekdays at 5 PM Eastern, for daily market close review. If you’re ready to take your market knowledge to the next level, check out our Market Misbehavior Premium Membership for exclusive access to in-depth analysis, actionable insights, and strategies designed to help you navigate any market condition with confidence. Don’t miss out—let’s keep building your investing edge together. Join Now!

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

Will the QQQ Sell Off in January 2025? Here's How it Could Happen!

Today, we're diving into an intriguing and highly speculative discussion about the QQQ. Imagine it's January 2025, and the market is standing on the cusp of a new year with many uncertainties hanging in the balance. We're about to explore four potential scenarios that could unfold for the QQQ by the end of January 2025. Let's get right into it.

Understanding the Market Landscape

Before we get into the scenarios, let’s take a step back. The period from now until the end of January 2025 encompasses a fascinating time for the markets. It’s a stretch that includes the year-end rally, often fueled by a seasonal burst of optimism known as the “Santa Claus Rally,” and the infamous January effect, which historically delivers mixed results.

Investors are wrapping up their books for 2024, rebalancing portfolios, and positioning themselves for what lies ahead. Meanwhile, macroeconomic factors such as Federal Reserve policy, inflation data, and earnings expectations all contribute to a complex and dynamic environment. Analyzing the trends, historical performance, and current conditions driving the NASDAQ 100 reveals a lot about what could be in store.

Will the QQQ continue to defy gravity, or could January 2025 mark a turning point? Let’s explore four possible scenarios.

Scenario 1: The Very Bullish Case

Our first scenario is what I like to call the "very bullish" path. Imagine the rally from mid-August 2024 not only sustains but accelerates, pushing the Nasdaq 100 to new all-time highs. For this to happen, several key factors need to align.

First, the "Magnificent Seven" — the tech giants like Meta, Alphabet, and Broadcom that have driven much of the market's gains in recent months — would need to maintain their breakout momentum. Picture Nvidia shattering resistance levels, Apple unveiling yet another blockbuster product, or Microsoft capitalizing on its AI dominance. Such moves would embolden bullish sentiment and drive significant capital inflows.

Second, breadth conditions—a measure of how many stocks are participating in the market rally—would need to improve. Currently, the Nasdaq 100's strength is concentrated in a handful of mega-cap names. If mid- and small-cap stocks join the party, the rally could gain even more traction.

Finally, macroeconomic data would need to support the narrative. A soft landing for the economy, coupled with further interest rate cuts by the Fed, could fuel optimism and propel the index higher. Under this scenario, the QQQ could easily soar into the 550, 560, or even 570 range, turning January 2025 into a bullish bonanza.

Scenario 2: The Steady Climb

Next, we have the second scenario: the "measured bullish" path. Unlike the first scenario, this outlook foresees a more tempered advance. The Nasdaq 100 continues higher, but at a slower and steadier pace.

In this case, the Magnificent Seven may still lead the charge, but their gains would likely be less dramatic. Instead of Nvidia breaking out, it might consolidate and grind higher. Apple and Amazon could post modest gains without the fireworks of a full-blown breakout.

On the macroeconomic front, this scenario could play out if inflation moderates but doesn’t completely vanish as a concern. Perhaps the Federal Reserve cuts rates cautiously, leaving some uncertainty in the air. The market's advance would reflect a balance between optimism and caution, with investors treading carefully but steadily buying into strength.

In this "steady climb" scenario, the QQQ could end January 2025 modestly above its current levels, signaling continued growth but without the dramatic flair of our very bullish case.

Scenario 3: The Mildly Bearish Path

Now we shift gears into bearish territory. The third scenario, the "mildly bearish" path, envisions a scenario where optimism begins to wane.

Perhaps the Magnificent Seven, which have been the market’s darlings, start to lose steam. Nvidia could fail to hold key support levels, while Meta faces headwinds from regulatory scrutiny or competitive pressures. Even minor setbacks in these bellwethers could spook investors and lead to a broader pullback.

Meanwhile, macroeconomic concerns could resurface. Inflation could remain sticky, prompting the Federal Reserve to signal fewer rate cuts than the market anticipated. Earnings expectations might also come under pressure, with companies warning of slowing growth in 2025. While some sectors like financials or energy could perform well, their relatively small weight in the QQQ might limit their ability to offset the drag from tech.

In this "mildly bearish" scenario, the Nasdaq sees a pullback but avoids a full-scale sell-off. By the end of January 2025, the index might find itself below current levels but still above major support zones, signaling caution rather than panic.

