Here is My Newest View of Present Market Motion | Buying and selling Locations with Tom Bowley

Howdy to all my StockCharts supporters! Initially, thanks in your readership of my Buying and selling Locations weblog, which is now in its eighth 12 months. Additionally, due to all of you that watch my Buying and selling Locations LIVE reveals that air on Tuesdays, Wednesdays, and Thursdays at 9:00am ET. I actually recognize your loyalty and help!

Right now, we launched a brand new “EB Weekly Market Report” product that might be printed each week on Sundays (often Mondays) and might be made accessible as a part of our common service. There is no such thing as a elevated membership value because of this new product. I’m offering our first version of this new weekly report under, to be able to get a way of the in-depth evaluation and analysis that we do at EarningsBeats.com. When you just like the report, please make the most of our 30-day FREE trial and check out all of our companies for the subsequent month, together with the subsequent 4 editions of this EB Weekly Market Report. September generally is a merciless month, so get our newest ideas as we navigate what traditionally has been a really tough month.

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Under is our first EB Weekly Market Report, which might be printed on both Sunday or Monday of each week. It’ll change our Monday EB Each day Market Report and supply all of our members with a broader “Large Image” outlook on the U.S. inventory market. Our market outlook will focus extra on longer-term weekly charts, versus the each day charts extra usually utilized in our EB Each day Market Report. We consider it enhances our present product lineup and appeals to everybody – these with a longer-term mindset and people centered totally on the near-term.

Due to our “top-down” strategy to buying and selling, it makes plenty of sense to start every week with a Large Image focus, citing the present long-term technical outlook and the way which may influence the market given our short-term indicators that we focus on each day. This EB Weekly Market Report can even present a constant, once-per-week evaluate at key sentiment and intermarket relationships that we worth so extremely at EarningsBeats.com and has helped us to information our members via a really tumultuous 3-4 12 months interval, starting with the 2020 pandemic, proper via the latest 2022 cyclical bear market and subsequent secular bull market advance.

We’ll additionally evaluate the prior week’s motion and supply commerce setups, however largely with a longer-term mindset – consider longer-term swing buying and selling, which ought to attraction to these of you that like the concept of longer-term momentum buying and selling, offering wider stops and targets.

Let’s get began with our very first version of our EB Weekly Market Report, starting with the motion from final week.

Weekly Market Recap

Main Indices

Whereas we noticed power throughout most areas of the U.S. inventory market final week, small and mid caps did present management. For this management to proceed, it will be necessary to see constant power from industrials, financials, well being care, and power as these are necessary sectors weighted heavier within the IWM than what we see within the benchmark S&P 500. For mid caps (MDY), industrials comprise 22.4% of all the ETF, adopted by client discretionary and financials.

Sectors

Clearly, there was some rotation final week away from progress and into worth, although progress nonetheless carried out pretty nicely, as evidenced by the management in know-how. The very best interval of the 12 months for progress vs. worth is Might via August, although the primary 4 months of the 12 months are comparatively robust as nicely. Nonetheless, we have seen historic bullishness from worth shares vs. progress shares throughout the remaining 4 months of the 12 months, beginning with September. We have had an enormous run in know-how and different progress areas, so repositioning now into extra worth and fewer progress is smart for a lot of.

Prime 10 Industries Final Week

Each house building and semiconductors have had HUGE runs in 2023 and have helped to guide U.S. shares greater, however each will sport MAJOR destructive divergences on their weekly charts ought to they attain new highs any time quickly. Examine these out:

You’ll be able to see what’s occurred previously when house building shares attain a weekly PPO of seven.5 (red-shaded space). It would not essentially lead to an enormous selloff, however we must always actually decrease our expectations bar, given how a lot this group has run. And if the DJUSHB breaks out once more, it will doubtless be accompanied by an enormous destructive divergence. Bear in mind, it isn’t at all times about being proper or incorrect, it is about managing danger. I see a TON of danger on this chart and one of many weakest calendar months for this group since this secular bull market started in 2013 is September. Perhaps we see a September swoon with a later rally in October and November. November is the group’s finest month, rising EVERY 12 months in November since 2013 and averaging a 6.2% acquire in that month alone.

