The markets continued to stay tentative over the past five days while continuing to trade with a weak undertone. The Nifty digested the reaction to the US election outcome. There were two days of a strong technical rebound; this was sold into subsequently which kept Nifty in a broadly defined range. The trading range was wider; the Nifty oscillated in a 721-point range. Volatility cooled off; the India VIX declined by 6.95% to 14.47 through the week. Following a ranged trade with a weak underlying bias, the headline index closed with a net weekly loss of (-156.15) points or (-0.64%).

The markets are not out of the woods as yet from a technical perspective. The Nifty has violated the 20-week MA which currently stands at 24775. This level also coincides with an extended trendline which initially acted as a support but now acts as a resistance. Below this point, there are other several resistance levels as well. The 100-day MA is placed at 24709 and a short-term 20-day MA is placed at 24486. All these combined, the Nifty has created a 250-point resistance zone between 24500-24750 levels. This would mean that all technical rebounds will start facing turbulence the moment the index this zone. The resistance levels have been dragged lower. On the downside, major pattern support exists at 23800; if this is violated, it will make the markets weaker than what they are today. This keeps the Nifty in a broad, but well-defined trading zone.

Monday is likely to see a quiet start to the week. The levels of 24300 and 24485 are likely to act as probable resistance points for Nifty. The supports come in at 23960 and 23800 levels. The trading range is likely to stay wider than usual.

The weekly RSI stands at 49.50; it stays neutral and does not show any divergence against the price. The weekly MACD is bearish and stays below its signal line.

The pattern analysis of the weekly charts suggests that the Nifty remains in a corrective downward trajectory. The recent downward move has also dragged the resistance levels lower for the Index. Presently, the markets have multiple resistance levels nestled in the zone of 24500-24750. With the immediate pattern support existing at 23800, the Nifty remains in this wide but well-defined trading zone.

All and all, the markets are likely to see intermittent technical rebounds over the coming days. However, it would be important to be mindful of the fact that a sustained rally is unlikely so long as Nifty does not move past the 24500-24750 zone. Until this zone is taken out, Nifty is unlikely to see any runaway rally. Therefore, during all such technical rebounds, as and when they occur, it would be crucially important to mindfully protect the gains at higher levels. Rather than giving such rebounds a mindless chase, it would be necessary to vigilantly guard positions at higher levels. The markets remain susceptible to selling pressure at higher levels. A cautious outlook is advised for the coming week.

Sector Analysis for the coming week

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

Relative Rotation Graphs (RRG) show that the Financial Services index has rolled inside the leading quadrant. The Nifty IT, Services Sector, and the Pharma indices are also inside the leading quadrant. These groups are likely to continue to relatively outperform the broader Nifty 500 Index.

The Nifty Consumption index has rolled inside the weakening quadrant. Besides this, the FMCG and the MidCap 100 indices are also inside the weakening quadrant and may continue giving up on their relative performance.

The Nifty Auto, Commodities, Energy, Media, Infrastructure, Realty, and PSE indices are inside the lagging quadrant. These groups may relatively underperform the broader markets.

The PSU Bank Index has rolled inside the improving quadrant. The Nifty Metal and the Nifty Bank Index are also inside the improving quadrant. They may continue bettering their relative performance against the broader markets.

Important Note: RRG™ charts show the relative strength and momentum of a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.  

Milan Vaishnav, CMT, MSTA

Consulting Technical Analyst

www.EquityResearch.asia | www.ChartWizard.ae

In this StockCharts TV video, Mary Ellen presents a deep dive into last week’s sharp rally in the markets. She highlights what areas could perform best under a Trump administration and how to spot a pullback. She takes a close look at the “New Economy” and how best to capitalize.

This video originally premiered November 8, 2024. You can watch it on our dedicated page for Mary Ellen on StockCharts TV.

New videos from Mary Ellen premiere weekly on Fridays. You can view all previously recorded episodes at this link.

If you’re looking for stocks to invest in, be sure to check out the MEM Edge Report! This report gives you detailed information on the top sectors, industries and stocks so you can make informed investment decisions.