Scenario 4: The Doomsday Scenario

Finally, there’s the doomsday scenario—our most bearish outlook. This projection paints a grim picture, with market sentiment souring dramatically as we turn the calendar to January 2025.

In this scenario, the Magnificent Seven lead the decline, with sharp pullbacks in these mega-cap names dragging down the broader index. Nvidia might break below critical support levels, triggering widespread selling. Apple and Microsoft could face challenges from weak demand or disappointing guidance, compounding the downward pressure.

Defensive sectors like utilities and consumer staples might start outperforming, signaling a flight to safety by institutional investors. This shift in leadership often indicates a broader risk-off environment, where investors prioritize capital preservation over growth.

Technical indicators would also flash warning signs. The Nasdaq 100 might undercut the 500 level—a key threshold marked by past peaks and lows. Such a move would likely accelerate selling, as traders and investors react to the breach of a critical support zone.

By the end of January 2025, in this "doomsday" scenario, the QQQ could be testing support levels around the 450 mark, marking a significant and sobering reversal from its recent highs.

What's Your Take?

There you have it—four distinct scenarios for the Nasdaq over the next few weeks. Each path offers valuable insights into the factors driving market behavior and the potential risks and rewards facing investors.

So, what do you think? Will the market continue to climb higher, defying skeptics and reaching new heights? Will we see a tempered ascent that reflects cautious optimism? Or are we on the brink of a pullback or even a more severe downturn?

I’d love to hear your thoughts on which scenario you find most plausible and why. Drop a comment below with your vote and your reasoning. Remember, the goal of this exercise isn’t just to predict the future—it’s to broaden your perspective and challenge your biases through probabilistic analysis.

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

Is the Fourth Quarter of 2024 Mirroring 2021? Hindenburg Omen Alert!

As we approach the end of 2024, an intriguing question arises: Is the fourth quarter of 2024 shaping up to be very similar to that of 2021? Today, we’ll explore the current market conditions and draw parallels to those experienced at the close of 2021. Back then, we witnessed a steady low-volatility bull market that peaked dramatically, leading to a significant downturn in 2022. Let’s delve into the present market landscape, compare it to 2021, and identify key indicators to watch as we move toward year-end.

Drawing Comparisons: 2024 vs. 2021

To start, it’s essential to understand why comparing 2024 to 2021 is relevant. Both periods exhibit striking similarities in market behavior. In 2021, the market enjoyed a phase of low volatility and consistent upward trends, supported by strong performance across major indices. Fast forward to 2024, and we’re observing a comparable pattern. Prices are consistently above upward-sloping moving averages, particularly the 5, 13, 21, and 34-week exponential moving averages. These averages have been trending upward throughout 2024, much like they did in 2021, signaling a stable and fairly predictable market environment.

Understanding the Hindenburg Omen

A critical tool in our analysis is the Hindenburg Omen, an indicator designed to identify potential market tops. Although we discussed this indicator earlier in the year, it’s signaling again, warranting a closer look. The Hindenburg Omen requires specific criteria to be met at least twice within a month to suggest a likely major market peak. Currently, we’re seeing initial signals, but we’re awaiting confirmation to ensure accuracy.

To validate the Hindenburg Omen sell signal, creating a pattern very similar to what we saw in December 2021 before the great bear market of 2022, we would need to see an expansion in new 52-week lows. The creator of the Hindenburg Omen, Jim Miekka, found that at major tops there were often a healthy number of new 52-week lows AND new 52-week highs, and that this bifurcation of market performance was a tell-take sign of a likely market top.

Market Trend Model Insights

Let’s take a closer look at the S&P 500’s weekly chart, part of what I refer to as my “market trend model.” This model employs multiple time frames and exponential moving averages on a weekly basis to provide a comprehensive analysis. Visually, 2024 mirrors 2021 closely. The upward trends across the 5, 13, 21, and 34-week exponential moving averages indicate a low-volatility, consistent uptrend in both years. This pattern is highly recognizable to market analysts and investors alike.

Technical Comparisons and Future Outlook

Technically speaking, 2024 aligns closely with 2021. Long-term trend indicators remain bullish, reflecting similar patterns in both medium-term and short-term models. However, the critical aspect to monitor is the potential for a trend reversal. In 2021, despite the strong close, we began to see signs of reversal early in 2022, leading to a significant market downturn.

As we stand in late November 2024, the Hindenburg Omen is flashing an initial sell signal. It’s crucial to watch for a second confirmatory signal between now and December. Should the trend reverse, we might see a cascade starting with the short-term model turning negative, followed by impacts on the medium-term and eventually the long-term models.

