Just Like clockwork...

[jatelle]

Low-volume back and forth day for SPY, which gapped down afterhours below the 9EMA (blue line) and left a small unfilled Bear Gap above (shaded area), but also hammered off 470, closing higher than it opened and holding the 20EMA (pink line). Breadth is still very low as the market is slowly walking it down.
Today the Window of Weakness officially cracked open, so a shift in short-term sentiment may be coming soon. 470 is a key spot to watch as Bulls will want to protect it. If that cracks, it could mean losing the 20EMA and heading back down toward 460 in the short-term.

[jatelle]

Bulls continued Thursday where they left off yesterday after holding support. SPY now has another unfilled Bull Gap below, Nasdaq made new ATHs with high volume, while the weakest of the Indexes, the Russell (IWM) made a V shaped recovery and closed above yesterday's high. A little more Breadth came into the market as well. Window of Weakness be damned!

First OPEX of this new year is tomorrow and anything can happen. Sideways action is most likely but a sneaky rug pull wouldn’t be surprising after the last few weeks of price action and poor follow through.

[12squared]

A little more Breadth came into the market as well.

NYSE, SPX, Mid and Small Intermediate Term Breadth Momentum indices fell again yesterday - as they have since 29 Dec 23.
NYSE IT Breadth Momentum & $DWCPF
S&P IT Breadth Momentum & $SPX
Mid-Cap IT Breadth Momentum & $DWCPF
Small-Cap IT Breadth Momentum & $DWCPF

+NYSE breadth momentum 19Nov23-18Jan24.png

What do you see that is indicating "more breadth"?

[jatelle]

A little more Breadth came into the market as well.

What do you see that is indicating "more breadth"?

Yes, the overall breadth is still down yesterday but there was a little more breadth in certain key sectors particularly for the Nasdaq index:
https://ibkrcampus.com/traders-insight/ ... n-18-2024/

"Sector wise, there is negative breadth, with most sectors in decline, except for technology, industrials, communication services and consumer discretionary, which are up by 1.5%, 0.6%, 0.5%, and 0.4%, respectively."

[jatelle]

The NAAIM index came crashing lower this week which is a positive sign for bulls.

The NAAIM Exposure Index represents the average exposure to US Equity markets reported by big money managers. The primary goal of most active managers is to manage the risk/reward relationship of the stock market and to stay in tune with what the market is doing at any given time. The NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks.

https://www.naaim.org/programs/naaim-exposure-index/

[bamafamily]

Thx Jatelle.

But am a little confused. How is this a good sign for bulls if money managers are lowering their exposure to the market?

Thx
Bama

The NAAIM index came crashing lower this week which is a positive sign for bulls.

The NAAIM Exposure Index represents the average exposure to US Equity markets reported by big money managers. The primary goal of most active managers is to manage the risk/reward relationship of the stock market and to stay in tune with what the market is doing at any given time. The NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks.

https://www.naaim.org/programs/naaim-exposure-index/

[12squared]

The NAAIM index came crashing lower this week which is a positive sign for bulls.

The NAAIM Exposure Index represents the average exposure to US Equity markets reported by big money managers. The primary goal of most active managers is to manage the risk/reward relationship of the stock market and to stay in tune with what the market is doing at any given time. The NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks.

https://www.naaim.org/programs/naaim-exposure-index/

Over the past two years, peaks in the NAAIM seem to coincide with declines in the S&P. In some cases (circled) they precede a decline.

++NAAIM S&P 2023-24.jpg

[jatelle]

Thx Jatelle.

But am a little confused. How is this a good sign for bulls if money managers are lowering their exposure to the market?

Thx
Bama

The NAAIM index came crashing lower this week which is a positive sign for bulls.

The NAAIM Exposure Index represents the average exposure to US Equity markets reported by big money managers. The primary goal of most active managers is to manage the risk/reward relationship of the stock market and to stay in tune with what the market is doing at any given time. The NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks.

https://www.naaim.org/programs/naaim-exposure-index/

Hi Bama,
Generally speaking, very high NAAIM index readings like 102.71 on Dec 27, 2023 (high investment exposure) indicate that investors are really bullish, which is a sign of a market top. Conversely, very low index readings (low investment exposure) indicates that investors are really bearish, which is a sign of a market bottom. However, I was not noting the index number per se (high vs low) so much as I was noting the rate of change ("crashing") of the index #. It is not the lower index value that drew my attention as was the rate of change as this is what typically confirms market reversals both up and down. A lower market bottom will result in a lower index value. See attached examples of NAAIM index changes at previous market bottoms Note: the index values are naturally lower after deeper market bottoms.

The NAAIM index has had two large drops to start this month: the first on Jan3 (30 point drop) indicated a market top and was subsequently followed by an albeit brief one week pullback. So this second one on Jan18 (26 point drop) could arguably be a good sign for bulls since large drops in the NAAIM index, one after the other, don't tend to be duplicative/repetitive.

