How the S&P 500 Could Continue Higher Without NVDA

Before diving into this analysis, let's pause and consider a highly pressing question: Can the major equity benchmarks move significantly higher in July without Nvidia? The intuitive answer might be "no" given Nvidia's phenomenal performance, but let's dig a bit deeper.

We'll explore why I believe the answer is "yes." We'll also delve into the roles of some other top-performing names like Super Micro Computer and the importance of breadth conditions as we move into one of the seasonally strongest months of the year.

Nvidia and SMCI have both had impressive runs this year. Super Micro Computer, for instance, saw gains of almost 200% year-to-date, and Nvidia wasn't far behind, up 150%. These are incredible numbers by any measure, but neither stock is indispensable to the broader market's upward trajectory. Even as these stocks pull back from their all-time highs, the S&P 500 is testing new peaks.

Now, you might assume that such stellar performers would continue to lead the charge, right? Well, not so fast. The reality is that many top-performing names have shown signs of weakness. For instance, although Super Micro Computer made its all-time high in March, it has pulled back since then. Similarly, Nvidia experienced a rough couple of weeks recently, shedding about 17% from its peak over just a few days. This volatility underscores that even top names can face significant pullbacks.

So, how do we make sense of a market where the big guns are faltering but benchmarks continue to rise?

The answer lies in the broader breadth conditions. While long-term breadth indicators like the McClellan Summation Index remain bullish, there's a mixed picture in the short term. Approximately 70% of S&P 500 members are above their 200-day moving averages, indicating a general primary uptrend. However, the percentage of stocks above their 50-day moving averages is essentially a coin flip at around 50%. This dichotomy reveals a market that is at once robust and fragile, presenting both opportunities and risks.

What should you do in such a mixed environment? My advice is to stick with strength. Focus on stocks that are still trending upward and maintain their constructive patterns. As you assess market conditions going into July, it's essential to keep an eye on three leading mega-cap names. I call these the MAG stocks: Meta, Amazon, and Alphabet.

Meta

Meta has had its ups and downs but hasn't yet broken its highs from Q1 2024. The stock tested its peak around $525 in early March and retested it in April, but it hasn't broken through. The question for Meta in July is simple: Can it break above $525 and sustain that level? It’s not enough to flirt with resistance; Meta needs a decisive and sustained breakout to fuel further gains.

Amazon

Amazon presents an optimistic picture. It had a strong run through April 2024, consolidated around $190, and then broke out. However, the real test will be whether Amazon can hold above the $190 level. If it can, this could signal a sustainable uptrend.

Alphabet

Alphabet, or Google, stands out for its consistent performance, much like Eli Lilly. The key for Alphabet is to continue making new all-time highs and higher lows. This consistency is critical for maintaining investor confidence and driving the stock higher. Watching its RSI levels above 50 will give additional assurance of its bullish momentum.

To wrap up, the S&P 500 can indeed move higher without the sole reliance on Nvidia. The key lies in a diversified approach, focusing on other strong performers and analyzing breadth conditions. Do you agree with my assessment of the MAG stocks as bellwethers for the market in July? Let me know in the comments below, and share which of these stocks you think has the best potential.

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.

Mastering Fibonacci Retracements: Analyzing Support Levels with Precision

Let's talk about one of the most intriguing aspects of technical analysis – Fibonacci retracements. This powerful tool, rooted in the famed “golden ratio”, can help traders identify potential support and resistance levels in stock prices. If you've ever looked at a seashell or a sunflower, you're already familiar with the beauty of Fibonacci sequences. Now, imagine applying that to your trading strategy. Excited? Good. Let's dive in.

Fibonacci Across Different Time Frames

When analyzing support levels, it's crucial to consider multiple time frames. For instance, take a look at the chart of the Nasdaq 100 ETF (QQQ).

You’ll notice a low in April, followed by a substantial rally to 460 in May, and then a rotation lower. In this scenario, recognizing potential support levels on the way down, such as the 38.2% level around $442, becomes indispensable for making informed trading decisions.

