Despite the major earnings miss from Google, Microsoft, Amazon and Facebook last week, the DOW picked up the slack from the NASDAQ and is on track to be the best month since 1976! The pundits were worried about the mega tech earnings miss to lead the market to continue the crash, but the worry was blown away by the revenge from the old economy. The market can rally without the mega tech’s participation. There is a new leadership in town!
Old pharma Gilead Science (ticker GILD) had a best week in a very long time. GILD reported a not so great earnings for Q3, but was able to show investors a new growth engine in oncology drugs. Gilead topped in June 2015 and made a crash low in June 2017 because the previous AIDS medicine growth engine was going away. The stock has been in a dog house bottoming process for the last five years. It had a short pop for the Coronavirus medicine, but the stock price pop was not sustained due to the effectiveness of the medicine. This time the fundamentals and technicals are working together pointing to a new bullish trend in GILD. GILD had a breakout last week.
Old economy Caterpillar (ticker CAT) had a great week too. The industrial group ETF XLI is outperforming the tech XLK too. The various winners in old economy came back like revenge. The mega tech is no longer in leadership position. The mega tech stocks have been over owned since 2010, therefore they are highly valued. The process of rotation to old economy stocks will create various winners while the mega tech stocks will remain stagnant/under performing. New money will try to find new leadership. This rotation reminds us about the bull cycle from October 2002 to October 2007. The bull cycle of October 2002 to October 2007 was driven by commodity and housing boom. Tech as a group was not in leadership position, but the super growth stock such as Apple was a super winner in the bull cycle October 2002 to October 2007. In other words, during a bull cycle that’s driven by old economy such as industrials and energy, the tech group will be under performing. But still, a few super tech winners will shine despite the fact that the mega tech is not in favor.
Below is the S&P 500 weekly chart. The mid October bottom is confirmed. It is now 2 weeks into the current weekly cycle, which is expected to last till year end. Next week is the November Fed meeting. There will be volatility around the meeting announcement, but the volatility should be short lived. The weekly cycle will continue as it is supposed to.
The mid October low is 31 months from the start of the 4-year cycle March 2020 low. 31-month is shorter than the average 4-year cycle length. In the past 4-year cycle counts since 1917, the shortest 4-year cycle length is 32 months. So we are highly suspicious that the mid October low is the 4-year cycle low. It is more trustworthy if this low is in Q1 or Q3 2023.
While the bottom is not in yet, but the process of forming a new leadership has begun. We will send out emails around the Fed meeting next week.