Whatever the Fed officials said about the timing of the anticipated rate cuts didn’t do a thing to scare the market.  Instead, the market grabbed on everything TSMC said about AI chips.  The S&P 500 powered through the potential double top formation we talked about in our last blog to make a new high last Friday.  Essentially, the rally started from October 2023 is continuing.  But the small caps rally is fading away.  The small caps joined the S&P 500 to rally from the 10/27/2023 to 12/27/2023.  The small caps and equal weighted S&P 500 failed to performed with the cap weighted S&P 500 in January 2024.  This means that the breadth is not expanding.  The AI chip makers Nvidia and AMD are leading the market.  It is the same story as what powered the tech rally in 2023.  The year-end small caps rally was due to short covering.

The fading away small caps rally made us contemplating the nature of the October 2023 bottom.  Perhaps this October 2023 bottom was not the four-year cycle (March 2020- ???) bottom.  If the October 2023 bottom was truly a four-year cycle bottom, the animal spirit should last more than two months.  The small caps need the Fed to cut rates to get a life where Nvidia has so much money that’s not impacted the interest rates at all.

From the small caps vantage point of view, the stock market has not entered a new bull cycle.  It is in the late stage of the current cycle.

How high will this S&P 500 rally go?

Below is the S&P 500 daily chart.

In this chart, you will see that:

  1.  The previous double top formation is voided.
  2. At this all time high level, the momentum will continue to go up until the price reaches a ceiling or something very bad happens.
  3. We see 5000 is a serious resistance for the S&P 500.
  4. Will the mega tech earnings  to stop this rally?  It is not good for the S&P 500 to sit at a new all time high before the earnings report.  The expectations are too high.
  5. It is wildly expected for the Fed not to cut interest rates in January Fed meeting, perhaps the January Fed meeting will be no event for the market.

So we have to wait to see how the market reacts to the Q1 earnings.  Or we may have to wait until the March Fed meeting.  Regardless timing, 5000 is a very serious level for the S&P 500 to overcome.

The S&P 500 is 12 weeks into the weekly cycle and 9 days into the 3rd daily cycle.  The rally phase can stretch further in terms of the cycle locations.

We are still holding Palantir stock.  Palantir will report earnings on February 5, 2024.  PLTR stock probably has found a bottom around 15.66.  It closed two weeks in a row at 16.76 and 16.78.  This type of tight weekly closings show accumulation in the stock.  13.68 is a very serious support for PLTR.  So if it goes down to 13.68 either before or after the earnings report, it is a buying opportunity.  It is better for a stock to perform if the stock is low before earnings.  The expectations are not high to outperform.