Fibonacci retracements aren't just a one-time application. You can and should use them across different time frames. Whether you're a day trader focusing on shorter terms or a long-term investor looking for broader trends, adjusting Fibonacci levels based on your time horizon is a must. Always consider combining multiple time frames to get a more comprehensive view of potential support and entry points.

FIBONACCI AND RISK MANAGEMENT

Why do Fibonacci retracements work? Is it magic? Not quite. These retracements align with market trends and investor sentiment. They're not a magical formula but a way to understand market psychology. When combined with other technical indicators like RSI, MACD, and PPO, they provide invaluable insights and confidence in identifying support and entry points.

Fibonacci retracements, similar to support and resistance levels, are leading indicators. This means they help anticipate potential price movements rather than reacting to what has already happened. For instance, consider the head and shoulders pattern in IBM. Accurately drawing necklines and interpreting these retracements can give you a heads-up on significant market shifts.

It's not just about identifying support levels but also about managing risk. Set a stop-loss strategy to limit downside exposure. For instance, if you detect potential downside for IBM, wait for a change of character before adjusting Fibonacci levels. Patience is key – wait for good setups and don't force trades.

Chart Analysis with Fibonacci Retracements

Major growth stocks like Apple, Microsoft, Nvidia, and the S&P are in a primary uptrend. Using Fibonacci retracements, you can assess potential support levels and downside targets once a peak is established. For example, by analyzing QQQ stock from the 2020 low to the late 2021 peak, you'll notice that the Fibonacci framework worked effectively. Extend these levels further to analyze potential downside targets during market downturns.

Always look for how Fibonacci retracement levels align with previous swing lows and other technical indicators like the 200-day moving average. This adds another layer to your analysis and helps validate potential trends. The fractal nature of Fibonacci retracements means they work just as effectively in both longer and shorter time frames.

The Perfect Marriage of Music and Psychology

Interestingly, Fibonacci relationships aren’t limited to trading. They’re prevalent in music composition, architecture, and nature, constructing a unique intersection of art, science, and psychology. The golden ratio (61.8%) and other secondary ratios like 38.2% are pivotal in this technique. These relationships, deeply embedded in our natural world, offer a structured approach to analyzing financial markets.

I first learned of Fibonacci retracements as an undergraduate music major at The Ohio State University. Little did I know I’d be using the same mathematical foundation to analyze stock prices!

Interactive Learning and Community Engagement

If you’re looking to upgrade your use of technical analysis tools like Fibonacci retracements, consider joining us as a Market Misbehavior premium member (and use the promo code FIBONACCI to receive a 20% discount on your first twelve months of membership!). Not only will you leverage tools to refine your trading strategies, but you’ll also be part of a community driven to enhance their understanding of market dynamics.

Remember, Fibonacci retracements are not a standalone tool. They should be part of a holistic approach to technical analysis. With the combination of various indicators, a good money management strategy, and a solid understanding of market psychology, you can transform your trading journey from being mindless to mindful.

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.

Evaluating Trends in Semiconductor Stocks: NVDA & MU

Let's take a look at the market dynamics we observed last week, particularly focusing on the recent formation of bearish engulfing patterns on some key tech stocks like Nvidia (NVDA) and Micron Technology (MU).

Bearish Engulfing Patterns: What & Why

A bearish engulfing pattern is a technical chart pattern that indicates a potential bearish reversals in stocks. In simple terms, it means that the bearish sentiment is overtaking the bullish, which suggests that sellers are beginning to outweigh buyers.

Take Nvidia, for instance. Nvidia has shown an incredibly persistent uptrend, largely spurred by the AI-driven market frenzy we've seen throughout 2024. But last week’s sudden drop suggests something different. We observed a bearish engulfing pattern, which means the potential for a downtrend over the next one to three days is quite likely. This is somewhat concerning given Nvidia’s recent performance as a leading stock in the sector.