Another packed week for the stock market has come to a close. The broader stock market indexes broke out of their sideways trading range with the S&P 500 ($SPX), Nasdaq Composite ($COMPQ), and Dow Jones Industrial Average ($INDU) closing the week out at record levels.

The US election results and the Federal Reserve’s decision to cut interest rates by 25 basis points are now in the rearview mirror. When Jerome Powell took the podium on Thursday, he made it clear that the Federal Open Market Committee (FOMC) remains focused on their dual mandate of maximum employment and price stability.

Bond Market Action Is Key

The 10-Year US Treasury Yield Index ($TNX) closed at 4.31% on Friday, which is significantly higher than its September low of 3.61%. Bond prices, which move inversely to yields, fell due to possible economic growth and inflation under the new administration.

The weekly chart of the iShares 20+ Year Treasury Bond ETF (TLT) may be flirting with its 50-week simple moving average (SMA), but it’s trending to the downside. For as long as economic growth, inflation, and a widening budget deficit remains in play, bonds are likely to continue trading at low levels.

CHART 1. WEEKLY CHART OF THE ISHARES 20+ YEAR TREASURY BOND ETF (TLT). Bonds have been struggling of late and is likely to remain low for a while.Chart source: StockCharts.com. For educational purposes.

Volatility in stocks and bonds have also declined. Bond volatility measured by the MOVE Index ($MOVE) which is displayed in the lower panel in the above chart, fell significantly this week. This is an important indicator to monitor, as it can give an early signal of a turn in market action.

The Cboe Volatility Index ($VIX) also fell and closed just below 15 for the week. On Wednesday, the VIX fell over 20%, which shows that going into the elections, there was uncertainty among investors. Once the election results were known, the anxiety dissipated, as seen by the action in the VIX.

With an upward trend in stocks and a low VIX, investors are in a sweet spot. There’s no reason to be bearish now unless some unknown event resurfaces, which is always a possibility. If you’re holding long positions, hang on to them, but when there’s a pullback, use it as an opportunity to add more positions. Or maybe you’ve made enough profits, and you want to sell some of your positions. It all depends on your financial objectives and risk tolerance level.

Small-Cap Stocks Getting Saucy

Small-cap stocks have been interesting this week. After breaking out of a sideways trading range, the S&P 600 Small Cap Index ($SML) had a massive upside breakout (see chart below). The long green candle followed by the two small body days could end up being a Rising Three Methods candlestick pattern. The fourth and fifth days need to form before the pattern is confirmed. So save this chart to your ChartLists and see what happens Monday and Tuesday next week. 

CHART 2. DAILY CHART OF THE S&P 600 SMALL CAP INDEX ($SML). After breaking out of a sideways trading range, $SML had a massive upside move. This move could continue depending on how the daily bars play out in the next two trading days.Chart source: StockCharts.com. For educational purposes.

Market breadth continues to favor a bullish move, with 77% of the $SML stocks trading above their 50-day moving average. The Advance-Decline Percent is relatively stable.

Taking a Cue from the US Dollar

There have been some sharp moves in the US dollar. The US Dollar Index ($USD), which tracks the US dollar against a basket of major currencies, spiked on Wednesday, pulled back on Thursday, and resumed its uptrend on Friday (see the chart below). This move is based on anticipating tariffs, which will strengthen the US dollar.

CHART 3. US DOLLAR INDEX ($USD) SPIKES. The rise in the US Dollar Index is in anticipation of tariffs on imported goods. Monitor it closely for early indications of shifts in stock market action.Chart source: StockCharts.com. For educational purposes.

The US dollar is another chart to monitor closely. Like the $MOVE, $USD can give an early indication of shifts in market action.

Next week, we will receive some key inflation data coming out, although they may not impact the market much. The market has probably already priced in inflation expectations.