Join the Conversation

In summary, 2024 is unfolding similarly to 2021, with potential indicators suggesting we might be nearing a major market top. As we move towards the end of the year, keep an eye out for additional Hindenburg Omen signals to confirm this trend. What are your thoughts on the Hindenburg Omen signaling a sell as we approach the end of November 2024? Are you optimistic about the S&P and NASDAQ’s performance for the year, or do you believe we should exercise greater caution? Share your insights in the comments below—I’d love to hear your perspective!

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

Charting the Path: November 2024's Top 10 Charts to Watch

We’re just getting into November, and I’m excited to walk you through the top 10 charts to keep on your radar. But before we get into what lies ahead, let’s take a moment to reflect on October’s takeaways. October offered some valuable lessons on the dynamics of breakouts, trend-following, and the importance of strategic entry and exit points. By understanding what worked, what didn’t, and why, we set a stronger foundation for navigating November’s market opportunities with a sharper perspective.

A Month In Review

In October, we tracked stocks like Baidu (BIDU) and Dentsply (XRAY). Baidu, which fell over 18%, is a great example of why we emphasize risk management. It looked promising when it broke above the 200-day, but resistance near $115 threw up a caution flag. October reminded us that breakouts need more than just optimism—they need well-planned entries and exits.

On the other hand, stocks like Spotify showed the value of sticking with trends until they signal otherwise. It’s a good reminder to stay nimble and let charts guide us along the way.

Now, let’s see what’s lined up for November!

  • AT&T (T): Carried over from October, AT&T catches our eye with a solid 5% dividend yield and price strength. But don’t ignore signs of bearish divergence—it’s held up well so far, but let’s stay alert.

  • Comcast (CMCSA): Comcast’s earnings sparked some ups and downs, but the uptrend remains intact. Key level to watch: the resistance around $47.

  • Stifel Financial (SF): 2024’s been kind to Stifel, with higher highs and lows. After an overbought spell, look for pullbacks toward support for a possible entry point.

  • Texas Roadhouse (TXRH): A breakout darling that’s now testing support levels. It’s worth following to see if it holds above the pivot point.

  • Parker Hannifin (PH): PH is showing a classic setup—pulling back to its 50-day moving average within an uptrend. Watch for a rally off this supportive level.

  • Fastenal (FAST): Showing off a textbook cup-and-handle pattern. Let’s see if it can break above resistance for a confirmation.

  • Home Depot (HD): With its recent dip to the 50-day moving average, Home Depot’s a balancing act to watch—can it hold and push higher?

  • AMD (AMD): A miss on earnings sent AMD down, breaking below support. This one’s key to watch for overall market sentiment.

  • Alphabet (GOOGL): GOOGL recently completed an inverted head-and-shoulders pattern but struggled after earnings. Support around 168 will be a telling level.

  • Celestica (CLS): Rounding out our list, Celestica’s shown strength with its gap-and-run pattern. Staying above breakout levels is the test here.

November Forecasting

These charts are about spotting patterns—they’re about getting a feel for the market’s mood. Whether you’re thinking about holding onto your gains or looking for fresh opportunities, there’s plenty to dig into with November’s lineup.

Happy charting, folks, and here’s to November!

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

What’s Next for the S&P 500? October 2024 Update!

What’s your take on the S&P 500 as we wrap up 2024? Are you bullish, anticipating the index surging past 6000 before year’s end? Or do the recent signs of elevated volatility, breadth divergences, and other red flags have you more cautious, thinking Q4 might bring a downturn? Let’s explore the possibilities.

First, we’re here to stretch our thinking beyond biases by considering a range of scenarios for the S&P 500. By doing so, we open ourselves to the full spectrum of outcomes—whether extremely bullish or bearish. Second, I’ll guide you in deciding which scenario aligns most with your view, so you can prepare your portfolio accordingly. But remember: staying flexible is key, as any of these scenarios could become reality.

Our Game Plan and market context

I’ll lay out four potential scenarios for the S&P 500, each with specific conditions, key levels, and signals to watch. Think about these scenarios, and be sure to drop a comment below to share which one you think is most likely and why!

Let’s start with a quick look back. Over the past year, the S&P 500 has remained in an almost relentless uptrend with minimal pullbacks. The biggest drawdown, from the July peak to an early August low, was less than 10%! Since hitting that low in August, we’ve observed three straight months of strength into October. So, what’s next? Let’s review these four potential scenarios.

