The trading in the first week of 2024 has shown some signs of distribution in the NASDAQ and S&P 500.  But no signs of distribution in the DOW stocks.  We talked about the DOW being left in an extremely overbought position in our last blog.  An overbought position never leads a severe selloff immediately.  An overbought momentum can be absorbed through sideways trading.  This is how the DOW is digesting the overbought position right now.

Below is the NASDAQ daily chart showing the distribution since December 20, 2023.

On December 20, 2023 the market plunged in the middle of the trading day due to a rumor related to Taiwan.  Since December 20, 2023, the NASDAQ had two more distribution days.

A distribution day is a significant decline in a major stock index in higher trading volume than was seen in the previous session. IBD defines a “significant decline” as a drop of more than 0.2%, with no rounding up to get to 0.2% allowed.

A distribution day indicates unusually heavy selling by institutional investors, the heavyweights who largely set a market’s direction.  Four or five distribution days over several weeks nearly always signal that stocks have topped and are heading for a downturn. That’s similar to how persistent headaches, coughs and sneezes suggest that you ought to call in sick and break out the chicken soup.

Since the DOW has not been acting accordingly with the NASDAQ, it means that the selloff in the NASDAQ provided a buying opportunity.

Also from cycle perspective, it is 10 weeks into the current weekly cycle and 22 days into the current daily cycle.  A half weekly cycle bottom and the second daily cycle bottom within the current weekly are due together.  Both bottoms are within their perspective bottoming timing band.

 

If we see the market rises out of the 01/05/24 bottom, we could reasonably expect the market to take out the 12/28/23 high and make a new high before retreating to make a weekly cycle bottom in Q1 2024.

The jobs numbers released last Friday were pretty strong.  It looks like the recession is pretty much pushed further down the road.  The market didn’t selloff last Friday based on the good jobs numbers.  In the past, the market has been fearful of the Fed to raise interest rates to infinity whenever a strong economic data was released.  The benign reaction to the strong jobs numbers showed that the market is convinced that the Fed is done with raising rates.

The Q1 earnings season will start with the banks next week.  No one is expecting a terrible Q1 earnings season in general.

Apple had two major downgrades to start 2024.  We believe Apple stock has peaked.  Probably it’s going to be a value trap from this point on.  It is selling very expensive now, but soon it will become a value stock.  The revenue lost in iPhone sales will never be replaced by the growth in service and other hardware.  Also Apple is a perfect victim if there is a cold war or armed conflict with China.  Apple is behind in the AI arms race.

Below is the board for the largest market cap companies in the last 23 years.  Will Apple and Microsoft in this board in December 2030?  Probably not.  New AI winners will show up in the coming decade to claim the titles.