Quite a few pending catalysts will test the durability of this unrelenting mega tech led rally this coming week.  First is the Fed meeting decision on Wednesday, then we will have AMD, Google and Microsoft report earnings on Tuesday, 1/30/24.  Finally Apple, Amazon and Meta will report earnings on Thursday 2/1/24.  Lastly, three US service members were killed in Jordan near the border with Syria over the weekend.  This is a new level of confrontation with Iran.  The US will retaliate, hopefully it will not develop into a regional war, a regional war beyond Gaza strip.

The stock market is clearly in an overbought condition and is more sensitive to external shocks to have a correction.  The stock market is more dangerous when it is overbought, but safer when it’s oversold.

When the market rallied out of the 10/27/23 bottom, the small caps joined the rally as well because the Fed openly said about being done with raising interest rates.  The small caps rally soon fizzled in the beginning of 2024 because the Fed interest rate cut decision is to be determined.  The monetary conditions for the small caps are the same today as in last October 2023.  The small caps just had a short covering rally.  The economy is doing well therefore less urgent reasons for the Fed to cut interest rates.  The small caps rally from the October 2023 low is a head fake of the start of a new bull market.

Underneath the S&P 500, there are eleven sector ETFs.  Only two sector ETFs have made a new high that is in sync with the S&P 500. XLK (tech) and XLI (industrials) made a new high.  XLF (financials), XLF (discretionary), XLP (staples), XLE (energy), XLV (healthcare), XLB (materials), XLRE (real estate) and XLC (communications) all failed to be in sync with the S&P 500.  This is alarming, meaning the S&P 500 high is not trustworthy because it is driven by the few safety stocks.  The S&P 500 will have to come down to meet with the nine sectors to make a low together to finish the 4-year cycle.  We expect the pending selloff to create a synchronized low among the eleven sectors and finally a new bull market can start.

It is very plausible for the market to react negatively to the mega tech earnings to start the correction process.  We are at a time that it’s better to stay out of the market, can’t go long, can’t go short either.

Tesla had a terrible earnings report.  Tesla is clearly hurt by the Fed’s high interest rates since car sales are very sensitive to interest rates.  The other magnificent mega techs are not interest rate sensitive at all.  When you need an iPhone, you will buy it without thinking about interest rates.  Tesla stock is another indicator for a new bull market.  When Tesla stock starts to behave stronger than the S&P 500, you know it is a new bull market.

Below is the S&P 500 daily chart.  It is 14 days into the 3rd daily cycle and 13 weeks in the weekly cycle.  It is in the timing band for the weekly cycle to go down.  We have to wait to see it start to go down.  We can’t just start to short the market because it is in the top timing band.  Need confirmation before action.