Market Timing and Price Projections: Intraweek Update December 14, 2023

Table of Contents

1. Introduction

2. Cycles Update

3. Major Indexes Cycle Price Projections and EW Count …

4. VIX Update

Introduction

Did we have today a buy the rumor (no more FED’s interest rates increases) sell the news scenario? Usually, post-FED FED market gains/losses are reversed in the next couple of days. Overall, the sentiment, technical indicators, cycles, and EW counts suggest the market is about to top soon, which is somewhat in contrast with the usual second half of December's positive seasonality.

• The CNN sentiment index in Figure 1 is in the high greed territory and most indicators are in the extreme greed range. CNN rates the volatility as neutral, while I personally consider it as extreme greed. Also, CNN rates the 20-day bonds vs stocks spread as a fear, though there is no fear in the market, the bonds' outperformance is due to different factors, such as being extremely oversold. Thus in my opinion I would consider the sentiment to be extremely greedy.

  • Note that the sentiment indicators are not short-term timing signals but rather descriptive of the state of the market. Though when in the extreme territory one could take a contrarian stance.

• SPX technical picture is shown in Figure 2 – “Running on Fumes!”

• SPX/VIX ratio is at historic highs. Extremes in this ratio usually precede significant corrections but could be early by several days/weeks, as illustrated a week ago on a weekly chart.

• NYSE Volume Adv/Dec line is strongly diverging relative to SPX!

• NYSE McClellan Oscillator is also negatively diverging relative to SPX!

• RSI and MACD eliminated negative divergences at the potential peak, for now, but RSI is extreme. Most of the time SPX peaks occur with negative divergences in RSI but sometimes, in extreme overbought markets, the peaks in RSI and SPX occur coincidentally.

• The high volume today on a near “doji” (Japanese candlestick) in SPX I consider as a sign of distribution and not a positive sign.

• The market breadth improved somewhat last two days due to exceptional strength in Russell 2000.

• Overall, the longer-term picture is bearish, but in the shorter term, there is still potential for higher, rallying on the fumes (low volume and weak A/D line), but supported by cycles, EW counts, and seasonality, but not much longer, in my opinion.

• Although the stock market indexes may make one more down-up sequence, I think the game should switch from buying the dip (BTD) and selling the rip (STR) to STR and raising cash as it is risky to chase that one last push higher because sometimes it does not occur (say due to a wave truncation)

Multiple cycles are expected to peak between yesterday and mid next week, +/-, suggesting a high of sorts.

EW counts of SPX, NDX, DJI, and RUT, are almost complete but ideally, most of them need one more down-up sequence. and cycle projections of NDX, SPX, and DJI. Also, all indexes achieved roughly the middle of existing cycle target ranges (but could still push higher within those ranges, while NDX exceeded its target range. Also, indexes were correctively down today, in 3 waves, which increases the probability of seeing another higher high.

VIX is on the sale on Wall Street, but shows signs of bottoming, though I would not be shocked to see an additional lower low.

So, the question is whether we will have a continued rally into Christmas and Santa Claus rally. The Santa rally is more narrowly the last five days of the year and the first two days of next year. Historically, from 1950-2019 Santa Rally happened about 75% of the time. But from 2010-2020 it only happened 38% of the time. The first half of December is usually choppy and the more positive market is in the second half of December. But this year “holiday” rally started early, so maybe it will end early and we may not get the Santa rally, that many people expect. We shall see, but the factors I mentioned above suggest that there is not much more fuel in the bullish tank.

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