Morning Market Outlook 12182023

00:00:00

Hello, everyone.

00:00:00

It's Stephen Whiteside here from TheUpTrend.com.

00:00:03

I hope you had a wonderful weekend.

00:00:05

Well, we've gone seven weeks now where the

00:00:07

market has been fear free and the market has been up seven weeks in a row.

00:00:13

So we're going to remain long term bullish

00:00:14

on the market as long as the VIX does not close above 16.66 this coming Friday.

00:00:21

Now, we've been anticipating a year-end

00:00:23

rally, and we got a year-end rally, and so this is the time to celebrate.

00:00:28

It's also the time to make sure we've locked in some profits along the way.

00:00:32

No reason to completely liquidate a position.

00:00:35

We need to keep some money in the market, but you do want to lock in profits as

00:00:39

markets usually fall faster than they rise.

00:00:42

Now, we did see Panic buying this week on the back of the Fed announcement.

00:00:47

A lot of people had to do some short covering.

00:00:49

We've got a lot of charts that are poking

00:00:51

through the top of the Panic Zones right now.

00:00:54

We are waiting to see if we get some early warning signals.

00:00:57

Now, the first thing we're going to be

00:00:58

looking for is a close below Wednesday's low.

00:01:01

That was the Fed Day.

00:01:02

That's when all the short covering took

00:01:04

place and the market took off to the upside.

00:01:07

Those are a lot of people that are late to the game.

00:01:10

This trend started back in late October, and some people just couldn't take a hint

00:01:17

and they got in on Wednesday, which is late.

00:01:20

We're going to be watching

00:01:21

to see if the market closes below Wednesday's low or any individual stocks.

00:01:27

What was very bullish was that the semiconductors led the market higher.

00:01:30

We also had a lot of sectors of the market

00:01:33

that are playing catch up, finally joined the party.

00:01:36

Sectors like Homebuilders had a great week.

00:01:39

Now, we're looking at the daily VIX here.

00:01:41

We're going to remain short term bullish

00:01:43

on the market as long as the VIX does not close above 13.04 on Monday,

00:01:48

and you can see that upper channel line is going to continue to move lower daily if

00:01:53

we do not close above that level on Monday.

00:01:56

Now here's something to be concerned about.

00:01:57

The Pros look like they want to take control of the VIX.

00:02:01

And if they start taking control of the

00:02:02

VIX, that's probably going to indicate some selling in the overall market.

00:02:07

So most of the market held up going into Friday's close.

00:02:11

The Dow had an inside day.

00:02:12

A little bit of a pullback for the S&P 500.

00:02:15

The Nasdaq had a new closing high on Friday.

00:02:19

We saw a small pullback in the Russell,

00:02:21

small pullback in microcaps, and we saw a pullback in Regional Banks.

00:02:26

Regional Banks, big participant this week.

00:02:29

And you can see we gapped higher on

00:02:31

Thursday, so probably going to come back here again.

00:02:34

We'll be looking to see what happens if

00:02:36

the market starts to close below Wednesday's low.

00:02:40

Taking a look at the Canadian market, the

00:02:42

TSX ran up to resistance this week and pulled back.

00:02:45

So that resistance is still holding the market in check.

00:02:49

Here we are looking at a weekly chart and you can see that through all of 2023, this

00:02:53

level at 20,625 has held the Canadian stock market in check.

00:02:59

Now, there's a lot of divergence right now

00:03:01

between the Canadian stock market and the US stock market.

00:03:04

Look right now at Consumer Discretionary

00:03:08

traded in Toronto and then Consumer Discretionary traded in New York.

00:03:12

Consumer Staples in Toronto, Consumer Staples in New York.

00:03:16

A lot of divergence.

00:03:17

Those are just two examples.

00:03:19

If the financial services are doing well

00:03:21

on both sides of the border, that's a good sign for the overall health of the market.

00:03:25

But unfortunately, there are too many

00:03:27

divergences right now to help the Canadian market.

00:03:30

Moving on to bonds, and we're going to look at the major bond ETFs.

00:03:35

Just to make it very clear, I don't trade these at all.

