[Market Outlook] The Fed Pivots and The Party Starts. Will It Continue?

Why We Still Suggest Being Cautious! [Company Logo] The Fed Pivots and The Party Starts. Will It Continue? Why We Still Suggest Being Cautious! By Donn Goodman December 17, 2023 [image] Welcome Gaugers, friends and interested readers. Happy you joined us. By now, you are well aware that on Wednesday Jerome Powell and the Fed became “dovish” and pivoted to a STOP on interest rate hikes. More importantly, the Fed Chairman stated that the Committee could see as many as three rate cuts in 2024. Most analysts had suggested (or predicted) that we would see only two rate cuts next year, but Jerome Powell gave an indication that we could see as many as three 25 basis point reductions in the Fed Fund rate during 2024. The markets reacted favorably, and the party (which may have begun in early November) kicked into high gear. For the week, the major markets were up between 2.5% (S&P 500) to 2.9% (QQQ). Small-cap stocks (IWM), which had been trending sideways for most of the year (due to higher borrowing costs, which affect smaller companies more than the big cash rich companies), rallied 5.8% and now puts the Russell 2000 Small-cap index in double digit returns for 2023. The Dow and the NASDAQ 100 (QQQ) both made new all-time highs and have been positive on a 7 week winning streak. You may want to go back and reread our Market Outlooks from the last 7 weeks and the various indicators that had been forecasting a bullish move up in the markets, including our own Profit Navigator which got fully invested in the SPY ETF in late October. (Profit Navigator took two profit targets this week locking the gains from late October). The bull market of 2023 continues. [image] We provide a few charts illustrating the new all-time returns of the DOW and the QQQ. See below: [image] [image] The S&P 500 is also a whisker away (from hitting a new all-time high. In bull markets old highs act as magnets and attract the indices to them as do whole numbers like 4800. We are optimistic that the S&P 500 will soon pierce its old number. More on that to follow. See chart below: [image] Not only is the S&P about to post new highs, but surprisingly it is now 8% higher than when the Federal Reserve began its hawkish hiking campaign. See chart below: [image] Small-Cap Stocks. While the Russell 2000 small-cap index (IWM) is nowhere near its all-time high, it did make a new 52-week high and has picked up momentum that may help provide a tailwind for this market capitalization segment of the market. Many of these companies depend on financing and carry a higher % of debt on their balance sheets especially as their businesses are growing rapidly. So, the fact that interest rates have come down markedly implies that smaller companies may feel the financial loosening benefits more quickly. See IWM chart below: [image] [image] Please note: MarketGauge has a small-midcap earnings based strategy that, if followed this year, has produced a return of more than 45% for 2023. This (real + back tested results) model has produced a better than 34% return (without fees) per year for almost 7 years since its inception. Also, the IWM and MDY (Midcap index) are both negative for 12 months while this strategy is up over 27%. We show a growth of $100,000 chart below ($100,000 was up over 5x in 7 years) If you would like more information reach out to Rob Quinn at [Rob@MarketGauge.com](. [image] From these various charts, it is important to stay aware that the indices (SPY, DIA, QQQ and IWM) are comprised of a large number of stocks. While these are all cap weighted indices, the equal weighted S&P 500 (RSP) and the QQQ (QQEW) have both begun to rally impressively. Meaning= many of the average stocks are breaking out. This explains why the indices are hitting new all-time or 52-week highs. [image] See additional charts below: [image] You will note above that the 50-day (blue) moving average may soon go through the 200-day (red) moving average, which is called a positive Golden Cross. Also, it is not lost on us that the RSI (Relative Strength Indicator) is well above the 70 number, which typically marks the beginning of an overbought move. While this can go on for a lengthy period, a reversion to the mean typically takes place at some point when investors capture gains. However, in this case, it may not occur until after the beginning of the year, and we welcome a new tax period for capital gains. Below, you can see that the 93 lower capitalization stocks (ex-magnificent 7) have perked up and are beginning to look more positive. See chart below: [image] 2023 has rewarded high growth stocks. These cash-rich companies have been the biggest beneficiaries from earnings growth and the lower volatility/high beta stocks have mostly gone sideways. As shown above through the RSP and the QQEW these stocks have now joined the party. See chart below: [image] Speculation through new Initial Public Offerings (IPOs) is also seeing a major rebound recently. See chart below: [image] The Fuel That Created This Push Higher. Click here to continue reading about: - The Fuel That Created This Push Higher. - The Big View Bullets - The weekly Big View Video analysis - [Click here to continue as a free member](=) [Click here to continue as a PREMIUM member]( Best wishes for your trading, Donn Goodman CMO Market Gauge Asset Management [image] Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral. The the video analysis dives deeper. Get started here and continue with the links below. Risk-On - With interest rates easing substantially, the markets exploded to the upside with new high closes for the year in [all indexes](=) and are running a bit rich led by IWM which is outside the upper Bollinger bands in price and real motion. (+) - Volume patterns are positive with the S&P 500 having the [strongest pattern](). (+) - All [sectors](=) were positive on the week, led by Semiconductors, Homebuilders, and Retail, all up over +5%. (+) - Speculative sectors, Solar and Clean energy [roared](=) this week, helping mitigate poor performance over the last six months. (+) - New High/New Low ratio [remains intact]( but running rich with still more potential upside. (+) - [Nasdaq Composite](=) New High/New Low is in gear with significant upside potential. (+) There's more... Click here to continue reading about: - The Fuel That Created This Push Higher. - The Big View Bullets - The weekly Big View Video analysis - [Click here to continue to the FREE analysis and video.](=)[Click here to continue to the PREMIUM analysis and video](=). Best wishes for your trading, Keith Schneider CEO MarketGauge P.S. When you’re ready, here are 4 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](), Rob Quinn. He can quickly guide you to the resources that you'd like best. - To discuss having assets managed by MarketGauge strategies, contact Ben Scheibe, at MarketGauge Asset Management at Benny@mgamllc.com - Get the foundational building blocks of many of our strategies from Mish's book, [Plant Your Money Tree: A Guide to Building Your Wealth](=), and accompanying bonus training. - [Review quick descriptions]( of our indicators, strategies, services and trading systems here. [image] Get more - follow us here... 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