I consider we’re in a secular bull market and we’re going greater. So it PAINS me to suppose any bearish ideas about one among my favourite trade teams. However historical past would not lie. The charts do not lie. Semiconductors have been a transparent chief – not solely throughout this advance in 2023, but additionally all through all the secular bull market run. I may argue, nonetheless, that this group has not been this overbought because the secular bull market started. I’ve highlighted 5 instances (together with proper now) the DJUSSC has seen its weekly RSI transfer to the mid-70s or greater with black-dotted vertical strains. I’ve additionally highlighted that the present weekly PPO had by no means reached 10 – till the 2023 surge. I LOVE this group, nevertheless it wants a interval of consolidation BADLY. Whereas I will not say it might probably’t go greater within the short-term from right here, I completely wouldn’t be shocked in any respect to see it fall right into a interval of consolidation, much like what we have seen previously when it turns into so overbought.

Backside 10 Industries Final Week

One sign that may scare me is once I see defensive areas of the inventory market lead throughout an advance. For sure, I really feel very comfy with final week’s rally because the Backside 10 industries is LITTERED with defensive teams. After I take a look at these teams on a longer-term weekly chart, I consider well being care suppliers ($DJUSHP) is one group that might be poised to reverse. Leisure companies ($DJUSRQ) is one other. Have a look:

Well being care suppliers have been in a stable channel all through this secular bull market, interrupted solely by the 2020 pandemic scare. In any other case, the channel is nearly good. Discover the place we’re proper now, testing the decrease channel line. These are typically the very best long-term entry factors. Additionally, the green-dotted vertical strains mark the PPO journeys and bottoms deep into destructive territory. I usually like momentum trades, together with areas which are rising. However I would need to say, from a longer-term perspective, shopping for shares in areas testing important help would doubtless be a greater buying and selling alternative for a lot of of you, particularly these of you that do not prefer to chase, however would relatively purchase at or close to bottoms. One remaining thought. Seasonally, one of the best two-consecutive-month interval for well being care suppliers is definitely October-November, which is correct across the nook.

Ordinarily, I would be involved a few group the place its weekly PPO simply touched 10. Nonetheless, we’ve seen a pullback to the rising 20-week EMA that is helped to alleviate these overbought circumstances. Additionally, let’s have in mind this group was tortured throughout the 2020 pandemic. Even after the massive latest advance, the group continues to be down greater than 40% from its pre-pandemic excessive. I am searching for a rebound off this rising 20-week EMA take a look at. If I break down this group’s historic efficiency by quarter since 2013, this is what it seems like:

• Jan-Mar: -1.2%
• Apr-Jun: +1.0%
• Jul-Sep: +2.3%
• Oct-Dec: +7.7%

We’re shifting into the candy spot of the 12 months for leisure companies.

Prime 10 Shares – S&P 500/NASDAQ 100

Backside 10 Shares – S&P 500/NASDAQ 100

Large Image – September 2023

All of it begins right here. After I discuss “perspective” with respect to the U.S. inventory market, this chart is the poster youngster. The very first thing we should all perceive once we strategy inventory buying and selling is whether or not we’re in a SECULAR bull market or SECULAR bear market. Throughout every, we regularly see countertrend CYCLICAL bear markets and CYCLICAL bull markets, respectively. However, if you wish to obtain the next success charge buying and selling shares, it is crucial that you just get this primary step proper. With long-term perspective, you possibly can see short-term volatility and countertrend strikes way more clearly and BEFORE they occur. With out that long-term perspective, your short-term view can get very cloudy and, sadly, very emotional. Emotional buying and selling results in BIG losses. We have to commerce and make investments with CLARITY and CONFIDENCE to grasp the subsequent LIKELY transfer in U.S. shares.

