By: Jeff Cooper
Hit and Run Morning Stock Report: June 6, 2023
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“I’m king for a night
What’s it gonna be now?
How willful things are building insight
Do you think it’s really the trip that you seek?
I’ve got my doubts it’s happened to me.” -
-The Byrds, Artificial Energy
“The most striking peculiarity presented by a psychological crowd is the following: Whoever the individuals that compose it, however like or unlike be their mode of life, their occupations, their character, of their intelligence, the fact that they have been transformed into a crowd puts them in possession of a sort of collective mind which makes them feel, think, and act in a manner quite different from that in which each individual of them would feel, think, and act were he in a state of isolation.”
-Gustave Le Bon, 1895
You may be wondering if last week's surge in inidices culminating in the 700 point DJIA pop on Friday may have change my outlook for June, July and into throughout the second half.
The answer will likely not surprise those of you who have well noted the extreme divergences between the handful of tech issues and the vast majority of the rest of the market and have experienced or studied this from an historical perspective.
Indeed, the last report showed a comparison with March 2000.
To those of you who are relatively new to trading that will hopefully put last week's “wildly speculative behavior” in an historical context.
Because at the end of the day, all trading is contextual.
While the last month or so appears to have relinquished control to the bull camp, appearances in markets are nearly always deceiving to what Le Bon calls “The Crowd.”
A closer examination of the breadth of the SPX benchmark index tells a significantly different story than what the crowd is seeing based on their euphoria.
Despite the SPX striking a NINE month high (270 degrees) last week, luring some into believing the worst of the bear market if not the entire bear market itself may have been left behind in the fall of 2022, a careful analysis of breadth reveals the exact opposite.
During a genuine bull market, we typically witness diverse stocks participating in the upward trend. This means large-cap, mid-cap and small-cap stocks from various sectors move in relative unison in a broad-based rally. The new high list is immense and diverse.
However, the SPX is experiencing a big issue with breadth in 2023.
Recent data shows that approximately only 20% of the SPX components have outperformed the index over the past three months.
The last time such a small percentage of the SPX stocks outperformed the index was in March 2000, which coincided with the top of the Dot Com Bubble.
Large companies hold more influence on the price of the SPX because it is a market-cap-weighted index.
The 9 most significant components of the SPX are AAPL, MSFT, AMZN, NVDA, GOOG, Berkshire Hathaway, META and TSLA.
Considering that the SPX has gained 9.5% year to date, let’s look at how its most significant components have performed since the beginning of 2023.
NVDA has experienced significant growth driven by the excitement surrounding artificial with its stock up by 167%.
META has also more than doubled.
TSLA, AMZN and GOOG and MSFT and AAPL have also vastly outperformed the benchmark SPX.
Is it possible that rather than greed, there is a fear factor at work?
If you’re a money manager and you don’t want to lose money under control or your job for that matter and you're not particularly bullish on the market, then you want to be in ‘safe, liquid’ names.
This is the mirror image of greed in that respect.
Historical patterns suggest that it is generally a dangerous sign for the market ahead when only a few stocks drive the market while most publically traded companies lag.
That being said, the QQQ came within a whisker of our 358 square-out level yesterday.
As well, the SPY satisfied 428.
Both reversed closing near session lows.
The QQQ left a Lizard sell signal.
Last week I showed a daily IWM saying IF it’s going to rally it has staunch resistance at 185 to 187.
IWM gapped down on Monday on the heels of its Friday surge above its 200 day moving average.
Trade that offsets Friday’s gap up will trigger a Jump The Creek sell signal.
Interestingly, IWM turned its 3 Week Chart up last week for the first time since January.
It followed thru two more weeks before collapsing.
In so doing, IWM created a declining tops line connecting the all-tine high and the late January high.
The important thing to notice is that the declining tops line intersects with a Ghost Line coming up off the October low right in this time frame.
If IWM should rally to the 187 region, it will meet powerful resistance at the same time the QQQ and SPY have squared out.
In summation, today is June 6th which vibrates/vectors 666, the SPX bear market low in 2009.
So what? The SPX has “passed over” June 6th and 666 many times since 2009.
Well we are 14 years from 2009 or SEVEN X 2 so the seven year cycle may be exerting its influence with “7” often being a turn.
In early June 2016, the SPX fell 130 points or nearly 5% in 3 weeks.
That was not a trend change by any means. It was a correction off the major February 2016 low.
But if other cycles are clustering here it is worth knowing.
The alternative scenario is that March 14 years ago was the significant low while February 7 years ago was a major low. Likewise, another 7 years later here in 2023 March was an important low.
Be that as it may, 14 points to mid-July, IF we have just topped, and the SPX reversed back down through the key 4187 level it opens the door lower.
If momentous momentum shows up in June with lower lows and lower highs playing out, then it is also worth considering that from yesterday (if that was an important high), the Gann Panic Zone of 49-to 55 days ties to mid to late July.
I have mentioned July as a pivotal time last week.
I’ll go into it more over coming days but circle it on your calendar.
Suffice to say there are an array of time/price vibrations from historic points in the market that point to July as a big deal.
Yesterday’s report said that this week should tell the tale of the tape as to whether the market spikes higher into July or waterfalls.
If the market continues to pullback and snaps 4200 it may be a blaring siren that a dramatic decline is on deck.