Similarly, Micron was down about 6% on Thursday, highlighted by a bearish engulfing pattern as well. Yesterday, Micron displayed a shooting star candle, a precursor to today’s engulfing pattern. For those new to candlestick patterns, a shooting star candle is an indication that the next couple of days are more likely to trend downwards.

Why Should We Care?

When stocks like Nvidia and Micron show these patterns, it's a signal that we need to start paying attention. These are not small players; they are barometers for the broader tech sector’s performance. As the Chief Market Strategist at StockCharts.com, I often remind investors that market behavior is a confluence of patterns, trends, and psychology. The emergence of these bearish patterns on tech giants means that a short-term cautious approach might be prudent.

The Broader Picture

Looking beyond individual tech stocks, the overall market trend remains compelling. The S&P 500, for instance, is still in an uptrend, marked by higher highs and higher lows, despite last week’s red ink. It’s essential to understand that one day of market movement doesn't spell doom, but it's a signal to watch for potential changes in trend.

There is also interest in how the different market cap tiers are performing. While mid caps and small caps managed to outperform the large cap indexes, there still remains a huge performance gap between mega cap leadership (“the generals”) and everything else (“the troops”). While the market can go higher driven by narrow leadership, a more sustainable advance would usually be marked by stronger breadth.

To Sum It Up

Bearish engulfing patterns on key tech stocks like Nvidia and Micron point to short-term caution but don't necessarily spell long-term disaster. The overall market remains robust, but various sectors are showing divergent trends. As always, the key is to stay informed, stay vigilant, and make decisions based on a comprehensive view of market indicators.

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.

Forecasting the QQQ: Bullish or Bearish Paths?

The Nasdaq 100, represented by the popular QQQ ETF, has been on quite the journey so far in 2024. But the big question remains: what’s next? Will we witness a continuation of the aggressive bull phase that kicked off in April, or are we on the brink of a bearish rotation driven by lackluster breadth support and narrow leadership plaguing our major equity benchmarks?

When we last did a “choose your own adventure” style analysis for the QQQ in late February, the mildly bullish scenario was a nearly spot-on prediction. We projected a higher but slower rise for the QQQ, which indeed matched the reality almost perfectly up until mid-April. Following that, we closely aligned with our third scenario, hitting around the 410-415 range.

Now let's dive a little deeper and examine the potential scenarios for the QQQ over the next six to eight weeks.

Scenario 1: The Super Bullish Scenario

Imagine a scenario where the Nasdaq 100 continues its relentless climb from April with a steep and uninterrupted ascent. Key to this trajectory would be consistent growth led by the giants of tech—what I like to call the Magnificent Seven. We're talking about Amazon, Alphabet, Google, Meta, Microsoft, and Nvidia. These names, especially with the AI boom, need to maintain their impressive upward swing. For this scenario to manifest, we'd also need a dramatic improvement in breadth indicators, meaning a larger participation in the rally across various sectors.

Scenario 2: The Mildly Bullish Scenario

In this scenario, the Nasdaq 100 would still be moving upward but at a more tempered pace. The QQQ would aim to crawl toward but not surpass the 500 level. We maintain the leadership of the major tech names and continue asking questions about the Fed’s next moves or the implications of weak breadth support, but overall, the market inches higher. Here, the breadth conditions may still remain weak while the market is lifted primarily by mega-cap growth stocks.

Scenario 3: The Mildly Bearish Scenario

Picture this: we're at or near the peak for this cycle. Historically, summer months can often trigger major market tops, and this year could be no different. We see a drift higher in the QQQ, but the lack of breadth support catches up, and the leading tech names might start to take a breather. This scenario suggests a stealth correction where benchmarks appear weaker because of the pullback in dominant names. Stock pickers looking into industrials, energy, and healthcare sectors might find more appealing charts compared to the mega-cap tech stocks that have driven market sentiment in recent months.