Here is what I am seeing once I pull up my 100-year chart on the S&P 500:

September Replace:

We are able to discuss totally different indicators on this chart, however for right this moment, let’s give attention to these two backside panels – the long-term 120-month charge of change (ROC) and the 240-month ROC. These symbolize 10-year and 20-year “look again” intervals to see how far the S&P 500 has run over these two time frames. Within the 120-month ROC, the Fifties-Sixties SECULAR bull market noticed an ROC excessive of simply over 300%. The Eighties-Nineties SECULAR bull market reached above 350%. The present 2010s-2020s SECULAR bull market practically touched 300%, however stays barely beneath the prior two SECULAR bull markets by way of a 10-year ROC. So for those who have screamed this bull market has run an excessive amount of, I would direct you to this chart, which clearly displays this has been a extra subdued secular bull market (not less than throughout the first 10 years) than the earlier two.

You’ll want to keep in mind one factor about historic SECULAR bull markets. They have an inclination to final 20 years, not 10. And the underside panel reveals us the 20-year ROC. Within the 50s and 60s, we topped near 750%. Within the 80s and 90s, that high was nearer to 1400%. The present SECULAR bull market has one other 10 years to run. The place would possibly this 20-year ROC attain? That is the thrilling half and one cause why I consider we’ll see the S&P 500 maybe 3x the extent we’re at proper now. Sure, that is proper. I am calling for an S&P 500 that doubtless reaches 12000-15000 by the tip of this decade or into the early a part of the 2030s. We’re in a kind of secular bull market intervals that you just CANNOT rebound from for those who do not make the most of it when it happens. I totally suspect historical past will repeat itself and that a lot of the 2030s and 2040s might be VERY tough for U.S. equities – very like the 2000s, Seventies, and Thirties/Nineteen Forties had been.

One different piece of this chart to notice is the month-to-month PPO. I’ve highlighted the secular bull market years in blue shading. Any time we see a correction or a cyclical bear market, we see the month-to-month PPO dip down near or maybe contact the zero line. Once we start to show greater off of that centerline take a look at, we traditionally have seen very vital inventory market advances which have lasted YEARS, not weeks or months. IGNORE the media and all their BS headlines and stick with the technical indicators on the charts.

At present, it is ALL ABOARD the Northbound Prepare (with pitstops alongside the way in which, in fact).

Main Indices

This week, let us take a look at the 10-year weekly chart on the S&P 500:

We’re in a phenomenal channel that started off the monetary disaster low of 2009. That low, together with the 2020 pandemic low, had been “fireplace sale” lows, triggered by excessive pessimism. They function essential lows in our present uptrend. I consider the ONLY means this line is examined is that if we hit one other interval of EXTREME pessimism and panic. I actually do not see something on the horizon that will set off such a selloff. A attainable occasion is likely to be a surge in inflation, with the Fed hitting the accelerator on charge hikes, possibly saying 50-basis-point or 75-basis-point charge hikes, taking the fed funds charge nicely over 5-6%. Whereas something is feasible, I actually would not make investments my cash primarily based on this lengthy shot. Inflation has been trending decrease for months and there may be completely no signal of this chance on the charts. Wall Avenue has not and isn’t turning defensive proper now. Subsequently, I say keep on with the lengthy aspect because the weekly chart corroborates that Large Image 100-year month-to-month chart.

Once we change into stretched on this present channel (pink circles), testing the higher channel line, that is the time to be pondering warning once more. Every of these prior pink circles has triggered an ensuing interval of consolidation/promoting to take worth again right down to or close to the center, blue-dotted trendline. We now have loads of upside accessible earlier than we’ll want to fret about that.

Sentiment

Fairness-only put-call ratio ($CPCE):

I exploit two main CPCE indicators, one short-term (pace boat) and the opposite long-term (ocean-liner). The inventory market repeatedly strikes greater and decrease in each uptrending and downtrending markets. However as soon as you have established the first pattern, which, in my view, is clearly greater, you possibly can apply the 5-day fairness solely put name ratio ($CPCE) to assist spot key short-term market tops and bottoms. Not too long ago, the pendulum swung to excessive pessimism, which helped me name a backside. Test it out:

Hear, I do not struggle the indicators. That is one among my PRIMARY charts to assist me spot short-term market reversals. After I get warning indicators of a short-term high and the rising chance of a short-term interval of promoting/consolidation, the 5-day SMA of the CPCE is a key in serving to to identify when the bleeding stops. It did so completely on August 18th, once I wrote my article at StockCharts, “Are You Prepared For A Big Rally?” I exploit confirmed strategies, methods, and charts to assist me handle my draw back danger and to identify key market reversals. This text was merely one instance of that. At present, this 5-day CPCE is impartial, getting back from its latest excessive pessimism studying.

