As we review 2023, let’s apply one of Marty Zweig’s mantras to 2024: “The market is smarter than I am, so I bend.” At Day Hagan, we bend by following objective models and indicators—overweighting statistical probability and underweighting emotion.

2023: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair….”

The broad market started participating/outperforming on November 13. While this is supportive of equities, it also helped produce extreme bullish sentiment readings. This condition will likely persist into year-end. We will watch to see how this condition resolves as 2024 starts and we get past the first few weeks of new-year flows.

Following this week’s macro events (CPI earlier today, PPI & FOMC policy and Q&A Wednesday, Retail Sales and global Central Bank policy Thursday) and year-end tax loss harvesting, equity market trading is likely to slow into the holidays and year-end. Let’s consider a possible 2024 scenario.

With several internal equity market measuring tools closing above some previous peaks (resistance points), last week’s tape action was more about stocks other than the “Magnificent 7” that has been the focus of Wall Street for much of 2023.

Resistance in the SPX may produce some profit-taking, but the quality of any pullback period that may occur will be an important guidepost in determining if a long-term topping process is developing. Considering favorable seasonals, the Bulls have the ball.

Apart from last Tuesday’s “Everything Rally,” during which advancing volume and advancing issues traded on the NYSE were 90% of total volume and total issues traded on the NYSE (bullish), the ensuing tape action displayed by the S&P 500 (SPX) resembled a sideways drift after encountering resistance and sentiment reached “excessive optimism” levels.

Interest rates, energy prices, and the U.S. Dollar moved lower last week following softer macro data, dovish remarks from Chairman Powell, and a less hawkish Bank of Japan policy tweak. When combined with outsized CTA short positioning, a squeeze occurred. This produced an impressive topside move by all domestic equity market proxies. This now begs the question, “What’s next?”

What you see is largely a function of where you sit. And when it comes to 2023, you are either espousing “peace on earth, good will to all” or you are thinking about how 2023 has offered up many “tricks” with only a few, very select “treats.”

Considering the plethora of forces moving markets (CTA positioning, bristling geopolitics, mutual fund year-end and individuals’ tax-loss selling, dysfunctional domestic politics, QT, sentiment extremes, EPS expectations, slowing/accelerating economy or both, etc.), it’s concerning that Wall Street continues to espouse specific levels of importance for equities and interest rates. Rarely are things on Wall Street as simple as they seem.

The stocks holding up the major domestic equity market indexes (Magnificent 7, Elite 8, Big 9) have yet to break down below their late September-early October lows. But away from this complex, plenty of selling has been occurring underneath the surface. I recommend following the NYSE Fang Plus Index as a guidepost.

My wife calls me the “Question Man” because I am usually peppering her with questions about “things and stuff” which are probably insignificant to her. To me, not so much.

“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."

Given the S&P 500’s bearish reversal in late July, early August downside follow-through, & poor seasonal factors, the challenges faced by equity markets have consistently built up. This includes deteriorating price-related guideposts (breadth, new lows, selling volume over buying volume, trend, risk-off sectors outperforming, etc.), plus a more hawkish Fed.

“A growing expectation that the Fed will keep interest rates higher for longer threatens to stifle the tech-stock rally, potentially dimming the outlook for indexes heavily influenced by the sector.” ~Wall Street Journal, emphasis mine.

Labor Day is a celebration of the social and economic achievements of American workers. In my opinion, Wall Street is a similar celebration and reflection of the ingenuity and entrepreneurial desire of the human spirit. And last week, Wall Street celebrated.

Following recent near-term positive/supportive oversold stochastic levels accompanied by large intraday price swings, the S&P 500 just posted its first positive week in August, breaking a 3-week downtrend. If stocks have settled down, this begs the question…What’s the Next Card in the Deck?

Higher interest rates are weighing on equities, and focus will be on the Fed’s conference this week.

Considering the S&P 500’s (SPX) bearish short-term Outside Reversal and move below support, the SPX’s target being met, excessively optimistic sentiment, and a seasonally sloppy period for equities (August/September), Wall Street’s narrative has been about both bullish and bearish non-price-related macroeconomic themes.

This week's Tech Talk highlights the S&P 500's proximity to resistance levels, indicating a potential short-term pause/pullback. The achieved 4600 target came with a potential bearish "Outside Reversal Day" pattern. Gasoline's positive momentum remains bullish. Market trends may develop over months, not days.