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For the reason that 2020 pandemic, we have seen many relative leaders come and go. I’ve discovered probably the most troublesome a part of buying and selling/investing these previous few years to be trusting the relative power we see. Rotation is regular as we transfer by means of varied financial cycles, however attempting to zero in on which financial cycle we’re truly in hasn’t been straightforward. As an ideal instance, take a look at Q3 GDP, which was simply launched final week. The primary estimate of Q3 GDP was 4.9%, the very best quarterly GDP studying since late 2021. One main worry with regard to U.S. equities is that we have been establishing for a “laborious touchdown”, or a recession, because of the very hawkish Fed and an anticipated decline in client spending. However with inflation dropping sharply over the previous yr and GDP accelerating as a substitute of declining, I consider it is troublesome for the time being to argue a tough touchdown. The U.S. client could be very resilient, regardless of the collection of price hikes from the Fed. All of this will change the Fed’s anticipation of price cuts in 2024 altogether. For those who recall from their newest assembly, they introduced solely 2 anticipated price cuts in 2024, down the earlier 4. However now, with the buyer exhibiting resiliency and GDP rising, the Fed can have much less purpose to chop charges. Let’s additionally remember the fact that inflation continues dropping and stays on a path headed in the direction of the Fed’s 2% goal. So the Fed may stay on pause, with the trail to a delicate touchdown turning into clearer and clearer.

The place does all of this go away us?

Properly, a Fed pause in climbing charges mixed with falling inflation and rising GDP, could possibly be a catalyst to a lot larger U.S. fairness costs within the weeks and months forward. That is hypothesis, nonetheless, and we should see the technical situations of our key indices change for the higher. Whereas the delicate touchdown proponents could develop in confidence after final week’s GDP, that very same confidence has but to look within the charts. Here is the S&P 500’s every day chart for the previous yr:

Quantity has been accelerating to accompany a steep drop in worth. Hear, nothing is larger to me than the mix of worth and quantity. And it could not be any clearer to me that short-term technical situations are extraordinarily bearish proper now. BUT, I’ve a number of secondary indicators that inform me to search for a backside, which could possibly be quickly approaching. A capitulatory-type transfer may mark a serious backside, particularly with the Volatility Index ($VIX) breaking above 20 and stubbornly remaining there. It is by no means straightforward to foretell the place an final high on the VIX may happen, however what IS clear is bottoms do happen when the VIX tops. That is why I consider capitulation will seemingly be wanted to mark that VIX high and S&P 500 backside. The truth that we’re now on the backside of the S&P 500’s present channel says {that a} market backside may occur ANY day. I am awaiting an enormous intraday reversal on heavy quantity the place a hammer, doji, bullish engulfing, or piercing candle seems. Till then, it is troublesome to danger capital on the lengthy aspect. Additionally, a reversing candle then gives a degree to maintain a cease in place to assist handle danger. A reversing candle shouldn’t be breached intraday, however particularly on a closing foundation.

I wish to look forward at upcoming earnings, trying to find firms that is likely to be missed as they strategy their quarterly earnings dates. There might be one very fascinating earnings report out this week within the client discretionary space. The robust GDP was, largely, on account of a robust client. I would not be shocked if there is a HUGE earnings shock on this discretionary inventory and, fairly probably, a really bullish hole larger. I am that includes this inventory in our FREE EB Digest e-newsletter on Monday morning. If you would like to obtain it, merely SIGN UP right here and enter your identify and electronic mail deal with. There is no value and no bank card required.

Pleased buying and selling!

Tom