Now for the long-term, ocean-liner sign:

Consider this because the Large Image of sentiment. Historical past tells us that when the pattern in sentiment modifications, so too does the inventory market path. EVERY SINGLE TIME. When the inventory market struggles for a protracted time frame, prefer it did throughout the 2022 CYCLICAL bear market, merchants develop increasingly more pessimistic. The interval begins off with retail merchants not believing that we’re going decrease, so that they proceed to commerce extra on the lengthy aspect, shopping for calls. It isn’t till after they lose a boatload of cash that they start to swing to the pessimistic aspect. By the point they do, a lot of the market harm has already been inflicted. In some unspecified time in the future, the acute pessimism marks a big market backside, however by then, retail merchants have grown excessively bearish and may’t fathom a transfer greater once more till….you guessed it…..the market has already rebounded considerably.

Take a look at the chart above. As soon as the 253-day (1 12 months) shifting common of the fairness solely put name ratio has risen to an especially excessive studying, the sellers are DONE and the inventory market rallies. And when retail merchants develop too bullish after market advances, shares are likely to carry out poorly, or not less than flat. Once more, I do not make these things up. Take a look at the chart and see it for your self. The important thing on this ocean-liner chart is THE TURN – both the flip decrease after a big rise or the flip greater after a big decline (or long-lasting consolidation interval). For my part, this ocean-liner sign has reached a peak and is popping decrease. I consider that can in the end lead to U.S. fairness costs rising considerably over the foreseeable future.

Volatility Index ($VIX):

The VIX is attention-grabbing, as a result of it has a really robust inverse relationship vs. the S&P 500. When shares acquire floor, the VIX drops. When shares lose floor, the VIX rises. Here is a long-term chart for example:

I feel the inverse relationship is sort of clear, particularly whenever you see what number of instances we’re within the -0.50 to -1.00 vary vs. the +0.50 to +1.00 vary. However we do see each day readings optimistic often and when that optimistic correlation does seem, the indicators are fairly attention-grabbing. Here is what I imply:

Over the previous two years, we have solely obtained 3 indicators (correlation shifting into optimistic territory), however they have been wonderful indicators and I’ve written about them. The primary one in November 2021 appeared after a big short-term advance. Be aware how we noticed a key reversal into the second half of November. The second sign appeared within the first week of January 2023. I wrote about it and spoke about it:

I am posting these to supply examples of how we use our indicators to PREDICT the market’s subsequent transfer, relatively than merely let you know the way it already moved. Market Steerage is concerning the future and nobody calls it higher than EarningsBeats.com. I consider we have confirmed that over a really tumultuous interval that included a pandemic-related cyclical bear market, one of many strongest 2-year bull market advances in our historical past, a cyclical bear market prompted by rising inflation and a hawkish Fed, and one more very robust bull market rally in 2023. Intermediate-term calls, each bullish and bearish, have helped information merchants and plenty of instances it is these sentiment indicators that do nearly all of the work.

Intermarket Relationships

Many instances I refer to those intermarket relationships as sustainability ratios. They supply us clues as to the probability {that a} present market pattern will proceed. If the S&P 500 is rising, I really feel way more assured about it persevering with if our sustainability ratios are rising as nicely. I consider a few of these ratios are extra necessary than others, so I am going to present the 2 which are most necessary to me:

Client discretionary vs. Client staples (XLY:XLP):

Our GDP is comprised of two-thirds client spending. If we actually need to see into the long run, we want to pay attention to how the patron is doing, particularly by evaluating the connection of discretionary shares (these corporations present us the issues we WANT) vs. staples shares (these corporations present us the issues we NEED). The S&P 500 thrives in a “risk-on” market setting that features shoppers spending cash on the issues they WANT. The XLY:XLP ratio supplies us the present market “temperature” on how the large Wall Avenue corporations view this relationship. So long as we preserve seeing greater highs and better lows on this XLY:XLP ratio, I’ll be bullish. You have to remember the fact that, throughout consolidation/promoting intervals, cash will rotate from the XLY to the XLP. That is regular market conduct. So I do not develop bearish each time this ratio declines. It is extra of a Large Image evaluate of the ratio vs. the S&P 500. Examine this out:

