A Real Kick in the BULLS: ATH for S&P???

We’re Searching for a Small-Cap Bounce… [Morning Reckoning] January 23, 2024 [WEBSITE]( | [UNSUBSCRIBE]( A Real Kick in the BULLS: ATH for S&P??? Baltimore, Maryland January 23, 2024 [Greg Guenthner] GREG GUENTHNER Good Morning Reader, Bust out the bubbly, the S&P 500 is hitting new all-time highs! What’s that you say? Not in a partying mood? You’re not alone. In fact, there’s a large contingent of investors who aren’t dancing in the streets following Friday’s push to fresh highs. Yes, the S&P is soaring with nothing but blue skies above after teasing potential breakouts earlier this month and during the final week of 2023. But fewer than 10% of the S&P’s components shot to new highs during Friday’s push. That’s far from a strong showing on what should have been a memorable trading day. It’s not the end of the world for the bulls. But this isn’t the broad push higher many envisioned when it comes to a fresh all-time high following a grinding bear market. Unless you’ve completely ignored this year’s market action, you can probably figure out what stocks are fueling this move. Spoiler: it’s tech! Specifically, the big, bad mega-caps. The largest tech names on the market are hogging the spotlight (and the gains) as we approach the final few days of January trade. The Magnificent Seven stalwarts are, for the most part, bullying the averages and pushing toward new highs. Everything else? Not so much. Friday’s performance perfectly encapsulated the disconnect. Just look at the attention lavished on the semis… Semiconductors dominated the day as the VanEck Vectors Semiconductor ETF (SMH) soared 3.8% to stretch to yet another all-time high close. World-beater NVIDIA Corp (NVDA) jumped 4%, bringing its year-to-date gains to more than 20%. Advanced Micro Devices Inc. (AMD) continued its catch-up run, rallying 7%. Not to be outdone, upstart Super Micro Computer Inc. (SMCI) exploded higher by more than 35% after raising sales and earnings guidance. These are insane rallies – especially when you compare the combined semiconductor/big tech performance with what’s happening with some of the less popular names on the market. Unfortunately, most traders and investors will chase these extended breakouts instead of taking the time to sift through the more unloved sectors to find the next big move. That’s the choice you have today. You can sit around sulking because you didn’t grab shares of SMCI ahead of last week’s massive gap higher… Or, you can get to work searching for the next opportunity. Remember, this is the stock market! Each week brings new breakouts and breakdowns we can exploit for gains. You just have to know where to look. [URGENT: Regarding Your 2024 Strategic Intelligence Membership Dues!]( Hi, I’m Matt Insley. I’m the Publisher at Paradigm Press. Just moments ago, I just got off the phone with Jim and we agreed: it’s time we start charging more money for access to his newsletter. That’s why we may implement a massive price hike for all subscribers in the coming days. But if you [click here now ,]( you can lock in your current subscription price at 80% off – and never have to pay the potential new price of $500. Don’t waste any time. [Just click here now to claim this special offer.]( [LEARN MORE]( Recalibrated Expectations Market action outside the mega-cap winners has been weak for one main reason: rate cut expectations have fallen dramatically over the past week. Remember, markets are forward looking. Prices aren’t set by last quarter’s earnings or even today’s news. Instead, they reflect investor expectations for the weeks and months ahead. WIth that in mind, the volatility uptick and skewed sector performances over the past week make perfect sense once you learn that investors believe the chance at a March rate cut is now below 50%. Just a week earlier, consensus expectations for a rate cut at the March meeting topped 80%! This is a huge shift following some relatively warm inflation data and choice words from a couple Fed governors. Bottom line: market watchers have suddenly gotten cold feet as inflation fears heat back up. The Fed triggered the start of the November melt-up rally when Powell signaled the current rate hike cycle was finished. Now that investors are second-guessing the That’s why the growth names have suffered this month. As buyers fought to grab NVDA shares following its big breakout, the ARK Innovation ETF (ARKK) dropped more than 10% to ring in 2024. The market has ground any rate-sensitive stock into a fine paste as skittish traders have reverted back to their pre-melt up playbook: Scoop up the “safe” mega-cap, and sell the smaller growth names. Searching for a Small-cap Bounce Some of the best low-risk buying opportunities come from stocks or sectors retesting key support levels. Following a four-week decline in some of the more speculative areas of the market, we don’t have to look far to find these potentially explosive charts. In fact, small-caps are potentially flashing a tradable bounce after retreating back into their consolidation range. We saw a preview of just how strong these small-cap rallies could be during the Q4 melt up. The iShares Russell 2000 went from breaking to three-year lows in late October to a 25% gain and fresh 52-week highs in less than two months. Obviously, this rally has cooled and IWM has underperformed its large-cap cousins by a wide market so far this year. But the small-cap index is quietly catching a bid, logging its third straight