Author: Kenley Scott

Key Points:

• Global Index (VT) back above 10-WMA after first test of uptrend in prior week. Several distribution days but uptrend intact. Look for hold of 10-WMA, negative on break of 40-WMA.
• U.S. indices still acting best include mid-cap growth (MDYG) and value (MDYV), small-cap value (IWO). Large-cap growth (SPYG) is not as strong, still below 200-DMA, but no longer pulling the market lower.
  • Four of top U.S. themes, each at or near 52-week highs in absolute and RS-terms: Steel (SLX), Infrastructure (PAVE), Oil Svcs (OIH), and Aerospace/Defense (PPA).
  • Another four further off absolute highs but with RS line near 52-week highs: Homebuilders (XHB), Gaming (BJK), Semis (SOXX), and Robotics/AI (BOTZ).
• Global markets have a fairly high average distribution day count but most remain in Uptrends.
  • Standout global markets in USD-terms: Mexico (EWW), Spain (EWP), Italy (EWI), France (EWQ), Germany (EWG), and Denmark (EDEN).
• See attachment for ideas from the 8 U.S. themes and leading global markets.

Key Points:

• S&P 500 has given back around half of the 11% gain from Dec. lows. This would be a normal pullback but needs to hold around this level, or the 200-DMA.
• A break back below the 200-DMA would look increasingly like a failed breakout and again brings up the 2002 case considering several similarities.
  • In that case, the keys were several distribution days as it attempted to hold above the 200-DMA but eventual breakdown and failure to retake all key moving average within 4-5 weeks from the peak.
• The DJIA daily sequence is shown below, and as we have mentioned prior, continues to look more like a new bull market but with the major exception of the 2000-2002 case where it is tracking almost identically.

Key Points:

• U.S. market attempting a breakout. S&P 500 furthest above 200-DMA in a year, mid (MDY) and small (IJR) indices further along. All testing peaks from November/December.
• Breadth very strong, 78% of stocks on NYSE above 150-DMA. Most in almost two years.
  • Tends to be strong signal for market (2003, 2009, 2012, 2016, 2019, 2020) when coming from very depressed (<15%) level.
  • Exceptions in 2001, 2002, where breadth head-faked to upside twice, but led to breakdown shortly after. Key in breakdown case is clustering of distribution and break back below moving averages.
  • Key in all the positive cases includes paying attention to early-stage base breakouts.
  • See attachment for stage-1 bases either forming or with stock breaking out recently, and also where stocks are leading the strong rally YTD.

Key Points:

• S&P 500 wedging as all moving average converge, appears set to move in one direction or the other.
• Look back at prior bull/bear comparisons for similarities (last done in Dec. ’22).
  • Bear case looks less convincing, as DJIA all prior bear markets except one were further off highs to this point (#days in). There
    • There remains one comparison that is very similar to-date, which is 2000.
  • Bull base is more promising now, as at 14% off lows after four months in is roughly the median of prior cases.
    • 1961 and 1966 bear markets were most similar in terms of depth and time, if indeed the lows are in. These also looked similar after four months in.
• Leadership YTD is definitely skewed to prior laggard. Stocks further off 5-yr highs and also stocks with weak earnings power are clear leaders.
• Should breakout number rise in coming weeks, we would expect to see new leaders with strong earnings potential begin to outperform once again, which could be a great risk-on signal.