Expertise Hitting The Peak Of The 2024 Market Cycle With Rotation To Worth

Introduction

This text updates my outlook for 2024 with the most recent Momentum Gauge® alerts and a revisit of the January Investing Experts Podcast interview with Rena Sherbill at Searching for Alpha. This previous April 2nd marked an early damaging Momentum Gauge® check sign adopted by an official damaging each day sign on April twelfth. This text builds on prior sign occasions with extra insights on the right way to profit from modifications available in the market momentum situations.

S&P 500 weekly gauges

Final yr I shared market topping alerts from July that led to the lows in October as illustrated on the S&P 500 weekly gauges above:

Head And Shoulders Everywhere As Technology And Real Estate Breakdown

That was adopted by a November breakout sign and a robust rally to current March highs.

Breakouts Everywhere As Buffett Moves To Record High $157 Billion Cash

We are going to revisit these alerts, however extra importantly talk about the place the market could also be headed in an unsure election yr.

Expertise Hitting The Peak Of The 2024 Market Cycle With Rotation To Worth

The factor to contemplate is that we not often ever see market leaders from the prior yr be market leaders for the approaching yr. ~ JD Henning, January Podcast

And by that, I have a look at the Magnificent Seven over the previous two years, they’re again to the place they have been in 2022 on the peak and so they had fairly the trip. ~ JD Henning, January Podcast

The mega cap giants have an infinite weighting available on the market indices. They’re additionally concentrated within the Expertise sector the place Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA) and the remainder of the semiconductors like Broadcom (AVGO), Superior Micro Gadgets (AMD), Intel (INTC), Qualcomm (QCOM), Micron (MU) and plenty of others have a lot bigger market caps than different sectors mixed. In consequence I discover it crucial to observe and chart the technical indicators of BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU) representing the ten largest shares within the US inventory market.

These early breakdown alerts mixed with the AMD and NVDA inventory alerts and the Expertise sector gauges started to show damaging as early as March.

We see plenty of nice numbers from NVIDIA (NVDA), however traders typically neglect that final yr it misplaced 67% from the height. And people sorts of rides can present up once more. They are not simply one-time occasions and other people take earnings and momentum works in each instructions. ~ JD Henning, January Podcast

On the Momentum Gauge chart for Nvidia the sign first turned damaging on April tenth after which once more on April seventeenth indicating promoting alerts after months of very robust purchase alerts. Merchants additionally use the declining constructive MDA values as early warning indicators of weakening momentum.

Equally, the indications have been turning damaging on AMD again on March nineteenth. This was when Micron had a big earnings beat and the general Semiconductor image had not but turned damaging.

Since then Semiconductors have utterly damaged the constructive channel from November with (SOXL) down -25.83% in one of many worst weeks ever for semiconductors.

So the place is the rotation to worth?

Long run portfolios are based mostly on profitable worth fashions from printed monetary analysis with further enhancements utilizing the MDA methodology. These worth methods have been lined in a current Searching for Alpha Webinar with Daniel Snyder right here:

Webinar Replay: JD Henning’s Momentum Breakout Models For 2024

The January Development & Dividend long run purchase/maintain portfolio is up +15.5% YTD adjusted for dividends and has no illustration within the semiconductor shares. This portfolio is invested in low P/E, low valuation power and monetary shares with excessive dividends above 2%.

The actively traded Premium Portfolio is up +11.1% YTD and moved to money on April twelfth following the damaging S&P 500 gauge sign as a part of the principles to keep away from main market downturns because it did final week.

Previous to transferring to money the portfolio was closely weighted towards Vitality and Fundamental Supplies following the Sector Gauge breakout alerts from February fifteenth of those two sectors. A few of the shares not too long ago held over per week in the past have began to indicate indicators of restoration on Friday regardless of the big market declines.

When the Premium Portfolio restarts on the following S&P 500 constructive sign it’s more likely to return to probably the most constructive sectors and shares with good valuations for long run development.

