Market Trends This Week
The first month of 2024 wrapped up last week, showcasing a predominantly positive trend with only one week closing down and three weeks on the rise. January saw the S&P 500 (SPX) completing with a 75-point increase, a contrast to the 237-point surge in January 2023. The Nasdaq Composite Index (NDX) enjoyed a 464-point rise this month, albeit smaller compared to the 1118-point leap last year. The Russell 2000 Index (RUT), however, lagged behind with a 79-point decline in January 2024, despite a 170-point increase in the previous year, indicating that high interest rates have impacted small-cap stocks more severely than their large-cap counterparts.
SPX’s Upward Trajectory and Technical Analysis
From November 2023, SPX has been on an upward trend, now celebrating its fourth consecutive month of gains. Technical analysis of the monthly chart reveals a 'cup and handle' formation. Although it's not a perfect pattern, this price action broke up in December 2023 and has maintained its momentum into January. With the pattern's time duration in mind, SPX could potentially reach 5657 by October, needing only a 77-point monthly increase—a feasible target given the current weekly movement average of around 65 points. This highlights the importance of patience and responding to price action rather than making predictions.
Key Levels and Future Projections for SPX
Currently, SPX is trading high, with a one-year Point of Sale (POS) at 4131. The high volume price area ranges between 4575 and 4061. Investors should watch these numbers closely, including the first support levels at 4800, 4700, and 4600, and resistance levels at 5021 and 5111. The February option expiration suggests an upside probability at 5110, with March looking at 5232, aligning with the high of the second standard deviation of SPX prices.
Expectations for the Coming Weeks
The upcoming week projects an SPX increase of around 69 points, potentially reaching 5021, with a lower expectation set at 4898. NDX and RUT are expected to see increases of 318 and 48 points, respectively. The weekly trend for these indices remains positive, with RUT showing a sideways movement over the past three months.
Market Indicators and Risks
The Volatility Index (VIX) stands at 13.85, with the CBOE Put/Call Index (CPCI) at 1.2, indicating a stable market environment. However, the SKEW index at 160 points to a more than 20% chance of a significant price move, suggesting a potential 100-120 point drop for SPX. With the Fear and Greed index at 67, down from 79 a month ago, investors should remain vigilant, especially with the current market risk estimated between 2-5% in case of a sudden drop.
Economic Reports to Watch
Next week is packed with significant reports, including PMI, PPI, manufacturing orders, PMI construction, unemployment rate, jobless claims, CPI, and industrial production. Given these market-moving reports, staying informed on market actions is crucial.
Intermarket Correlations
Last week's intermarket analysis showed a high correlation among the indices, with a notable deviation in RUT. Meanwhile, VIX is inversely correlated, Bonds, gold, bitcoin, and copper, showing positive correlations, whereas oil and the US dollar displayed negative correlations with the market.
This comprehensive analysis underscores the dynamic nature of the market, emphasizing the importance of strategic planning and staying informed about upcoming economic indicators and market trends.