Stock Talk - Why Even Bulls Need to Rest: Market Caution Ahead | S&P500=5000

Starting point is 00:00:00 While the O'Carvis investment management team has been decidedly positive and bullish for the last 15 months, with the S&P 500 already trading near our in-print forecasts of the first half of 2024 of 5,000, I feel compelled to throw up a few yellow caution flags here. Yes, investors, the market's keen continue to move higher throughout the first half of 2024. Our team has publicly discussed 5150 to 5200 as the cash S&P 500 not being out of the question. discussed numerous times over the last 15 months, the markets, particularly the NASDAQ index, which is very heavily weighted towards technology stocks since the October 2022 lows, continues to follow the path of the great.com internet buildout that span from October 1998 through March of 2000.

Starting point is 00:00:50 While many others were shouting for market crashes, we didn't see this as likely at all, and saw the setup is very positive, including into the 2023. October lows on the SP 500, near 4,100, which so far has been about as big of a buy as we've rallied about 800 points ever since. At this point, I believe caution is warranted over the short term. Barish Fuse, no, caution, yes. Hence, the title of this week's episode, even bowls need a rest, usually in February. Why? Let me step through a few of the reasons over the next couple of minutes. Okay, first investors, I'm going to update a few charts that most of my friends and business associates for over a year have looked at, nodded,

Starting point is 00:01:32 and moved on very quickly. The first chart is an overlay of the NASDAQ composite index, which is largely large-cap tech stocks from October 2022 through currently February 2nd, and October 1998 through March 2000, which is the top of the early internet buildout. Investors, the overlay continues to be unbelievably tight, even having a short-term trading buy on the NASDAQ, Market on close on Wednesday, January 31st. The NASDAQ also pulled back in late January of 2000 into a short-term buy. Investors, the S&P 500 overlay has diverged a little bit over the last two weeks from the early 2000 pattern, but I'm pretty sure I know the reason why. First, here's that updated chart. The reason why is the index weight in the SP 500. Today, those weights are even more heavily skewed towards technology, communication, and growth stocks, such as Amazon. First, back then in 2000.

Starting point is 00:02:26 Back then, those groups accounted for nearly 35% of the SP500 during the peak of the dot-com bubble in 2000. Investors right now, those groups and names are actually approaching 45% in today's market. Investors, today, the leadership in the market looks a lot like it did last year in 2023. And because of that, the S&P didn't pull back in late January yet. But Chris, the overall markets are hitting new all-time highs. Why should I be increasingly cautious in the short term? For these answers, I'm going to reference a few of the same technicians in market historians I gave props to last week. First off, even during the great dot-com bubble run of 2000, February was a month of volatility.

Starting point is 00:03:08 More specifically, back then, the markets peaked on the second Friday of February and sold off into month then. The NASDAQ index dropped about 5% back then peaked a trough, and the S&P 500 dropped about 7.5% before resuming the run to new all-time highs in the first half of 2000. The second Friday in February happens to be today. It also happens to be nearing the window for insiders at corporations who are locked up from selling stock during most of the quarter to finally be in the market to sell some of their stock. If you had gains like they did, wouldn't you look to sell some stock if you were an insider at Amazon, Meta, or any of the other big tech companies? Wouldn't you be interested in taking some gains in a new tax year?

Starting point is 00:03:51 I would. Behind the scenes, things aren't as rosy in the overall markets in the S&P 500, as the NASDAQ is saying. As J.C. Parrots noted, about a week ago, divergences throughout the markets are starting to get bigger and add up in a negative manner. Here are two charts he points to. The first is a chart of the breadth of the market as measured by the S&P 500 stocks above their 50-day moving averages versus the S&P 500. Investors since mid-January, there's been a sharp falloff in the number of stocks with positive charts versus the negative charts. All the while, the SP 500 is made new all-time highs.

Starting point is 00:04:27 This is called a negative divergence and throws up a big yellow caution flag for what it's worth. These are the same measures JC used in early third quarter of 2022 to call the bottom of the market for his clients. Back then, the number of positive charts was growing while the S&P 500 was making new lows or looking negative for most people. That was a positive divergence and got J.C. bullish, and right, long before most others. A second warning that our team is noted over the past two weeks in podcasts, and J.C. throws up in his latest work, is the divergence in the DXY index, the broad dollar index, and the S&P 500. Recall back in late October when we expressed optimism for a strong fourth quarter rally because the dollar had begun weakening

Starting point is 00:05:13 versus other currencies. A gently weakening dollar is most often associated with, rising stocks as investors are broadening their desire to hold risk assets. Like it or not, doomsday dollar calls or not, the dollar is still the reserve currency of the world and investors run towards it, not away from it, when they are scared or looking at taking less risk, not more risk. Since late January in the first week of February, the dollars had a strong move up, even though stock indexes have continued higher. But to investors, it's another yellow flag in the short term. We've discussed market seasonality many times before using data from Steve Sutmeyer's group at BAC Securities. Historically speaking, February is one of the worst months in the first half of the year.

Starting point is 00:05:58 Maybe Don McLean was long with stocks when he sang, February made me shiver in his famous American Pie song. Here's Steve's great table for the fourth year presidential election years. As one can see, there haven't been a lot of great February's for the stock markets returns historically. As for Larry Williams and his thoughts on this time of the year and stock return, his is very long-term daily cycle projection for 2024. This has been taken from Larry's 110-page 2024 forecast. When you're looking at this chart, you're looking at the red line for the projection of the path of 2024. The black bars are the actual market price moves since last June. This cycle chart called the fourth quarter 2023 rally almost to the day.

Starting point is 00:06:43 Having a short-term peak this week for the last three weeks. weeks of February before re-accelerating up for more new all-time highs, spot on with Larry's historical cycle work. Finally, I'm going to have to leave you with one more chart that screams to our team short-term caution. This is the chart of the 10-year real interest rates. That's the rate that most controls a forward PE multiple than investors are willing to pay for stocks. It had a trend change that was positive for stocks in late October when others were speaking of doomsday and crashes, and it's now telling our team to proceed slowly and with caution, as this interest rate has historically pulled down stocks.

Starting point is 00:07:20 Investors, thank you for taking the time this week to watch, and I hope you forward this link to your friends and others who have an interest in the financial markets. It's exciting to follow up last week's piece, which was titled, Technically Speaking, and was a shout-out to a group of analysts we follow with a follow-up piece showing you what data we're keying off of that rarely shows up on TV.

Starting point is 00:07:40 From the whole team here at Oak Carvis, Have a blessed week and a fantastic February. Our team is actually hoping that this February is quite normal and it makes others shiver to give us lower prices and a good buying opportunity for our clients. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created,

Starting point is 00:08:05 but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed here, herein may change without notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index.

Starting point is 00:08:37 Specific portfolio actions or strategies discussed will not apply to all client portfolio. Investing involves the risk of loss and past performance is not indicative of future results.

Stock Talk - Why Even Bulls Need to Rest: Market Caution Ahead | S&P500=5000

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.