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The Price Action Lab Report-Week of November 13, 2023 [Premium Articles]

Photo by Burak The Weekender

The market is bullish. Lowest breadth in 25 years. The pair trade of 2024. An illusory correlation because evidence-based analysis is all that counts. Access to the full report requires a Premium Articles or All-in-One subscription.

Report contents

  1. Weekly Summary
  2. The Pair Trade of 2024
  3. Stock Market Analysis
  4. Commodity Market Analysis
  5. Bond Market Analysis
  6. Forex Market Analysis
  7. An Illusory Correlation

1. Weekly Summary (November 6–November 10, 2023)

  • Stocks and bonds gained amid expectations of a Fed pause.
  • Bond yields rebounded slightly after plunging the previous week.
  • Commodities fell, and the US dollar ended the week higher.

The market ignored warnings from the Fed Chairman the previous week about interest rates staying at high levels for longer than initially expected and also from Fed members insisting that rates may have to even rise if inflation persists. How information and news are interpreted determines price action, and those are complex processes that take into account other factors, possibly geopolitical at this time.

Large-cap stocks (SPY), the NASDAQ-100 (QQQ), and the Dow Jones Industrial Average (DIA) gained 1.4%, 2.9%, and 0.7%, respectively. The S&P 500 low volatility index (SPLV) fell 0.2%. The S&P 500 high beta index (SPHB) gained 0.1%. Small caps (IWM) plunged 3.1% and gave back nearly 50% of the gains of the previous week.

The 10-year note yield rebounded seven basis points to end the week at 4.63%. The TLT ETF gained 0.4%. Commodities (DBC) fell 2.6%, mainly due to a broad sell-off. The US dollar index (UUP) gained 0.8% amid geopolitical turmoil. Gold (GLD) ended the week down 2.9% on the back of a strong US dollar.

Year-to-date, tech stocks (QQQ) are up 42.7% and down 5.1% from all-time highs. Large caps (SPY) have gained 16.5%. Gold (GLD) is up 5.8%, and crude oil (USO) is gaining 2.4%. Commodities (DBC) are down 2.5% for the year. Low-volatility large-cap stocks are losing 4.5% year-to-date, while high-beta large-cap stocks are up 10%.

Since last year, large caps (SPY) and tech stocks (QQQ) are down 4.7% and 3.8%, respectively. Small caps (IWM) are down 22% since last year, while bonds (TLT) are losing 37.5%. Tech stocks (QQQ) have the strongest 252-day momentum at 44.7%, with large caps (SPY) following at 19.6%. Commodities (DBC) and bonds (TLT) have a negative momentum of -4.9% and -3.9%, respectively, with the former in a downtrend and the latter in an uptrend.

Despite the strong gains in tech stocks and large-caps year-to-date, the market breadth is low.

The SPY ETF is up 16.5% year-to-date, while the equal-weight ETF (RSP) is up only 1%. See this Substack article for more details and statistics. The spread year-to-date is at two standard deviations and is the largest since 1998.

2. The Pair Trade of 2024

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Specific disclaimer: This report includes charts that may reference price levels determined by technical and/or quantitative analysis. No charts will be updated if market conditions change the price levels and/or any analysis based on them. All charts in this report are for informational purposes only. See the disclaimer for more information.

Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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