positive day with a gain of 1.5% to start the week. More importantly, IWM might have closed that pesky mid-December gap while successfully tagging a former pivot area in the $190 range that we can trace all the way back to the 2022 bear market. A strong move back toward $200 would mean the furious rally that began just a few short months ago isn’t quite out of steam just yet. The contrarian-minded investor might also be glad to see that the financial media has already soured on the idea of a small-cap renaissance. The Wall Street Journal has declared small-caps dead in the water, citing the recent momentum reset, hotter inflation data, and adjusted rate-cut expectations. “The moment for small-caps might already be over,” the WSJ proclaimed on Monday. If IWM can remain above last week’s lows, I’m giving the bulls the benefit of the doubt. I’d much rather go long IWM here than chase the extended semiconductors into the nosebleed seats… I’ll be talking about this and other ways I’m looking to play this market at 11 a.m. EST on Top Trades Live. You can tune in [here](. Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [TIME-SENSITIVE: A “Second Wave” Of Inflation Is Coming]( [Click here to learn more]( During the 1970s, inflation lasted for years and came in three separate waves. Each wave was far worse than the last. [Today, the same exact thing is happening again.]( Is the price of food, gasoline, housing and more about to skyrocket even higher? [== > Get ready for “Inflation’s Second Wave.” Click here now to see my urgent warning.]( [LEARN MORE]( In Case You Missed It… This Man Understands What’s At Stake in Ukraine Sean Ring, Editor [Sean Ring] SEAN RING Good morning Reader, I was poking around X.com when I ran into a post from Glenn Diesen ([@Glenn_Diesen](. Glenn is a geopolitical analyst and author who’s appeared on one of my favorite geopolitical YouTube channels, [The Duran](. [Glenn’s post]( was about the Slovakian Prime Minister, Robert Fico, and [his op-ed in the Slovakian newspaper,](. I just read that editorial. It’s brilliant, and I want to share it with you. There are a few reasons why. As for me, since I’m on the other side of the world from the United States, I think I must provide you with information you’d never get from the US Media Industrial Complex. Also, politicians who write in their local language in their local newspapers aren’t targeting US citizens. They’re targeting their own, which means you get a genuine message. Just because Prime Minister Fico comes from a small country doesn’t render his message unimportant or irrelevant. He’s serving his third term as Slovakian PM and has been in Europe’s political trenches for over thirty years. Finally, Hungary’s Viktor Orbàn isn’t alone in the EU anymore, trying to prevent more Ukrainian lives from being lost. A Word On Slovakia Slovakia isn’t the country Melania Trump comes from. That’s Slovenia, which was a part of the former Yugoslavia. Slovakia was once one-half of Czechoslovakia, along with Czechia, but they mutually decided to conduct “The Velvet Divorce,” which separated the countries without a shot fired. Czechia’s capital is the world-famous Prague. Slovakia’s capital is the less famous but altogether charming Bratislava. Daddy fixing Micah’s hood in Bratislava’s Old Town in December 2019. Credit: Sean Ring Here’s Slovakia within Europe: Credit: Google Maps Now, let’s get into the meat of the PM’s editorial. But before we do that, please know I used Google Translate to translate the PM’s original Slovakian into English. It’s a good tool, but not perfect. So don’t mistake wonky translation for the PM’s educational level. The West’s Ukraine Strategy Isn’t Working Credit: [Pravda (Slovakia)]( From the very beginning of the conflict in Ukraine, I rejected a black-and-white vision, as desired in Washington or Brussels. The war in Ukraine has its roots already in 2014 and in the development of the Ukrainian political scene and its relationship with fellow citizens of Russian nationality. And, of course, in the total influence of the USA on everything that happened and is happening in Ukraine after 2014 until now. I may or may not be exaggerating a bit, but let's imagine, for example, that the entire Department of Defense of Mexico, as a neighboring country of the US, was under the complete control of Russia, not to mention the political leaders, including the president. First, Fico cites 2014 as the year this mess began in earnest, not 2022. He also blames the US. Notice his analogy of Russia controlling Mexico. It’s hardly original, but it makes the point effectively. Would the US ever put up with that? Of course not. Fico continues: Russia responded to the security situation and Ukraine's pressure to join NATO by violating international law, using military force without an international mandate. Big countries often do that, let's see what the US accomplished in Iraq. And the West, instead of immediately making every effort to achieve a quick ceasefire, at the beginning of 2022 without even losing a tenth to Ukraine, made a huge mistake. He incorrectly evaluated the use of Russian military force as an opportunity to bring Russia to its knees. One look at history. Russia was invaded by Hitler in June 1941, but the Western Allies did not open a second front until the summer of 1944, when the outcome of the war was clear in favor of the former USSR. It is proven that at the very beginning of the war in Ukraine in 2022, the West did not allow the Ukrainians