Scenario One: The Super Bullish Case

This scenario envisions a steady continuation of the trend off the August low, with the S&P climbing higher into December. If this pace holds, we could break above 6000 by early December, potentially setting new all-time highs. This would echo the low-volatility, consistent gains we experienced in Q1. Key signals to watch include a series of higher highs and lows and sustained momentum.

Scenario Two: The Mildly Bullish Case

In the mildly bullish scenario, the S&P 500 edges higher, but struggles to cross the 6000 threshold. We may see resistance due to psychological price barriers, valuation concerns, or underwhelming earnings reports. This scenario would likely see the S&P hovering around 5900-5950, with market breadth indicators possibly weakening—a signal that could set the stage for a more pronounced correction heading into year-end.

Source: StockCharts.com

Scenario Three: The Mildly Bearish Case

Here, the market loses momentum without breaking down entirely. In this scenario, the S&P pulls back slightly but holds above the critical 5650 level and stays above the 200-day moving average. This would imply continued long-term strength, even as short-term caution creeps in. But if the Magnificent 7 names experience any sort of drawdown into November, a scenario like this becomes much more likely.

Scenario Four: The Super Bearish Case

In the most bearish outcome, we see a significant downturn reminiscent of late 2018, with a powerful downtrend emerging in Q4. This scenario would mean a break below both 5650 and the 200-day moving average. As institutions pivot to defensive plays, sectors like utilities, real estate, and consumer staples might start to lead the market.

As we look to early December, earnings reports, the U.S. elections, Federal Reserve announcements, economic data, and global events will all shape the S&P’s path.

So, where do you stand? Do you see a super bullish rally continuing? A mild move up or down? Or a more bearish turn for Q4? Drop your thoughts below with your reasoning—what indicator or driver do you think will trigger your chosen scenario?

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.


One Volume Chart You Can't Ignore

Volume analysis in the stock market is crucial. Understanding the flow of volume provides insights into market dynamics that price alone can't reveal. While I don't utilize volume analysis often in my daily routine, there's one volume indicator that has consistently proven its worth: the Chaikin Money Flow (CMF).

Before we get to CMF, it's important to understand how volume analysis has evolved. When I was getting started in the early 2000s, volume analysis made sense because the trading environment was different. Traditional volume indicators were effective in a market less influenced by dark pools and electronic trading. But as these advancements have changed the landscape, traditional volume indicators seem to have lost some of their edge.

S&P 500 with Chaikin Money Flow.  Source: StockCharts

Having said that, I actually do use some volume analysis in my work, mostly in the form of volume-based indicators that look for volume trends. Legendary market strategist Joe Granville made great strides when we created On-Balance Volume (OBV) in the 1970s. This was revolutionary for its time, measuring volume based on whether the day ended higher or lower than the previous day. Think of it as a cumulative advance-decline line for volume. However, it had its limitations—it treated an entire day's volume as either bullish or bearish, which isn't ideal.

That's where Mark Chaikin made a leap forward with the Chaikin Money Flow. This indicator evaluates the closing price relative to its high-low range and quantifies the daily volume's bullish or bearish nature. If we close near the day's high, it suggests bullish volume; near the low, it's bearish. The indicator tracks this daily volume reading over time, providing a nuanced view of volume trends.

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When examining the S&P 500 using CMF, two main applications stand out. First, volume trends over time reveal accumulation and distribution patterns. Understanding whether the market is being accumulated or distributed can offer powerful insights into future price movements. For instance, the CMF was exceptional at identifying key turning points in August, March, and July of 2024.

The second crucial application is spotting divergences. A bearish divergence, where the market price keeps climbing but CMF starts trending downward, is a red flag. This discrepancy suggests that while prices are rising, there's an underlying sell-off—indicating that some investors are offloading their holdings despite the bullish price action. We saw this clearly before significant downturns in previous months and should watch for it moving forward.

As of October 2024, we haven't yet seen a bearish divergence, but staying vigilant is key. The current bullish trend might still be robust, but watching for CMF to turn lower could signal that we're nearing a market top. Recognizing these signs early—before the broader market catches on—can be incredibly advantageous.

So, what do you think about the Chaikin Money Flow? Does it offer valuable insights that align with your trading strategies? Drop a comment, and let's discuss. And remember, it's always a good time to own good charts.

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

Market Breadth ALERT! What's Happening Now?

I want to take a look at a critical question: Does the market have bad breadth? Spoiler alert – not quite yet, but we may be getting close. We’ll break down three market breadth indicators, explain how they're still holding up, and discuss what would tell us we’re in trouble. Let’s dig into the charts.

