The NASDAQ Composite cleared its 200-day moving average on Friday as it pokes to its highest levels since the October lows. Volume was heavy as the index stalled off its intraday highs. High-PE and infinite-PE areas of the market, primarily in tech, have led to the outperformance by the NASDAQ in the latter part of January as the index posted a double-top breakout on Friday.
The S&P 500 meanwhile has rallied back up to its December highs which it fell short of clearing on Friday on weak volume. The index gave up half of its gains heading into the final hour of trade on Friday. Indexes have been rallying in January as hopes of a Fed pivot and peak inflation continue to drive stocks to the upside. It currently has the look of a double-top formation where price resistance could come into play as the crowd turns bullish.
Precious metals remain perhaps the one area of the market that can be said to be in any kind of intermediate rally. The move in gold off the November lows following an undercut & rally long entry trigger has been steady to the upside. It may, however, be ready for a period of consolidation as it pulls in to test the 10-day moving average. We would view pullbacks to the 20-dema as the preferred option for opportunistic entries on constructive weakness.
On Monday we reported on a moving average undercut & rally (MAU&R) set-up along the 50-day moving average that was developing in silver. The was actionable as a long entry as we reported at the time using the 50-dma as a selling guide. The Aberdeen Physical Silver Trust (SIVR) illustrates a quick shakeout at the 50-day line early in in the day on Monday and quickly turned back to the upside, regaining the 20-dema the next day and then the 10-day moving average on Wednesday. At that point it encountered price resistance along the highs of the current seven-week base and backed off in a retest of the 50-day moving average. In this position we watch for either another successful test of the 50-dma as a possible entry or a quick return to the topside of the 20-dema which would trigger another MAU&R, this time at the 20-dema which is then used as a selling guide.
AngloGold-Ashanti (AU) and Gold Fields (GFI) have been two of the strongest-performing gold miners since the November lows but both are now finally correcting for the first time. Both stocks dropped below their 20-demas and we would be on the alert for any pullbacks to the 50-dma as potential lower-risk entries from here.
Osisko Gold Royalties, Ltd. (OR) broke out in the second week of January and has since moved higher. It is now testing its 10-dma as it starts to pull back and we would watch for any pullback to the top of the base and the green 20-dema as possible lower-risk entries.
Silvercrest Metals (SILV) broke out on Wednesday after posting a pockt pivot at four moving averages on Tuesday. As is typical with breakouts in the current market environment, the big-volume move did not carry any further and instead SILV is pulling back to test its 10-dma. We view tests of the 10-dma as potentially lower-risk long entries using the 10-day or 20-day lines as selling guides.
Earlier in January we reported on Ford (F) and General Motors (GM) as potential short-sale targets near moving average resistance at the 200-dma in F and the 50-dma in GM. Both illustrate the difficult nature of the short side as quick downside breaks in the second and third weeks of January led to rallies back up to the original moving average resistance. We now see F rallying right into its 200-dma on strong volume which may simply play out as a shortable move depending on how solid 200-dma resistance turns out to be. GM, on the other hand, posted a pocket pivot as it cleared its 50-dma on big volume. We would not consider either stock to be actionable since both are expected to reported earnings this week. GM reports first on Tuesday before the open while F is expected to report Thursday after the close.
As we move through the thick of earnings season we can expect a big day on Thursday when Apple (AAPL), Alphabet (GOOG), and Amazon.com (AMZN) are expected to report earnings on Thursday after the close. All three stocks have been rallying in January and Thursday's earnings reports may be important barometers for the sustainability of their January rallies if not for the market at large. Bear market rallies generally have to become convincing to the crowd before they fail, as we saw back in August of last year. Currently the crowd is gaining enthusiasm as hopes of peak inflation and a Fed pivot bring money flying back into the high-PE and infinite-PE areas of the market, accounting for the NASDAQ's outperformance more recently. Friday's action had a bit of a FOMO feel to it as the rally becomes more obvious, bringing both the NASDAQ and S&P 500 into double-top positions that should be watched carefully for any potential failures.The Market Direction Model (MDM) remains on a SELL signal.