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End-of-Week Wrap-Up

• S&P 500 up 4.66% for the week, at 5995.54, Dow Jones Industrial Average up 4.61% for the week at 43,988.99; Nasdaq Composite up 5.74% for the week at 19,286.78
• $VIX down 31.72% for the week, closing at 14.94
• Best performing sector for the week: Consumer Discretionary
• Worst performing sector for the week: Consumer Staples
• Top 5 Large Cap SCTR stocks: Applovin Corp. (APP); Summit Therapeutics (SMMT); Redditt Inc. (RDDT); Palantir Technologies (PLTR); Ubiquiti, Inc. (UI)

On the Radar Next Week

• October Consumer Price Index (CPI)
• October Producer Price Index (PPI)
• Powell and other Fed member speeches
• October Retail Sales

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.

First of all, for those of you looking for a new video this week, I have intentionally skipped it because I didn’t want to make a video right before such an important event with much uncertainty.

After the elections, which were obviously eventful, I wanted to see what the market’s reaction would be and let the dust settle down before diving into any analysis, which might have been too preoccupied and presumptuous too early.

However, it’s now Friday, the end of the week, and we have a little more color on how markets have responded to the election results.

It’s time to see what the sector rotation is telling us and how the chart of the S&P 500 has changed—because it has definitely changed!

The S&P 500’s Post-Election Reversal

If you look at that chart right now with the annotations, which were the cornerstone of my view, I have to say that it was a little conservative going into the elections. This has now pretty much turned around.

On the chart, a very clear island reversal is now visible.

We have the gap down on the 31st of October, followed by three more or less sideways days, which took SPY to a low of just around 567.

On November 5th, election day, the market closed at the high, followed by a massive gap up the day after.

It was not only a gap up but also a move above the S&P 500’s all-time highs.

So we have a massive gap up. We have an island reversal, which completed just above pretty important support around 565, and we now already have two days of good follow-through.

That is a strong sign. This market wants to go higher, at least in the near term.

If we switch to the weekly chart for SPY, those mild divergences between the RSI and price and the MACD and price are still visible, but the price action itself is so strong that it cannot and should not be negated.

So, at least in the near term, this market wants to go higher. For now, corrections holding above support around 585 (the former peak) should be regarded as buying opportunities.

Reversals In Sector Rotation

On the relative rotation graph for the 11 S&P sectors above, I have intentionally set the tail length at six trading days. That means that each tail has seven nodes, and the 4th node, so the middle one, is the 5th November.

This allows us to see the 3 days leading up to election day and then the 3 days after election day.

As you can see, most of the tails have continued to travel in the direction they were already heading.

The most prominent ones are consumer discretionary and communication services, which entered and moved further into the leading quadrant.

On the other side is the utility sector, which accelerated further into the lagging quadrant.

Sectors with Notable Changes

I want to highlight a few sectors that really changed direction, where we saw a change in detail before and after election day.

The two sectors with the most prominent changes are financials and health care.

This first RRG shows the tails for both sectors ending on the 5th of November.

Financials Sector (XLF)

If we zoom in on the tail for XLF, you can see that it ended November 5th just inside the weakening quadrant. It just crossed over from leading to weakening.

And then, in the 3 days after November 5th, it completely reversed course and is now almost back into the leading quadrant.

Health Care Sector (XLV)

The same sort of move is visible on the other side of the chart for the healthcare sector, XLV.

On November 5th, XLV had just crossed into the improving quadrant and was on a positive heading.

In the 3 days after, the sector completely reversed course and is now back into the lagging quadrant at a negative heading.

XLP and XLRE rolling over

Other sectors where we see a change in the course of the tail are consumer staples, which was inside the improving quadrant but hooked back down, rolled over, and is now back into the lagging quadrant, and real estate, which was also inside the improving quadrant but rolled over and is now accelerating into the lagging quadrant.

The technology sector changed course a bit, but not as clearly as the other sectors.

It is still right around the 100 level on the RS ratio scale and very close to the benchmark without a very clear direction.

The Big Winners Post-Election

I think the biggest winners from these election results with good potential going forward are consumer discretionary, XLY, and Communication Services, XLC.

XLY is obviously led by TSLA, which is distorting the performance of the consumer discretionary sector with an almost 27% gain in 3 days. But consumer discretionary stocks have picked up roughly between 3% and 7% across the board, which still indicates strength.