But of course, the contrarian in me says there is always the possibility that these two consecutive large drops in the index is sending a doubly strong message that this is a market top.

[jatelle]

The NAAIM index came crashing lower this week which is a positive sign for bulls.

The NAAIM Exposure Index represents the average exposure to US Equity markets reported by big money managers. The primary goal of most active managers is to manage the risk/reward relationship of the stock market and to stay in tune with what the market is doing at any given time. The NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks.

https://www.naaim.org/programs/naaim-exposure-index/

Over the past two years, peaks in the NAAIM seem to coincide with declines in the S&P. In some cases (circled) they precede a decline.

++NAAIM S&P 2023-24.jpg

Exactly! Your question mark says it all. How is it that this Dec 27th peak in the NAAIM index led to new ATHs just yesterday in the markets?! Large declines in the NAAIM index (like on Jan3) more often tend to lag market tops (usually a week after the market has topped). As you noted, the NAAIM index peak typically coincides with the market top but does occasionally precede a market top. But whenever it precedes it does so usually by a few days and no more than 1-week prior. I have not seen it precede a market top by 3-weeks so this is a bit unusual. Just a small correction, Feb 2023 was inadvertently circled as an example of NAAIM index preceding when actually the index peak (Feb 8) followed the market top (Feb 2).

Perhaps the NAAIM Index peak has flagged 3-weeks early because our three major indexes are no longer in lockstep together. The S&P and Nasdaq are red hot bullish while the Russell IWM (small gap and growth sectors) has been lagging. It's a crisis of breadth: some sectors (e.g. Mag7 tech) are booming while the growth sectors (EV) are not. Thoughts?

[bamafamily]

Thanks Jatelle...
Sentiment/Psychology is always a subjective indicator to me.....
I understand your viewing this as a ROC.....I tend to look at it as an OB/OS oscillator....not sure where I would draw the lines...70/30 maybe? Regardless, I think the market is way too hot...but historically that has not stopped Joe Investor from continuing to pile on....

[jatelle]

Thanks Jatelle...
Sentiment/Psychology is always a subjective indicator to me.....
I understand your viewing this as a ROC.....I tend to look at it as an OB/OS oscillator....not sure where I would draw the lines...70/30 maybe? Regardless, I think the market is way too hot...but historically that has not stopped Joe Investor from continuing to pile on....

Bama - I find the oscillators 70/30 helpful but not a reliable signal for big reversals because price can hover in the overbought and oversold zones through an endless series of price/stochastic divergences.

I share your sentiment that the market is "way too hot"...BUT as legendary market strategist Paul Montgomery used to say, "The most bullish thing the market can do is go up." But are new all-time highs for the S&P as bullish as they seem? I am of two minds: yes, the market is trending up BUT that double drop in the NAAIM Index could mean the top is in. So I would not be surprised either way if the market were to keep ripping or if it were to reverse here.

[jatelle]

Economist Cem Karsan was a guest on the Schwab Network on Thursday. He discusses this Window of Weakness that has now opened and how the demand for equities has passed which could set the stage for a correction to the downside for the remainder of January:
https://twitter.com/i/broadcasts/1OyKAWkgRyWJb

[jatelle]

The current S&P charts and technical indicators show some resemblance to late August/early Sept 2020. Attached is the S&P chart in August/Sept 2020. The NAAIM index peaked on Aug 26 before the market topped six trading days later on Sept2. After which the market pulled back for the next few weeks of Sept 2020. Of course past performance is no guarantee of future results

[12squared]

The current S&P charts and technical indicators show some resemblance to late August/early Sept 2020. Attached is the S&P chart in August/Sept 2020. The NAAIM index peaked on Aug 26 before the market topped six trading days later on Sept2. After which the market pulled back for the next few weeks of Sept 2020. Of course past performance is no guarantee of future results

Back in August/September 2020 (orange circle) the NAAMI declined as the SPX peaked. The NAAMI eventual dropped below 55 - where it stood last week.

+NAAIM & SPX 23Jun20-12Jan21.png

The current SPX rise while the NAAMI is falling looks more like late December '20 (pink circle), or June '23 (purple circle). However, in each case the NAAMI bottomed much higher (83 & 76 respectively) than it is today: 54 (red line).

+NAAIM & SPX 28Nov22-16Jan24.png

[jatelle]

Low volume Inside Day for SPY, almost identical to what we saw early November. However, this Inside Day broke to the upside in after hours trading making new ATHs. Sideways action could very well continue into the week until we get GDP and PCE data on Thursday morning. Also, on Thursday we will get the new NAAIM Index report which will be quite telling of how Investment managers are exposed to equities.

Note: The 10-YR Treasury Notes (TNX) continues to rise. A new price action cycle is in play on TNX which today gapped up off the 200MA. So the game of chicken between yields and equities continues and the big question is who is going to blink first because eventually one of them has got to fall.

Market Breadth dipped today after a brief uptick Jan 18-22. One exception SPX Large Cap breadth slightly increased.