Scenario 4: The Very Bearish Scenario

This is the scenario you probably don't want to consider but must. Here, we not only halt our upward momentum but break key support levels, undercutting the May low, and moving perilously close to the April low in the range of 410-415. This scenario depicts a deteriorating market, spurred by weak breadth conditions, negative economic indicators, and big tech names taking significant pullbacks. If June’s CPI numbers come in hot, sparking fears that the Fed hasn't tamed inflation as expected, the market could indeed spiral into a bearish phase.

So, which of these four scenarios do you see as the most likely? Will we see a tech-driven rally, or are we facing an inevitable correction?

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.

Recognizing Bearish Trends: Essential Signs of Market Exhaustion

When the market's going up, I often get questions about why I sound so bearish. Why am I posting about the Hindenburg Omen and other signs that the market's potentially rolling over?

Your goal as an investor should be threefold: identify the trends, follow those trends, and look for signs of trend exhaustion. That's where the Hindenburg Omen and signs of a market top come into play.

Identify the Trend

The trend overall for the market is going up. I know this, you know this. I own plenty of stocks, mostly through ETFs, in my own accounts. The market trend overall has been positive since the end of March 2023. My medium-term model, which I rely on as my main risk-on-risk-off indicator, has been bullish since early November 2023. The short-term model has been consistently bullish since mid-April. So as progress through the 2nd quarter of 2024, I'm not disagreeing with the positive trend.

Follow the Trend

If you have been following these trends, you've been riding this market uptrend. But, of course, following the trend alone isn't enough.

Anticipate Potential Turns

This brings us to the third and arguably most important step: looking for signs of trend exhaustion to anticipate potential market reversals. Trends can change, and you don't want to be caught off guard. This is why I talk about bearish indicators when the market’s going higher. The goal is not to be surprised or confused by a market top but to see it coming. So, what are the three signs of the bear that I'm watching?

Bearish Momentum Divergences

Step one is spotting a bearish momentum divergence and not just one but a group of them. As the market pushes higher, it typically has strong momentum — buyers outnumber sellers. However, interestingly, in the last four weeks from mid-May to mid-June, while the S&P 500 made higher closes, the momentum, as measured by the RSI, has been trending downwards. This can be an early sign of bearish momentum divergence. Amazon and Eaton Corp have already exhibited this pattern with higher highs in price but lower peaks in momentum, so the S&P 500 may just follow suit.

Breadth Failing to Confirm New Market High

The second sign is when breadth fails to confirm a new market high. Look at the advance-decline line for the New York Stock Exchange: while the S&P touched new highs, the advance-decline line trended lower. This means fewer stocks are pushing the market higher, which isn't a sign of a healthy bull market. Similarly, the advance-decline lines for large caps, mid caps, and small caps are all showing lower trends. This divergence indicates that the broad market participation is weak, often a precursor to a weakening trend.

Breakdown of the Line in the Sand

The third sign of a bear is the breakdown of a critical support level, what I call a "line in the sand." For me, a simple trendline originating from the October 2023 low has held up through mid-April, late April, and early May lows. If the price breaks this trendline, that will signify a change in market character. A breakdown through that line indicates that the uptrend's pace and structure are starting to shift.

So, those are the three signs of a bear that I keep an eye on: bearish momentum divergences, breadth failing to confirm new highs, and breakdowns of critical support levels. Keep your alerts updated and remain vigilant as we observe the market climbing but with potential signs of underlying weaknesses.

For more detailed discussions and for help tracking these conditions, consider becoming a Market Misbehavior Premium member!

Remember, as an investor, embracing both the bullish trends and the cautious signs of a potential bear can help you navigate the complexities of the market a little better. Stay vigilant, stay informed, and you'll be well-prepared for whatever the market throws your way!

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 Hindenburg Omen: A Deeper Dive into Its Initial Sell Signal and What Lies Ahead

Today, we’re diving into a topic that has a name as ominous as its implications: The Hindenburg Omen.