00:03:38

There's not enough money in them for me to

00:03:40

trade, but they are useful for a lot of people.

00:03:43

A lot of people need to be diversified and need to be in bonds.

00:03:47

One of the reasons the stock market has gone up over the past seven weeks is that

00:03:50

bonds have gone up, which has put downward pressure on bond yields.

00:03:55

The market is basically doing the Fed's

00:03:57

job for them, pulling back on bond yields and rates and taking pressure off the

00:04:03

industry to keep raising rates at the present time.

00:04:07

Here we've got the TLT making a new high.

00:04:09

If the direction of the bonds changes,

00:04:12

that could have a negative effect to the overall stock market.

00:04:16

Whether you're looking at the TLT, which is the most actively traded bond ETF in

00:04:21

the US, in Canada, the XBB is one of the most actively traded bond ETFs.

00:04:27

Then you've got emerging markets, and then

00:04:29

you've got junk bonds, all doing well at the moment.

00:04:32

If the direction of these bonds change,

00:04:34

that could have a negative effect on the stock market.

00:04:37

Now, one of the reasons I don't trade them

00:04:39

is there's really no money in them from a trading point of view compared to other

00:04:44

ETFs, and certainly compared to the rest of the stock market.

00:04:47

If you're going to be involved in these, they need to be in a separate column.

00:04:51

They need to be in a separate portfolio.

00:04:53

I'll just give you an example.

00:04:55

This big move up is really an optical illusion.

00:04:58

When we look at the Fly Paper Channel

00:04:59

chart for the junk bond ETF, you can see how wide the Fly Paper Channel is.

00:05:04

Anytime you see that, you know that the

00:05:07

underlying symbol has very low long-term volatility.

00:05:11

Now, if we look down here at the

00:05:13

Average True Range, it's currently 0.6 %, so a little more than half a % per day.

00:05:19

When we look at this big move from this

00:05:21

low in October to the recent high, that is only 8%, so not very attractive.

00:05:28

Compare that to, say, something like

00:05:30

Apple, which has had a nice run from the October low to the recent high.

00:05:34

If we look at the Fly Paper Channel chart, the Fly Paper Channel is much thinner.

00:05:40

We know that long-term volatility is much greater.

00:05:43

If we look at Average True Range down

00:05:45

here, the short-term volatility is at 1.49%. Just under one and a half %, more

00:05:51

than twice what we saw in the junk bond ETF.

00:05:54

Remember, junk bonds are the most volatile of bonds.

00:05:58

That move from the October-low to the recent high, that is a 20% move for Apple.

00:06:05

Then if we look at a symbol that has even

00:06:07

a skinnier Fly Paper Channel and a higher Average True Range, so looking at

00:06:13

CloudFlare at the moment, the current Average True Range is 3.38 %.

00:06:18

The move from the recent low in October to the recent high, that is 54%.

00:06:24

Now there's two lessons here.

00:06:26

The first one, of course, is know the

00:06:28

volatility of each symbol you're looking at and use them in comparison.

00:06:33

Remember, don't compare apples and oranges.

00:06:36

There's no reason to compare a stock like Cloudflare to, say, a Bank of America.

00:06:41

They're in two completely different worlds.

00:06:44

When you're looking at stocks in the same sector or ETFs in the same sector, check

00:06:49

the volatility and see what the opportunities are.

00:06:53

Also remember that where there's opportunities, there's also risk.

00:06:57

Your risk reward, you've got to balance it out.

00:06:59

You don't want a portfolio heavily laden with stocks with high Average True Ranges.

00:07:05

That's just too much risk.

00:07:07

One day when the stock market goes against

00:07:10

you, which it ultimately will, if you're in the market for any length of time, you

00:07:14

really don't want to take a huge loss because you're loaded up in stocks

00:07:18

that not only went up quickly, but will come down quickly as well.

00:07:23

Now moving on, another thing that I'm not trading, the USD Index, but we keep track

00:07:27

of it because a falling USD Index has been supportive for higher stock prices.

00:07:32

Now, we had a big inside day and a reversal day on Friday.

00:07:36

That was also true for the Euro.