The communication services sector is slightly more evenly spread out and has a good base and a good foundation to move higher and push further into the leading quadrant.

Conclusion

All in all, the market as a whole seems to have reversed its course. After only a very mild corrective move, it has now started a new up leg in the existing uptrend.

The sectors that have come out on top are consumer discretionary and communication services, followed by financials.

All 3 are on the right-hand side of the RRG, either already inside the leading quadrant or almost there, and traveling at a positive RRG heading.

On the opposite side, the sectors with a less favorable outlook are health care, consumer staples, and utilities.

Overall, the sector rotation has now shifted from defense back to offense.

#StayAlert, and have a great weekend. –Julius

The risk-on sentiment has returned to the stock market. Stocks traded significantly higher ahead of the open on Wednesday after former President Trump’s victory. With the uncertainty of the election results out of the way, investors were ready to pile back into equities. All broader US equity indexes saw strong upside movement, and the Cboe Volatility Index ($VIX) fell, closing at around 16 (see screenshot of the Market Overview Dashboard Panel below).

FIGURE 1. THE STOCKCHARTS MARKET OVERVIEW DASHBOARD PANEL. All equity indexes closed significantly higher, while the VIX dropped.Image source: StockCharts.com. For educational purposes.

The stock market had priced in a Trump victory, but investors were clearly waiting for the result before adding more positions, although we saw signs of a head start on Tuesday ahead of the results. The strong upside move was apparent during the trading day, and the indexes closed near their highs.

The biggest gainer was the S&P 600 Small Cap Index ($SML), which closed higher by 6.09%. Its big move is worth studying more closely, since it broke out of a trading range it has been in since mid-September (see daily chart below).

FIGURE 2: DAILY CHART OF THE S&P 600 SMALL CAP INDEX. The index broke through its trading range and gapped up. Market breadth is also positive.Chart source: StockCharts.com. For educational purposes.

The percentage of S&P 600 stocks trading above their 50-day moving average is at a healthy 78%, and the advances vs. declines also show increasing market breadth.

What’s behind the move in small-cap stocks? A boost in financial stocks. Financial stocks comprise a large fraction of $SML, and, with the possibility of deregulation and tax cuts on the horizon, the small-cap index spiked. 

Financials Sector Leads

Financials were the leading sector in Wednesday’s trading. The StockCharts MarketCarpets of the Financials sector clearly show that many banks saw strong gains.

FIGURE 3. BANKS SAW LARGE PERCENTAGE INCREASES IN THEIR STOCK PRICE.Image source: StockCharts.com. For educational purposes.

This is clear in the chart of the KBW Bank Index ($BKX). Its performance relative to the S&P 500 ($SPX) jumped to 25.8%.

FIGURE 4. BANK STOCKS RISE. Wednesday’s massive surge is worth monitoring, as it could benefit bank stocks. Chart source: StockCharts.com. For educational purposes.

It may be worth considering adding bank stocks to your portfolio, especially when they pull back and until interest rates rise.

Crypto, US Dollar, Yields Rally

Cryptocurrencies are also rallying. $BTCUSD has broken out of its consolidation pattern with momentum (see weekly chart below).

FIGURE 5. BITCOIN SOARS. Bitcoin to US Dollar broke out of its consolidation pattern and the MACD shows rising momentum.Chart source: StockCharts.com. For educational purposes.

The moving average convergence/divergence (MACD) indicates bullish momentum as the MACD line crosses above the signal line.

The US dollar and Treasury yields spiked after Trump’s victory. This move could be in anticipation of an inflationary environment ahead. If inflation rises, the Fed may have to pivot and raise rates. We’ll probably not hear anything about that in Jerome Powell’s presser on Thursday. Still, it’ll be one to listen to, especially for clues of what could be in store for December. If bond prices continue to fall (bond prices move opposite to yields), expect a tapering in interest rate cuts by the Fed.

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.

When major shifts happen in the market, such as the one we’re seeing the morning after the election, how can you analyze investor sentiment shifts and adapt your strategy to align with where money will likely flow in the coming weeks and months?