The Hindenburg Omen is a widely followed macro technical indicator focusing on three key components. These components have historically signaled market tops, and in May, it flashed an initial sell signal.

First, let’s talk about the basics. While my approach isn’t purely technical, I feel that investors should have an investment process that is firmly grounded in market dynamics. One of the worst mistakes investors commit is to stay in a position even when market conditions completely change. Indicators like the Hindenburg Omen quite simply help me stay on the right side of the market!

Now, let's break down the Hindenburg Omen. This indicator tracks three components to signal a market top. First, the market needs to be in an uptrend. Second, there needs to be an expansion in both new highs and new lows. Third, market breadth must turn negative. When all three components align, it produces a positive reading, signaling a potential market top.

For instance, we had a confirmed Hindenburg Omen sell signal at the end of 2021. This was followed by significant market declines throughout 2022. Before that, we saw similar signals just before the COVID crash in early 2020 and also in mid-2019. These signals have a pretty solid track record, as they are based on patterns consistent at major market tops.

So, what are we seeing now? The first component, an uptrend, is evident as the S&P 500, Nasdaq, and other indexes have been climbing. The second component, the expansion in new highs and new lows, indicates a mix of stocks making significant moves in both directions. Some sectors like tech are hitting new highs, while others, like consumer staples and certain energy stocks, are lagging. The third component, market breadth turning negative, was recently confirmed as shown by a dip in the McClellan Oscillator.

So, what does this initial sell signal mean, and what should we look for moving into June? Firstly, we need multiple signals within one month to confirm a Hindenburg Omen sell signal. This means we need another round of these three components aligning: the rate of change must turn positive, we need to see another expansion in new highs and new lows, and the McClellan Oscillator needs to dip below zero again after briefly going positive.

Reflecting on the last five years, we've seen major market tops each summer around June to August. It’s crucial to keep an eye on these charts as we move into June. A second signal could very well indicate that we are at or near a major market top.

Stay vigilant by tracking these indicators. For more updates and detailed analyses, continue following Market Misbehavior. Stay vigilant, keep focused on improving your market awareness, and good things will come!

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.

A Deep Dive into Dow Theory and Its Relevance Today

In the ever-evolving world of market analysis, one thing is for sure: change is constant, and keeping up with it is crucial. Let's dive into the recent observations about Dow Theory and its relevance in today's market environment.

Charles Dow, the founding father of technical analysis, laid the groundwork for understanding market dynamics through his Dow Theory. By analyzing the relationship between the Dow industrials and the Dow transports, Dow aimed to gauge economic conditions by observing the producers and distributors of goods. However, in today's modern economy, where companies like Amazon have revolutionized the way goods are produced and distributed, the traditional Dow indexes may not fully capture the complexities of our current market landscape.

While the Dow Theory has been a staple in market analysis, its efficacy in 2024 is open to interpretation. The recent bearish signal triggered by a nonconfirmation between the Dow industrials and transports suggests potential weakness in the broader economy.

In adapting Dow's original work to suit the contemporary market, a shift towards a new Dow Theory may be warranted. I propose looking at a combination of the S&P 500 and the Nasdaq Composite to gain a more holistic view of the market. These indexes represent the old and new economies, respectively, providing a diversified perspective on market performance.

The recent market dynamics, with the S&P 500 and Nasdaq Composite reaching new highs, may seem bullish on the surface. However, delving deeper reveals nuances that challenge the conventional signals. The dominance of mega-cap stocks in these indexes skews the true breadth of market strength, prompting a closer look at equal-weighted versions for a more accurate assessment.

The equal-weighted S&P 500 and Nasdaq 100 not reaching new highs amidst the market rally raises concerns about breadth conditions and the underlying strength of the market. While the major benchmarks paint a positive picture, the reality may be more nuanced, hinting at potential challenges ahead.

Navigating through the complexities of market signals requires a keen eye and a discerning approach. As we move through May and into June of 2024, the question remains: Will Q2 finish stronger or weaker? The answer may lie in a comprehensive analysis that goes beyond conventional wisdom and embraces the fluidity of today's market landscape.

