In our last Sunday blog, we saw signs of a slowing rally. But last week’s trading promptly reversed the weakness.  This reversal actually produced a daily cycle bottom in all three major indexes.  We will have inflation data and Fed rate decision next week.  By forming a daily cycle bottom one week ahead of important fundamental catalysts, somehow the market is forecasting that the market will go up next week.

There are many other unforeseen factors that can alter the prospects for the future. Cycle analysis does not pretend to forecast what will happen in the future, just that some event will occur to move prices in the direction of the cycle. We don’t know what the inflation data and Fed rate decision will be in advance, but we’re reasonably sure that the existing cycle will continue unless the time is up or meeting a significant price target.

Currently all the major indexes are only six weeks into the weekly cycle off a seasonal low location.  Typically this type of weekly cycle would have 5-12 weeks of rising phase which gives plenty of time for this weekly cycle to rally into the year-end.  Especially we now have a clear reading on the daily cycle, which gives us the confidence to call on the resumption of the year-end rally.

Below is the NASDAQ daily cycle chart.  You can see that it took 26 days (much longer than the average 18-day cycle length) to finish the first daily cycle.  And the correction from the daily high to low is very mild.  This type of elongated daily cycle happens in a very bullish environment.  The mild correction (less than 23.6%) also attests to the strong bullishness.

The S&P 500 and DOW both took out the July 2023 high already.  The NASDAQ is just a hair below the July 2023 high.  We believe that the NASDAQ will push through July 2023 high next week.

That being said about the resumption of the year-end rally, we do have concerns about the duration of this rally.  The main concerns are the leading stocks such as Nvidia and Palantir.  These two AI stocks are the reasons for the 2023 rally.  Nvidia and Palantir are falling behind the year-end rally while the lesser quality small cap stocks are leading.  This is a warning that we can’t ignore.  Nvidia reported a fabulous Q3 earnings and gave great forecast.  Nvidia can’t pass old high after such a shockingly good earnings report.  Could it be topped already?  It is not breaking down because of the present general bullish sentiment.

RH Hardware stock is the bellwether of high end consumer spending.  RH stock tanked after an underwhelming Q3 earnings report.  Consumer is slowing down and economy is slowing down too.  It is just not that terrible yet.

All eyes are on how the stock market behaves in the first month of 2024.