If you checked the markets on Wednesday morning, post-election, you woke up to several remarkable events:

• The stock market shot up to a record high, with the Dow jumping 1,300 points and the Russell 2000 soaring as high as 4%.
• The yield on the US 10-year bond surged 4.48%, indicating expectations of economic growth and wider deficits.
• The US dollar rose the most since 2020 while foreign currencies sank.
• Gold prices stabilized, though they were down nearly 2% from the metal’s October high.
• Silver, attempting to stabilize as well, remains down a whopping 7% from its October high.

The big question: Do these shifts signal a confident pivot to “risk-on,” or is the market’s optimism overextended?

Price action will tell you directly what investors are expecting out of the markets in the near-to-intermediate term, but to get an even clearer picture, it’s best to analyze the undercurrents driving market sentiment. Perhaps there, you’ll see what most investors looking at price action or following the news cannot.

A Look at Safe Havens vs. Equities

Since the focus here is on “risk on vs. risk off” sentiment, let’s compare two safe havens, gold ($GOLD) and silver ($SILVER), to the S&P 500 ($SPX).

FIGURE 1. COMPARATIVE CHARTS OF GOLD, SILVER, AND THE S&P 500. All three declined since October, but the S&P jumped following Tuesday’s election. Chart source: StockChartsACP. For educational purposes.

While gold and silver’s uptrend are still intact, with silver showing more weakness than gold, the S&P 500 shows a positive jolt in money flow compared to the defensive monetary metals. This picture also tells us that market sentiment, at least for the moment, favors economic growth prospects over fears of potential tariff-driven headwinds.

The flow into domestic equities and the outflow from international currencies, likely in anticipation of increased tariff activity, are most evident in the forex market, where the US dollar index (UUP as a proxy) rose higher while the $EURUSD dropped following the election.

FIGURE 2. COMPARATIVE CHART OF THE DOLLAR INDEX VS EURUSD. Money could be flowing from international currencies and into US stocks due to tariff fears.Chart source: StockChartsACP. For educational purposes.

Still, we need to take a closer look at market sentiment from a level deeper than what we can see on the surface. Let’s shift to a daily chart of the S&P 500.

FIGURE 3. CHART OF THE S&P 500. The two sentiment indicators based on surveys of investors and professional money managers show that investors are cautious, whereas the institutions are bullish.Chart source: StockCharts.com. For educational purposes.

Before you look at the price action, note the two sentiment indicators below the chart. Both are weekly surveys.

The first indicator—the American Association of Individual Investors (AAII) index (!AAIIBULL)—is a survey of members who represent the individual or “retail” crowd. The survey simply asks whether they’re bullish, bearish, or neutral. A reading over 50% means that 50% or more members are bullish on the markets.  Right now, 39.50% of the members are bullish, down from 50% in October, while bearish sentiment has risen to 30.90% (from just under 20% last month). If you were to use this indicator as a contrarian, the current signal tells you that investors are, at best, cautiously optimistic leading up to election day. It’ll be interesting to see how this changes in the coming days when the new levels are reported.

The second indicator—National Association of Active Investment Managers (NAAIM) index (!NAAIM)—reflects the average exposure of professional money managers (the institutional ‘smart money’) to U.S. equity markets. Basically, its members report their equity exposure. Like the AAII index, contrarians look for readings near 100 as a sign of possible distribution (and readings close to 10% as a sign of possible accumulation). Currently, with 82% of managers holding equity exposure, it’s a bullish signal, though not too bullish as to indicate euphoria.

The Chaikin Money Flow (CMF), a momentum indicator, has dipped below the zero line, meaning that selling pressure has overtaken buying pressure. This suggests a pullback is likely, though, given the post-election uncertainty, you’d have to watch the markets closely to see what it does.

The market is generally bullish but not by any means euphoric. The breakaway price gap you see on the chart is a very bullish pattern that, historically at least, can continue for days without the gap getting filled. With that said, potential support following a pullback will have to be measured once the pullback finally occurs (which isn’t now). But, if the near-term trend is indeed strong, expect price to remain above the support level at roughly the $5,688 range, which is also a critical swing low and support for the current trend.