Extra on the several types of portfolios provided in 2024 is on the market right here:

• Part 2: New Selections For 2024 Long-Term Portfolios And Their Performance Vs. The S&P 500 Since 2018
• Part 1: 5 Stock Portfolios And Their Performance Vs. The S&P 500 Since 2018, And A Huge Gap

So the place are the markets headed in 2024?

In 2024, there are issues taking place that we now have not seen in many years. One is we now have the most important ongoing quantitative tightening program from the Federal Reserve that we have seen — ever seen, and mixed with the best rates of interest, Fed funds charges in 22 years. ~ JD Henning, January Podcast

Fed Steadiness Sheet tightening liquidity again to the bottom stage since February 2021 at $7.4 trillion.

Over time, I’ve studied and written at size in regards to the quantitative tightening program and its market results since its first main implementation in 2018. Briefly, this Fed steadiness sheet tightening drains liquidity and at some threshold creates vital market volatility because it did in 2018.

It is not the mountain climbing that results in a market downturn, but it surely’s the time period when the Federal Reserve retains the charges larger for longer that has led to market corrections each single time after an increase within the Fed funds charge. ~ JD Henning, January Podcast

Again in January there was a 100% certainty of a Fed charge lower by the June FOMC assembly. To the shock of many, the percentages of ANY charge lower in June at the moment are right down to 16.6%. That is undoubtedly an surprising “higher for longer” situation that’s hostile to markets. Many corporations and customers have been banking on decrease charges and it’s particularly tough for smaller companies and corporations burdened to refinance CRE loans at a lot larger charges.

One other indicator that I feel is admittedly substantial for 2024 are the long-term bond funds. In the event you have a look at (TMF), I’d encourage listeners to try that chart and simply have a look at the superb similarities to 2022. ~ JD Henning, January Podcast

Have a look at the April breakdown in assist of the Direxion Each day 20+ Yr Treasury Bull 3X Shares bond fund (TMF) this month and you’ll see once more the robust results on the inventory market. When bonds have been rising from the October lows and yields have been falling this was favorable to a robust This autumn market rally in 2022 and 2023. Now that yields are rising sharply once more to November ranges the market has begun to tug again.

Traditionally from 1950 the weakest 6-month return interval of the S&P 500 is from Might to October. You’ll be able to see that sample clearly within the bond chart above that additionally carefully resembles market efficiency. Conversely the very best 6-month return interval has been from November to April. If the sample follows once more for 2024, anticipate chop with some good points into the summer season and one other decline into October.

So trying one final time on the S&P 500 (SPY) (SPX) Is that this a serious market prime with fast downward acceleration coming? Initially the weekly chart of the S&P 500 definitely seems ominous like the beginning of a serious decline, but it surely may very well be fairly just like the beginning of 2022. We’re beginning to see extra market outflows and rotations to worth sectors.

A detailed examination again to the 2022 prime exhibits that the Fed ended QE 4 and was simply starting the primary tightening cycle since 2018. The market volatility modified dramatically when QE was ended. Regardless of a pointy decline on the January thirteenth sign the S&P 500 continued to rebound in bearish stair steps with a sequence of frequent decrease highs and decrease lows that lasted via the lows of November 2022 proven above.

SPDR S&P 500 ETF for 2022 topping alerts

My outlook for 2024 is that the market is heading for extra damaging choppiness because the Fed continues to carry charges “higher for longer” with diminishing odds of a charge lower towards September. We are going to see many bear bounces and sector rotations just like 2022 whereas tightening liquidity and excessive charges proceed to dampen preliminary market enthusiasm.

Our greatest technique is to observe the cash flows and the very best valuations available in the market to keep away from the most important market downturns and seize the very best good points wherever doable. Generally that’s in Bull funds and generally in Bear funds following the sign modifications both each day or weekly.

Conclusion

The US Greenback is likely one of the finest indicators of cash circulation and traders’ want for security. As I all the time say,

I by no means know what the long run holds, however I do know that if the cash flows are going out, it is a good time to be a little bit bit extra cautious and focus on the extra constructive sectors. ~ JD Henning, January Podcast

I want you the perfect in all of your buying and selling selections and I’m right here to assist.

JD Henning