to conclude a ceasefire with fair terms on at least two very promising occasions. Because a painfully wrong decision has already been made. The West will take advantage of Russia's violation of international law, supply Ukraine with piles of weapons, billions of dollars, load Russia with massive sanctions, attack Russia's main mineral income and expect the Ukrainian soldier, down to the last, to bring him the Russian bear's head on a platter in in the form of a militarily exhausted, economically ruined, internationally isolated and internally politically subverted Russia. This was and unfortunately still is the Western strategy, which I openly say at home and abroad that it does not work, that it has failed. And I don't even agree with her. I am not one of the Slovak politicians who are happy that in Slovakia the Russian Federation is being made a mortal enemy, and I do not at all like that we are labeled as an enemy country in Russia for this reason. Like many Western politicians, Fico alleges Russia violated international law. But he’s quick to note the US does it all the time. Fico also notes the West stupidly didn’t agree to a ceasefire that would’ve saved Ukraine in its present form. (That may still happen, but every day that passes throws the situation into further doubt.) Fico also alleges the West is taking advantage of Russia’s international law violation to get the Ukrainians to fight the war for the West. He knows this strategy is a failed one. Fico quickly says he disagrees with Russia, which distinguishes him from Orbàn. But he’s unhappy about Slovakia's inclusion on Russia’s enemies list. Fico goes on: It is literally shocking to see how the West has repeatedly made mistakes in assessing the situation in Russia. The facts are inexorable. Russia completely controls the occupied territories militarily, and attempts to convince the international community with demagoguery about the demoralization of the Russian soldiers and the huge human losses are increasingly showing themselves as empty demagogic wishful thinking. Ukraine is not capable of any meaningful military counter-offensive, it has become completely dependent on financial aid from the West with unforeseeable consequences for Ukrainians in the years to come. It is only a matter of time when official information about land ownership in Ukraine, about the largest foreign owners, will begin to be published. The position of the Ukrainian president is shaken, while the Russian president increases and strengthens his political support. Neither the Russian economy nor the Russian currency collapsed, anti-Russian sanctions increase the internal self-sufficiency of this huge country, Russian energy giants report record deliveries to China and India. On the other hand, people from around the Ukrainian president, for the prestigious, I repeat prestigious foreign media, say that there is theft in Ukraine as if there was no tomorrow. Of course, I do not dare to claim that Russia is not feeling the negative consequences of its February 2022 decision to use military force in Ukraine. But not by any chance to the extent that it would ruin it, as the Western planners had predicted. Fico states the obvious: Russia is winning, and Ukraine is losing. But we’ve known this for ages. It’s refreshing to hear it from someone who deals with this stuff daily. He also ridicules the sanctions, as we all should. Fico knows Russia is stronger thanks to its immense self-sufficiency. But Fico also thinks Russia is suffering a bit, though he doesn’t elaborate. Fico ends his piece with this: I often ask myself what is defeatist about realistic and fact-based considerations about the necessity of a cease-fire in Ukraine, when it is absolutely clear to everyone that the crisis in Ukraine has no military solution. If I wish for something, it is for the Slavs to stop fighting each other for geopolitical reasons, both on the American and Russian sides. Let Ukraine follow its sovereign, not dictated, path. If he sees himself in the EU, let him get this chance, provided he meets the conditions. We will be happy to help. Russia also needs its security guarantees. And I continue to believe that we should return to the recent European rhetoric of how the EU and Russia are somewhat connected vessels and how they need each other. As Prime Minister of the Slovak Republic, I will not spread hostility towards any country in the world, I also wish for the gradual standardization of relations between EU member countries and Russia. And I will no longer be subject to stupid liberal and progressive demagoguery that offends basic human justice and will ultimately cause enormous harm. Fico leaves the EU door open for Ukraine, though I doubt Russia will ever agree to it. And I doubt the neocons who currently run the US and EU will give Russia any security guarantees. Wrap Up This piece didn’t set the world on fire because of who wrote it and where it was printed. And that’s a damn shame. I can’t see much to disagree with. Robert Fico wrote a heartfelt piece hoping to kickstart a peace process the USG isn’t willing to start on behalf of its vassal states in Europe. How long will this last? I suspect not much longer. With the Middle East on fire and Taiwan electing a new president, I can see America cut its losses in Europe and move on to greener pastures. But that may be the opening Europe is looking for. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. 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