In short, market sentiment is leaning toward a cautious risk-on sentiment. And despite money flow hinting at a pullback, based on the indicators, that’s likely an opportunity for accumulation rather than distribution.

At the Close

Post-election, investors appear to be leaning toward the “risk-on” vibe. Big players keep a solid equity exposure, while retail investors are more measured but still bullish. While the market’s upbeat, it’s by no means euphoric—yet. So, closely watch those support levels, sentiment indicators, and price action (namely, any pullback when it occurs) to see if this cautious optimism sticks or fades.

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.

Now that election uncertainty is over, the stock market broke out of its sideways trading range and continued higher. Potential policy implementations benefit some asset classes, such as cryptocurrencies, which could operate in a more relaxed regulatory environment.

Coinbase Global Inc. (COIN), a crypto-related stock, made it to the top of the Top Up Large Cap stocks in the StockCharts Technical Rank (SCTR) Reports on Wednesday, the day after the US elections.

FIGURE 1. COINBASE IN TOP POSITION. A 65.7 rise in the SCTR score is an impressive one day jump.Image source: StockCharts.com. For educational purposes.

The weekly chart of Coinbase stock shows a series of lower highs and lower lows from March 2024. COIN has broken above the upper channel line, but it’s just the beginning. More momentum needs to be behind Coinbase’s stock price to see follow-through in this movement.

FIGURE 2. WEEKLY CHART OF COINBASE. Since March 2024, COIN has been consolidating. With Wednesday’s price action, the stock price broke through the upper channel of the consolidation pattern.Chart source: StockCharts.com. For educational purposes.

The daily chart (see below) shows that the uptrend has started. Coinbase’s stock price gapped up and closed near its daily high on strong volume.

FIGURE 3. DAILY CHART OF COINBASE. Wednesday’s gap up in COIN is encouraging. Will there be enough momentum for a follow-through? Chart source: StockCharts.com. For educational purposes.

COIN is trading above its 21-day exponential moving average (EMA), its SCTR score crossed over 76, and its relative strength index (RSI) is getting close to the 70 level.

When To Buy COIN

I would look at the weekly chart to identify the entry point. Since COIN has broken out of its downward channel, an ideal scenario would be if the stock price pulled back a bit and reversed, at which point I would look for an entry point at around $250. The RSI should also be greater than 70. The first resistance level to watch for would be around $265, a previous high. If COIN pushes through that level, the next level would be $280. It could go even higher if the momentum is behind it. COIN’s all-time high is $429.54.

If owning shares of Coinbase is a stretch at current price levels and you have signed up for the OptionsPlay Add-on, consider trading options on the stock. Below the chart, under Tools & Resources, click on Options, then the OptionsPlay button.

FIGURE 4. OPTIONS STRATEGIES TO TRADE COINBASE. You can see up to three optimal options strategies depending on your directional bias and implied volatility.Image source: StockCharts.com. For educational purposes.

By default, three strategies will be displayed for a bullish scenario. In the screenshot above, the Jan 17 250/340 call vertical has a relatively decent reward for a max risk of $2,600. Click the expand icon at the top right to see more details.

The stock trend doesn’t meet this trade’s requirements. You could modify the legs to see if another strike price or expiration will meet the trend requirement. Another option is to close this window and try out a bearish or high implied volatility environment to see if you get a more optimal strategy.

FIGURE 5. CALL VERTICAL DETAILS. You can get more granularity for the call vertical when you click the expand icon. All except stock trend checks off in the strategy checklist.Image source: StockCharts.com. For educational purposes.

Once you’ve found a strategy you’re comfortable trading, click the Trade button and copy the trade to your trading platform if you have an options-enabled trading account.

The Bottom Line

Coinbase stock has the potential to rise higher, but a one-day jump in price shouldn’t be your entry criteria. You must still analyze the chart and decide on an entry and exit point that works for your risk tolerance level. Add COIN to your ChartLists and, if possible, set an alert for an entry point. Once you have a position open, follow smart risk management strategies and be prepared to exit a position once it has crossed your exit threshold. You never lose money when taking profits early.