While the Dow Theory has stood the test of time, adapting it to suit the intricacies of the modern economy is essential for informed decision-making. As we continue to unravel the mysteries of market behavior, staying agile and open to new perspectives will be key in navigating the ever-changing financial landscape.

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.

As S&P 500 Hits New Heights, Here's the One Chart You Should Be Watching

The last few weeks have been sensational for risk assets, with the S&P 500 and the Nasdaq 100 breaking new all-time highs. Remarkably, the Dow Jones Industrial Average even touched 40,000 for the first time in market history. With the market on such a high, one critical question remains: Is this rise sustainable? Let’s explore further.

Before we dive into the charts, let me clarify a bit about my approach. As a technical analyst, I spend countless hours daily pouring over hundreds, if not thousands, of charts. However, my decision-making is not solely technical. I also consider fundamental factors, like macroeconomic data, Federal Reserve actions, inflation, and interest rates. These elements collectively impact the stocks and ETFs I monitor.

About a month ago, in mid-April, we were contemplating market breakdowns. The S&P had briefly dropped below its 50-day moving average, suggesting a target near 4800. But since that point, stable inflation data, a weakening dollar, and declining long-term interest rates have turned things around, shining a favorable light on equities.

When markets hit new highs, setting arbitrary price targets can often be limiting. Instead, follow the trend. From my experience with growth-oriented money managers, trend-following is more effective. Selling at an arbitrary price can cause missed opportunities if the trend continues upward. Focus on riding the trend and exiting only when it shows signs of faltering.

Have you ever sold a stock up 20%, then sit on the sidelines as it went up another 200%? Then you know why trend-following can be such a profitable strategy!

According to Charles Dow’s original work, an uptrend is formed by higher highs and higher lows. As long as we stay above 4950-5000 on the S&P, the uptrend by definition would still be in place.

I've compiled a chart combining S&P 500 analysis with two other pivotal metrics: the high yield bond market and the VIX (Volatility Index). The chart layers the S&P 500 on a closing basis, an inverted VIX for clarity, and the High Yield Index Option-Adjusted Spread (OAS) from Bank of America.

The High Yield Index OAS measures the spread between risky corporate bonds and Treasury bonds. Currently, the spread is around 3.1%, its narrowest in two years, indicating a low-risk environment as per bond investors.

An inverted VIX makes it easier to track market stress. Normally, a low VIX indicates healthy market conditions. Conversely, a spike in VIX signals increased investor anxiety. Inverting the VIX aligns it with S&P movements, simplifying interpretation. The VIX remains at extremely low levels.

So, why is this chart crucial now? It helps confirm the bullish trend. Tightening spreads and low volatility suggest favorable conditions for equities.

However, certain signs could indicate a shift. If credit spreads widen or volatility rises, it signals growing investor anxiety. Most importantly, if the S&P dips below 5000, breaking the uptrend, it would suggest a potential market shift.

In summary, the market remains bullish as of mid-May. Keep an eye on the spread, volatility, and the S&P's performance for any signs of change. Should these metrics shift, reconsidering your portfolio allocation may be wise.

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.

Breadth Indicators as Market Guides: What They Tell Us About Future Trends

After the market took a promising turn from its mid-April lows, many of us are keenly watching to see if this upward trend has legs. Today, we'll explore a few vital market breadth indicators that can help us determine the strength and potential longevity of this bullish phase.

Before diving into those indicators, let's touch on the holistic approach we use here. Apart from the usual chart analysis, understanding economic indicators like Federal Reserve policies, inflation, and interest rates also plays a critical role in our assessments. Additionally, combining these insights with robust quantitative models gives us a clearer picture of potential movements.

Now, onto the essential indicators that could signal whether we're in for a sustained bull market:

Percentage of Stocks Above Moving Averages
This is one of the clearest indicators of market health. A considerable number of S&P 500 stocks are currently thriving above their 50-day and 200-day moving averages. This widespread positivity often suggests a strong and supportive market environment.