00:07:39

This could change.

00:07:40

If this changes direction and we start

00:07:42

moving up, that could put downward pressure on the stock market.

00:07:45

There's the big reversal in the euro on Friday.

00:07:48

Oddly enough, the Canadian Dollar was able to push higher on Friday.

00:07:53

Now, this could also change, and that is crude oil.

00:07:55

Crude oil falling has also been supportive for higher stock prices.

00:07:59

Natural Gas has been falling.

00:08:01

Two things that have taken pressure off inflation and helped the overall consumer,

00:08:06

they could change direction and that could be negative for the stock market.

00:08:10

Now looking at the metals, price of copper may have run into resistance.

00:08:14

It's had a really good run over the past six weeks.

00:08:17

You can see copper miners bolted higher on Thursday, gapped higher, even went higher

00:08:23

on Friday before pulling back and closing unchanged on the day.

00:08:27

Now looking at the price of gold, we're still on a signal here.

00:08:30

That hasn't changed.

00:08:31

Gold miners look like they've put in a double top, whether you're looking at the

00:08:35

GDX or the XGD, and then the price of silver pulled back.

00:08:39

Silver miners also look like they're

00:08:41

putting in a double top at the present time.

00:08:45

Now, just to go back to where we started,

00:08:47

we have a lot of symbols that look like this.

00:08:49

This is manual life.

00:08:50

It's up through the top of the Panic Zones.

00:08:53

We're looking for a new early warning signal on the Panic Zone chart.

00:08:57

We haven't got that yet.

00:08:59

We do have a lot of early warning signals on the Right-Side chart.

00:09:02

This chevron indicates that we have a potential top-up there, but this signal

00:09:08

can fade away over the next couple of days if it's not confirmed.

00:09:11

What's going to confirm it?

00:09:12

Well, if we start breaking down below Wednesday's low.

00:09:16

Remember, Wednesday was the huge

00:09:18

volatility day for a lot of symbols, and that's where the short covering kicked in

00:09:22

and people late to the party jumped on board for whatever reason.

00:09:27

They were compelled to do that. They did that.

00:09:29

But look, here's how long the trend has been going.

00:09:33

And then finally on Wednesday, people

00:09:35

said, Hey, yeah, this is the time to get in.

00:09:37

So what we're looking for is a breakdown

00:09:40

below Wednesday's low is the first sign that we're heading lower and we're

00:09:45

possibly going to see new daily cell signals.

00:09:48

Last up today, a quick look at the Magnificent Eight.

00:09:51

Two stocks didn't participate.

00:09:53

That would be Alphabet and Microsoft still on cell signals.

00:09:56

We saw Amazon go up and hit our next

00:09:59

target at $150, which was both a daily and a weekly target.

00:10:03

We had Apple run up, did not hit the daily or weekly target of $200, got as high as

00:10:09

$199.62. We still have Meta on a buy signal.

00:10:13

We've got Invidea on a buy signal.

00:10:16

Nvidia, of course, no longer the big leader in the chip sector.

00:10:20

Then we've got Shopify making a new high on Friday on both sides of the border.

00:10:25

Tesla made a new closing high on Friday, did not take out Thursday's high.

00:10:29

So none of these

00:10:32

Magnificent 8 stocks really participated in the overall rally this week.

00:10:37

Now, some people are rather concerned that

00:10:39

the Magnificent Eight did not lead the market higher this week.

00:10:42

And I don't think we can read too much into it so far.

00:10:45

We've seen some sector rotation

00:10:48

and these stocks couldn't lead the market higher forever.

00:10:51

There is always some rotation.

00:10:53

What we haven't seen so far is any aggressive selling in these stocks.

00:10:57

So if we start to see aggressive selling in these stocks, then I would say there's

00:11:02

something to be concerned about, but that has not started just yet.

00:11:06

Okay, folks, that is all for today's video.

00:11:08

I'm sorry I was a bit longer than normal,

00:11:11

but I wanted to include a couple of extra topics.

00:11:14

Enjoy the rest of your day.

00:11:16

The next time you'll hear my voice is on Tuesday morning.

Transcription