The Question of Breadth

Does the market have bad breadth? As of early October 2024, the answer is “not yet.” The overall market breadth still looks okay, but some signs suggest we may be reaching an exhaustion point. Let’s go through three key breadth indicators and see what they’re telling us right now.

1. New 52-Week Highs and Lows: The Divergence to Watch

First up, let’s talk about new 52-week highs and lows. This indicator is a great way to gauge the strength of a market. When the market is in a healthy bull phase, you’ll see lots of stocks making new highs. That makes sense, right? When the S&P 500 or the Nasdaq is hitting all-time highs, you’d expect the individual stocks within those indexes to follow suit.

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Looking at the chart, the green bars represent new 52-week highs, and the red bars represent new 52-week lows. In a bull market, you won’t see many new lows because most stocks are riding the overall upward momentum. But here’s where things get interesting: toward the end of a bull market, we often see a divergence. The market keeps making new highs, but fewer and fewer individual stocks are hitting new 52-week highs. Instead, some stocks are starting to make new lows. This divergence can be an early warning sign that the market is running out of steam.

Right now, in early October, as the S&P 500 closed above 5700 for the first time, we’re seeing fewer new highs and even a few new lows sneaking in. It’s not time to hit the panic button, but it’s something to keep an eye on. If new lows start to consistently outnumber new highs, that’s when I’d start to worry about a more serious market pullback.

Source: StockCharts.com

2. Percentage of Stocks Above Key Moving Averages: Long-Term vs. Short-Term Signals

Next, let’s look at the percentage of stocks above their key moving averages. This is one of my favorite breadth indicators because it gives us both a long-term and a short-term view.

In the top panel of this chart, you’ll see the S&P 500 over the past two years. Below that, I’ve plotted two key breadth indicators: the percentage of S&P 500 stocks above their 200-day moving average (currently about 76%) and the percentage above their 50-day moving average (about 75%).

The 200-day moving average is a long-term indicator. I like to use the 50% level as a key threshold—when more than half of stocks are above their 200-day moving average, it suggests the long-term trend is still intact. Right now, we're well above that level, which tells me the long-term breadth is still positive. The last time we dipped below 50% was back in September 2023, which coincided with a pullback in the broader market.

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Now, the 50-day moving average gives us a short-term view. I’ve drawn horizontal lines at 75% and 25% on this chart, and we’re currently just below the 75% mark. Historically, when we drop below 75%, it suggests a short-term pullback may be coming. We saw this happen in late August during the most recent pullback, and it’s something we should be prepared for now as well.

But, remember, this indicator isn’t foolproof. Earlier this year, in January, the “Magnificent Seven” stocks were so strong that they kept pushing the indexes higher even though the breadth was weakening. We could see a similar scenario play out now, so while the short-term breadth is a little shaky, the long-term picture still looks solid.

Source: StockCharts.com

3. Bullish Percent Index: Point and Figure Charts Tell the Story

The third indicator I want to highlight is the Bullish Percent Index (BPI). This is a breadth indicator based on point and figure charts, which are a bit different from the more traditional line or bar charts we usually look at. The BPI tracks how many stocks in the S&P 500 are giving a buy signal based on point and figure patterns.

I like to focus on the 70% level here—when more than 70% of stocks are on buy signals, it usually means we’re in the later stages of a bull market. Right now, we’re sitting around 78-79%, so the market is still in pretty good shape. But, just like with the other indicators, I’m watching for when we drop below that 70% level. When that happens, it’s often a sign that the bull run is losing steam.

If you look back over the last couple of years, you’ll notice that whenever the BPI drops below 70%, we tend to see a pullback shortly after. This happened in January, though the “Magnificent Seven” kept the market artificially strong for a while. But in most other instances, a break below 70% has been a reliable signal that the market is transitioning from a bullish to a more cautious phase.

Source: StockCharts.com

What These Indicators Are Telling Us

So, what’s the takeaway here? Overall, the market breadth indicators are still pointing to a relatively healthy market, but there are definitely some cracks forming. The new 52-week highs are drying up, fewer stocks are holding above their 50-day moving averages, and we’re nearing a critical level on the Bullish Percent Index.

None of these indicators are flashing “sell” signals just yet, but they’re all telling us to be cautious. As we move further into Q4, keep an eye on these charts. If new lows start to outnumber new highs, or if we see the percentage of stocks above their 200-day moving averages drop below 50%, that’s when I’d start to be more concerned about a potential market downturn.

So, does the market have bad breadth? Not quite yet. But the warning signs are there, and it’s always better to be prepared than caught off guard. As always, I recommend keeping a close eye on these indicators, doing your own due diligence, and staying informed.

RR#6,
Dave

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.