The above XLY:XLP chart features a proprietary Person-Outlined Index that tracks this ratio on an INTRADAY foundation that excludes opening gaps. I do that to see how this relationship is performing throughout the buying and selling day to rid myself of all of the market maker noise that surrounds opening gaps. You’ll be able to see from the above chart that the XLY:XLP intraday ratio was performing significantly better in This fall 2022 and Q1 2023, offering us a way more bullish sign, whereas the market-maker-manipulated gaps confirmed us a extra bearish image (regular declines, falling pink directional strains). The blue directional strains within the high panel of the chart SCREAMED at us that cash was rotating very aggressively throughout the buying and selling day. In different phrases, the large Wall Avenue crowd was shopping for and that is at all times a bullish sign.

NASDAQ 100 vs. S&P 500 (QQQ:SPY)

Historical past tells us that the NASDAQ 100 outperforms the S&P 500 throughout secular bull market advances. The reason being easy. Progress shares outperform worth shares when our financial system is powerful, strengthening, or anticipated to strengthen. The NASDAQ has extra illustration of progress shares, so we must always view a rising QQQ:SPY fairly bullishly. Here is how this chart seems now, additionally offering the INTRADAY QQQ:SPY relationship to exclude these manipulative gaps:

Earlier than I analyze this chart, let me tackle one query that ALWAYS appears to floor. The NAME of this Person-Outlined Index chart is “@SPYQQQ”. That doesn’t dictate the order by which this ratio is calculated. I can PROMISE you that it is primarily based on the intraday QQQ:SPY ratio. I simply need to be clear about that, as a result of many have advised I did the calculation backwards. Bear in mind, it is only a identify. In hindsight, I want I had picked the identify “@QQQSPY”, however I did not.

The pink directional line within the high panel means that Wall Avenue has begun to rotate away from progress and that shouldn’t be ignored. Traditionally, we start to see significantly better motion in value-oriented shares vs. growth-oriented, so it is necessary to notice this refined sign. The QQQ:SPY ratio appears to be holding up in that 2nd panel, nevertheless it’s primarily due to the opening gaps. The QQQ has been gapping greater, nevertheless it’s been adopted by intraday promoting and rotation in the direction of the SPY. That is not essentially bearish. It is merely a sign that we may see management rotate to areas like industrials, financials, well being care, and power. And that is how the market typically trades within the remaining months of the 12 months.

Commerce Setups

As I discussed above, we’re starting to see the historic leaves change as September arrives. I’m centered on uncovering value-oriented industrials and financials to guide us into 12 months finish because the torch is handed from know-how. That is why the shares under are usually not AAPL, MSFT, NVDA, META, AMZN, GOOGL, and so on. I count on these shares to pause in This fall as they usually do. Within the meantime, listed here are 2 that I consider might be stable trades into 12 months finish:

JP MorganChase (JPM):

I may see JPM dipping into the low 140s, presumably into the higher 130s, however I actually just like the latest promoting (5 weeks operating) that is left JPM at its rising 20-week EMA simply previous to a really bullish seasonal sample. Over the previous 11 years, JPM has common returns as follows by quarter:

• Jan-Mar: -1.9%
• Apr-Jun: +4.1%
• Jul-Sep: +2.7%
• Oct-Dec: +12.9%

JPM loves This fall. If historical past repeats itself, do not be shocked to see JPM hitting all-time highs by the tip of the 12 months.

Boeing (BA):

Not many shares had been rocked as onerous as BA throughout the pandemic and within the years following. It now appears to be on a significantly better trajectory, nonetheless. I like the truth that BA spent a lot of 2023 in a decent vary between 195 and 220, not likely taking part out there’s advance. On extraordinarily heavy quantity in July, accompanying its quarterly outcomes, BA broke out of this vary and is now buying and selling virtually squarely on that prior resistance close to 220. Like JPM, it has a historically-strong interval that is about to start. Here is how BA’s common quarterly returns unfold:

• Jan-Mar: +2.4%
• Apr-Jun: +1.6%
• Jul-Sep: +6.5%
• Oct-Dec: +11.4%

I would say BA is in its candy spot traditionally and the technical circumstances help an advance from right here as nicely.