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.

In this exclusive StockCharts video, Joe shows a specific trade setup in multiple timeframes that identifies the start of an important trend. He explains the 4 keys to this setup and shows 5 examples of stocks meeting the criteria right now. Joe then covers numerous indices, commodities, 10-year Rates, and Bitcoin, and how they are reacting to the election. Finally, he goes through the symbol requests that came through this week, including AMZN, AAPL, and more.

This video was originally published on November 6, 2024. Click this link to watch on StockCharts TV.

Archived videos from Joe are available at this link. Send symbol requests to stocktalk@stockcharts.com; you can also submit a request in the comments section below the video on YouTube. Symbol Requests can be sent in throughout the week prior to the next show.

Back in the day, I used to look at the weekly S&P 500 chart every weekend and ask myself the same three questions:

1. What is the long-term trend?
2. What is the medium-term trend?
3. What is the short-term trend?

My goal was to make sure that I was respecting the broader market direction, and not fighting it by taking too many contrary positions in my portfolio.  I eventually realized through some trial and error that I could use a series of weekly exponential moving averages to get me to the same place, allowing me to spend more time focusing on what was coming next.

The Construction of the Market Trend Model

As I discussed with Mike Turner in a recent episode of the Market Misbehavior podcast, staying on the right side of market trends is arguably the most important role for any investor.  I realized that by comparing the 21 and 34-week exponential moving averages every week, I was able to clearly define uptrends and downtrends over long-term time frames.

Our short-term Market Trend Model turned bearish on November 1, 2024.

To try and address the lagging nature of such a long-form moving average combination, I added the 5 and 13-week exponential moving averages and found that the signals provided gave me a better signal to track what I consider the medium term time frame of about a couple months.  

I finally added a short-term signal, making a comparison of Friday’s weekly close to the 5-week exponential moving average.  As you can see from the chart above, the PPO indicator allows a very easy and visually attractive method to track these comparisons and recognize shifts from bullish phase to bearish phase.

The Short-Term Model Turned Bearish… Now What?

On Friday, November 1st, the short-term model turned negative for only the fourth time in 2024.  Previous bearish signals in August, July, and April had lined up quite well with tactical pullbacks within the fairly consistently bullish year of 2024.  But note how the medium-term and long-term models are still firmly in the bullish camp?

For now, the current configuration makes me comfortable labeling the current trend as short-term bearish but still long-term bullish.  As we’ve noted in recent weeks, the market breadth indicators I follow have certainly suggested a bearish tilt as they have trended lower into November.

But the point of the Market Trend Model is to show how short-term weakness can often occur within bullish primary trends.  The key is to differentiate between the garden variety “buy on the dips” pullback with a pullback that may be the beginning of a more significant drawdown.

Learning From Previous Market Cycles

Look back at 2021 for a similar example of long-term primary uptrend with a series of short-term bearish signals along the way.  Even as the S&P 500 a remarkably strong and low-volatility uptrend, there were a number of hiccups that caused the short-term model to turn negative.

The key in 2021 was that the medium-term and long-term models remained bullish, at least until they didn’t!  In January 2022, the short-term model turned bearish again, and a couple weeks later, the medium-term model pivoted to a negative signal as well.  The long-term model followed suit in May 2024. 

You can add the Keller Market Trend Model to your Market Dashboard!

For now, I’m watching the medium-term model closely for a potential bearish reversal.  If that comes to pass in November, that would mean that once again the market is resisting the normal seasonal tendencies and showing weakness where there is often strength.  But if the medium-term model remains bullish through year-end, that will tell me to remain positioned for potential further upside as the market trends remain positive.

I am a big fan of analyzing price action using subjective methods to evaluate trends based on the traditional tools of the technical analyst.  And I’m also a big fan of making life easier, using systematic trend-following models to make sure I’m on the right side of the primary trend in the markets!

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

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.