S&P 500 at all time highs, now what?

“Market does whatever it wants. It does not care about you, your feelings or your opinion.”

In my last blog post on December 4th I was writing about indecisiveness in stock market after FED announced QT and Omikron variant started to spread. I was leaning bearish then and I was only half right. We have seen a lot of volatility since then, VIX above 30 with one of the fastest changes in last years (usually a sign of bottom), new highs and new lows breadth was very unhealthy and it looked like pullback is not finished yet. Volatility then subsided, it closed below 20 and S&P 500 finished at all time highs on light volume. It is holidays season so nothing wrong with that. Nasdaq 100 and it’s proxy QQQ got hit a bit harder, Nasdaq New lows outpaced new highs reaching levels not seen from March 2020 plunge. Not a sign of healthy market,. The question is how does it look like today? Are we are ready now for Santa rally? Let’s take a look if we are in all in environment.

Majority of sectors are underperforming my benchmark S&P500. Follow the links to find out which sectors Outperform and which Underperform S&P500.

This week market shuffled the cards further also in RISK ON/OFF area. How serious is it? I provide an answer here.

Please not that my view is mid to long term, meaning weeks or months into the future. When I am bullish markets it does not mean that next few days cannot be red or vice versa when I am bearish. In majority of cases I adjust my portfolio on weekly bases trying to filter out the daily noise. Only rarely I adjust my positions based on daily market moves.

Longterm main models

Both longterm models are again #bullish.

Weekly Longterm model – two weeks ago my model showed a bullish signal, that is based on fast retraction of volatility VIX. VIX/VIX3M ratio is also below 0.8, this means that market participants are not worried about short term market outlook. The only worrying sign is bearish crossover of 52 week New Highs and New lows. I will be watching this indicator in next weeks.
Daily Longterm model – model switched back to bullish mode.

To learn more about my models, check this link.

1. Weekly chart – Socha Investing Main model is #bullish. Another buy signal poped up two weeks ago. Fear is subsiding.
1.1 Fear subsiding signal since 2012., very reliable, except 2018 period.
2. Daily chart – Socha Investing Main model – #bullish again.

Midterm main models

3. Weekly midterm model – mid BB line again held as support, with a nice bullish weekly candle, encapsulating the body of previous weeks candle. Bullish buy signal.

4. Daily midterm model a rare sell signal flashed a couple of weeks ago, a sharp pullback followed with a lot of volatility. For now it looks like pullback is finished. Will be watching for new signal in next weeks.

Midterm model is again #Bullish.

To learn more about Midterm model, follow this link.

4. Daily – Midterm main model – volume oscillator is again in bull territory, ADV/DECL is also well within bull territory. Breadth is improving.
3. Weekly – Midterm model -BB mid line held again as support.

New highs & new lows

New highs and new lows are a very useful indicator which I use a bit differently as others do. Information based on NH and NL allow me to evaluate market health. Usually market health deteriorates before bigger corrections and before bear markets. Big investors have to sell their investments before they allow for the market to collapse :).

I track 52 week NH and NL on daily and weekly level and separately for Nasdaq and NYSE.

Breadth improved a lot last week, but we are not completely out of the woods yet. Especially daily NH and NL show some improvement, while I wait for confirmation on weekly charts.

NYSE 52 week highs/lows – weekly chart – sell signal still valid
NYSE 52 week highs/lows – daily chart- buy signal.
QQQ 52 week highs/lows – weekly chart – sell signal still valid, looks worse than rest of the market.
QQQ 52 week highs/lows – daily chart- waiting for buy signal.

Outperforming/underperforming sectors

Trend strength indicator:

I added a new indicator with which I track performance of sectors. Second panel from bottom up. Purple line represents trend strength of underlying symbol; while orange line represents relative strength vs. S&P 500.

If both lines are moving higher and they stay in green area this is bullish; the opposite is true if both lines are moving lower and end in red area.

Green triangle: Strong absolute trend – Bullsih

Black triangle: Strong absolute and relative trend – Very bullish

Red triangle: Weak trend strength – Bearish

No sign: Neutral

Outperforming sectors

Technology XLK, semis SMH with QQQ and healthcare XLV are the only sectors outperforming SPX.

See charts for more explanations.

QQQ – despite recent weakness still outperforming SPX
XLV – healthcare
XLK – technology
SMH – semiconductors again market leaders

Underperforming sectors

There is a stealth correction under the surface. Market is showing more weakness in almost all areas, I would not rush to buy underperforming sectors. General advice; stay away.

See charts for more explanations.