JPM and BA are each in that worth camp and symbolize financials and industrials, respectively. I consider each will outperform the S&P 500 from now via 12 months finish.

Trying Forward

Upcoming Earnings

There is not more likely to be plenty of market motion primarily based upon key earnings studies. Most massive corporations that would affect the benchmark S&P 500 and/or the NASDAQ 100 have lengthy since reported outcomes. Listed below are a number of attention-grabbing corporations reporting this week, nonetheless, by day and market cap:

Tuesday: ZS ($22 billion)

Wednesday: None

Thursday: DOCU ($10 billion)

Friday: KR ($33 billion)

Key Financial Studies

The beige ebook is more likely to seize consideration and headlines on Wednesday afternoon at 2pm ET, however in any other case it will be a reasonably gradual week for financial studies. Key financial information might be out subsequent week, together with each the month-to-month CPI and PPI studies. These will come one week earlier than the Fed decides whether or not or to not increase rates of interest.

This week’s studies:

Tuesday: Manufacturing facility orders

Wednesday: PMI composite, ISM companies, beige ebook

Thursday: Preliminary jobless claims, productiveness and prices

Friday: Wholesale inventories

Historic Information

Every week, I am going to present you the common annualized returns for every calendar day and by index. Here is the stability of this week:

The S&P 500 knowledge dates again to 1950, whereas the NASDAQ and Russell 2000 data date again to 1971 and 1987, respectively.

Traditionally, I would say subsequent week favors small caps, however let me say that seasonal data ALWAYS takes a again seat to technical evaluation and present market circumstances.

Last Ideas

Whew! That is clearly a really prolonged report. There are various charts that I will not tackle on a weekly foundation as they merely do not change that always. I am going to doubtless focus on the Large Image 100-year chart in the beginning of each month. In any other case, there will be loads of week-to-week redundancy. The “ocean-liner” CPCE is one other chart that may be reviewed month-to-month. And I could add a bit right here or there in varied weekly market studies. However what you see above is almost all of what you possibly can count on sooner or later on Sundays/Mondays. Bear in mind, this in-depth evaluation will REPLACE the Monday Each day Market Report. These DMRs might be printed Tuesdays via Fridays.

As I take a look at the inventory market proper now, I’ve a number of ideas:

1. We’re in a SECULAR bull market, so you will not hear or see me speaking bearishly concerning the inventory market long-term until circumstances change immensely
2. It is September! The second half of September is the actually bearish a part of the month. Till then, we usually see common annualized market returns akin to the S&P 500 all through all the 12 months
3. Whereas not addressed on this long-term weekly report, there are 60-minute destructive divergences that would influence this week’s buying and selling – to the draw back. From a long-term perspective, nonetheless, this VERY short-term momentum warning is very like a gnat on an elephant’s butt. It actually would not matter.
4. One essential key that I will be watching all through September is the attainable rotation into extra value-oriented shares. Identical to in 2022, do not view this as bearish rotation. The expansion shares deserve a pause and areas like semiconductors will produce long-term destructive divergences on the weekly chart if we see additional power.
5. Earnings and financial information might be very mild, so we’ll doubtless see market motion comply with the technicals, with little in the way in which of elementary information to digest.
6. Please at all times attempt to preserve perspective in thoughts whenever you consider the U.S. inventory market. Actually, I consider most each analyst wants an enormous dose of perspective now and again. And retail merchants? Puh-lease, most can not look previous what’s occurred previously week or month, not to mention stepping again and viewing the Large Image chart from house. There are such a lot of emotional merchants, responding to the most recent CNBC headline. Do not be in that group or market makers will get one of the best of you.

Suggestions

I hope you loved this very first version of our EB Weekly Market Report! We would completely love your suggestions, whether or not optimistic or destructive. Tell us what you suppose by sending us your feedback to “[email protected]”.

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Thanks and joyful buying and selling!

Tom