Daily Difference in New 52-week Highs and Lows
Focusing on market leadership, this indicator tracks the number of stocks reaching new highs versus those hitting new lows. Recently, we've seen more stocks scaling new highs, an encouraging sign that leadership within the market is robust and potentially driving the indices toward record levels.

Bullish Percent Index for Nasdaq 100
This index zeroes in on significant tech and growth stocks, measuring how many are currently showing bullish trends on their point and figure charts. As it hovers around 50%, a push past this threshold could indicate a powerful momentum build-up among these influential stocks.

These indicators serve as critical tools for both confirming the current market rally and helping us strategize our next moves. If these metrics continue to show strength, it's likely that the bullish trend is here to stay. However, any signs of their weakening could suggest the rally might be running out of steam and require us to reconsider our positions.

Let’s keep a close watch on these indicators and discuss their possible implications. What's your take on the current market trends? Do you feel optimistic about the sustaining power of this rally, or do you foresee a downturn?

Let's stay connected and navigate market changes together. Keep analyzing, keep questioning, and as always, invest wisely.

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.

Let’s Unpack Why Apple Remains A Titan

Apple, with its monumental earnings boost last week, commands attention once again. Before diving into the tech giant's stock performance and what this could mean for future investments, give that a moment to sink in. Apple, arguably still the crown jewel in Warren Buffett's portfolio at Berkshire Hathaway, has managed to hold its appeal despite declining iPhone sales, thanks to substantial buyback increases and dividend enhancements.

Let’s unpack why Apple remains a titan in the investment world, blending technical analysis with the kind of fundamental powerhouse insights that Warren Buffett himself might nod approvingly at. As a technical analyst and a keen observer of Buffett’s investment strategy, I find the intersection of these disciplines revealing. While charts and technical data paint one picture—the short-term gains, medium-term stabilizations, and long-term uptrends—understanding the underlying business dynamics and macroeconomic factors adds depth to our investment decisions.

In the spirit of full disclosure, I am not just a chart enthusiast. I also dig into the fundamental aspects driving companies like Apple to sustain growth over multiple years. Considerations such as Federal Reserve policies, inflation, and interest rates are critical in shaping my outlook on stocks and ETFs that I follow.

As many make their way to Omaha to gather pearls of wisdom from Buffett at the annual Berkshire Hathaway meeting, it's crucial to remember why Apple is a mainstay in Buffett's portfolio. His strategy often involves holding large, concentrated positions in key, blue-chip companies, and Apple’s long-term growth story fits this mold perfectly.

Drilling into the technicals—Apple's shares, on a short-term basis, show promising signs, such as overcoming key moving averages and an RSI indicating increasing momentum. However, the real magic happens when we stretch the timeframe. Employing a Fibonacci analysis on the stock provides insights into potential support levels which have historically held well, providing rebound opportunities for the stock.

On a longer timeline, a look at Apple’s charts over the past 16 years reveals a compelling narrative. The consistent pattern of hitting new highs, followed by manageable lows, illustrates a robust growth trajectory that few companies can match. It's like what I always say, individual trading days can be deceptive, the real story unfolds when you zoom out.

Apple’s long-term uptrend is marked by multiple tests of an ascending 150-week moving average.

Reflecting on Buffett’s interest in Apple, it becomes clear that the investment mogul’s strategy aligns with the broader patterns shown in Apple’s long-term chart. Each touch of the 150-week moving average has historically presented a buying opportunity—a pattern echoing through Apple’s stock history.

While daily fluctuations can be enticing or nerve-wracking, a multi-timeframe analysis is quintessential. Such an approach not only aligns with how legendary investors like Buffett operate but also equips us to make more informed decisions, balancing immediate opportunities with long-term strategies. Remember, understanding timeframes and the interplay between them is an invaluable part of any investor's toolkit.

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.