Published October 13, 2023
This week we bring you some effusive comments from JC Parets, founder of All-Star Charts. He’s a salesman to be sure. But his charts do raise some thought-provoking questions. Here’s what JC sees ahead:
“Are you ready for the end of the year squeeze?
Many investors think it’s not coming and that the market is going to crash instead.
In fact, Futures Traders (aka CTAs), who are typically trend-following in approach, have never been this short. The last few times they were anywhere near this bearish, stocks went on to have some of the greatest rallies in history. I remember them well:
Think about it like this.
After the Nasdaq had the best first 6 months to a year IN HISTORY, many stocks have seen a perfectly normal seasonal correction, that tends to happen regularly in the 3rd quarter, particularly in pre-election years.
How quickly the permabears forget how painful the first 6 months were for them. They’re already back, pounding their chests, scaring anyone who will listen, just before the most bullish period of the cycle:
“Buy in October and get yourself Sober”, is how I learned it.
That November – January period is really when stocks tend to get going.
But the trend is already up. Let’s not forget…
Looking at just the NYSE, I count 964 stocks that are up over 10% this year. 561 stocks that are up over 20% this year. 148 stocks are up 50% this year. And 35 stocks doubled. Where are people getting that it’s only 7 stocks that are going up?
Besides, look at the equally-weighted Tech Index making new all-time highs relative to the equally-weighted S&P500.
This is called leadership.
And finally, what’s the catalyst?
What’s going to get stocks going again, resuming this bull market that began in Summer 2022?
It was always the Dollar. That has always been the catalyst.
More recently, the new 52-week highs list peaked in July on the exact day that the US Dollar bottomed.
So, what’s it going to take to get stocks going again?
A weaker Dollar, just like last Fall:
If you start to see the US Dollar Index back below 105-105.50 or so, back below the early 2023 highs, and your short squeeze in stocks is on.
I don’t want to over-simplify things. I just generally believe it is, in fact, that simple.”
The Hamas-Israel conflict set a negative tone for stocks at the outset Monday. Energy shares surged higher on the news as fears of a wider Middle East conflict rose. As the day wore on, however, investors pushed the S&P 500 higher once denials of Iran’s involvement in the planning of the attack came in. Stocks closed at +0.6% on the day. Another +0.5% gain Tuesday as interest rates gave back some of their recent rise. Investors are beginning to believe that the Fed’s rate hike push is over. Of course, they’ve thought that before and been premature. Stocks ticked higher for a fourth straight day Wednesday with another +0.4% lift. Producer prices came in with a small rise to further the idea that peak rates are behind the market. But stocks reversed course Thursday with the broad market falling by -0.6% while smallcap stocks got hammered. While consumer prices came in as expected, a weak government bond auction sent yields upward to pressure most sectors. The war between Hamas and Israel returned to center stage Friday overpowering good bank earnings to send stocks lower while oil prices pushed upward again. The S&P 500 lost -0.4%.
Volatility returned to markets this week with stocks giving back early gains. The S&P 500 (SPY) rose +0.47% while the Nasdaq 100 (QQQ) lifted +0.15%. Smallcap stocks (IWM) slumped -1.58% falling back to the 170 support level.
Warm wishes and until next week.