Surfing the market waves. Update on the pair trade of 2024. The rising debt regime. Two correlations that explain the macroeconomic landscape. You can subscribe to newsletters written by gold coin dealers in disguise or to the Price Action Lab Report. It is your money and your choice. Access to the full report requires a Premium Articles or All-in-One subscription.
Report contents
- Weekly Summary
- Update On The Pair Trade of 2024
- Stock Market Analysis
- Commodity Market Analysis
- Bond Market Analysis
- Forex Market Analysis
- Two Correlations
1. Weekly Summary (November 13–November 17, 2023)
- Stocks and bonds gained for the third week in a row.
- Bond yields fell on expectations of rate cuts in 2024.
- Commodities were steady due to gains in precious and base metals.
A better-than-expected CPI report ignited a rally in bonds and stocks and sent these markets higher for a third week in a row. Despite allegations of a change in the calculation method, an unchanged CPI in October on a seasonally adjusted basis versus a 0.4% increase in September raised hopes of a soft landing this year and rate cuts next year.
The favorable economic conditions equity investors expect soon could occur, but the odds are low in a highly uncertain geopolitical environment. Whether the excitement and rally in equity prices were due to wishful thinking or were realistic will be known only in hindsight. Selective perception bias has led many fundamental analysts to look only at economic variables and indicators that confirm their expectations while ignoring those that do not. It is challenging for investors and traders to navigate the current fundamental, but also technical, analysis landscape. Most fund managers talk their books, and analysts are struggling with data that has been contaminated by recent extreme events.
Large-cap stocks (SPY), the NASDAQ-100 (QQQ), and the Dow Jones Industrial Average (DIA) gained 2.3%, 2.0%, and 1.9%, respectively. The S&P 500 low volatility index (SPLV) was up 1.3%, but the S&P 500 high beta index (SPHB) surged 5.4% due to risk-on. Small caps (IWM) also surged 5.4% but are still 24.4% below all-time highs and in a bear market.
The 10-year note yield fell 19 basis points to end the week at 4.44%. The TLT ETF gained 2.3%. Commodities (DBC) fell 0.4%, mainly due to continuing losses in the energy sector. The US dollar index (UUP) tumbled 1.8% amid rising expectations of rate cuts next year. Gold (GLD) ended the week up 1.9% on the back of a falling US dollar.
Year-to-date, tech stocks (QQQ) are up 45.6% and down 3.2% from all-time highs. Large caps (SPY) have gained 19.2%. Gold (GLD) is up 7.1%, and crude oil (USO) is gaining 0.9%. Commodities (DBC) are down 2.8% for the year. Low-volatility large-cap stocks are losing 3.3% year-to-date, while high-beta large-cap stocks are up 15.9% due to a strong rebound in high-risk stocks.
Since last year, large caps (SPY) and tech stocks (QQQ) are down 2.5% and 1.8%, respectively. Small caps (IWM) are down 17.8% since last year, while bonds (TLT) are losing 36.1%. Tech stocks (QQQ) have the strongest 252-day momentum at 36.2%, with large caps (SPY) following at 15.8%. Commodities (DBC) and bonds (TLT) have a negative momentum of -6.5% and -8.3%, respectively, with the former in a downtrend and the latter in an uptrend.
Large-cap market breadth remains low despite the recent rally. The SPY ETF is up 19.2% year-to-date, while the equal-weight ETF (RSP) is up only 4.4%. Furthermore, 261 stocks in the S&P 500 are 20% or more below their all-time highs, while 217 stocks are down year-to-date. The market equation is complex, and the solutions going forward are both real and imaginary. Separating imagination from reality and surfing the market waves will be a challenging task for market participants for the next six months, at least.
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2. Update On 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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