Weekly Update: The Bull Market Marches On
Good evening, and welcome to this week’s edition of Stealth Trades!
The bull market marches on.
Investors are having a very Merry Christmas. Stocks delivered another positive week with only the shortened post-Christmas trading week remaining in 2023.
As I have been pointing in the last few weekly updates, the Russell 2000 index continues to lead the market. It tacked on another 2.44% this week for a total gain of 12.93% over the last month – more than double the performance of the S&P and Nasdaq.
But the real story this week was the Wednesday afternoon selloff.
In the final two hours of the trading day, stocks sold off hard. The Nasdaq index lost 1.7% of its value in 120 minutes.
Some investors panicked. After all, the indexes have not had even a 1% down day in two months. We, on the other hand, did nothing.
And stocks quickly returned to their highs by Friday afternoon.
It is easy to be confident in a bull market when the internal metrics are so strong.
Unlike the rally in the first half of 2023 which was led by only a tiny handful of mega-cap stocks, this one has broad participation. The Russell 2000 small cap index outperforming larger names like Apple, Amazon and Google – traditional “safe haven” stocks where institutions sat for most of the year – is proof of that.
As of this afternoon, a whopping 83% of stocks are above their 50-day moving average. This is a key support level for up trending stocks.
And 80% of stocks are above their 20-day moving average. In other words, 4 out of 5 stocks are in strong up trends.
The chart below shows the percentage of stocks above their 20, 50, and 200-day moving averages respectively.
This is what a healthy bull market looks like. And this is why I want to buy on pullbacks, not sell.
The Wednesday afternoon selloff caused a 90% down volume day. This is when more than 90% of the trading volume occurs on declining stocks. We saw several of these during the 2022 bear market. But Wednesday was the first one we have seen since March.
But markets responded immediately by putting in a 90% UP volume day on Thursday. This is a clear sign that investors are buying into these dips.
Historically, strong performance leads to more strong performance. Newton’s first law: an object in motion tends to stay in motion. And stocks are absolutely moving.
Over the last 36 trading days, the S&P 500 index is up over 16%.
This is one of the biggest short-term rallies in decades. Performance like this is in the 99th percentile historically.
And I would be shocked if the market weakened any time soon.
The areas we have been focusing on the last few months continue to be the best performers. Bitcoin and other cryptocurrencies are on a tear. We bought crypto mining stock Bit Digital (BTBT) three and a half weeks ago. It is already up 52%.
Homebuilders and building materials stocks also continue to outperform. I believe this will be a leading sector in 2024 and am patiently waiting for a pullback to buy more stocks in this group.
But for the next few days, forget about stocks. Forget about trading and profits and institutional consolidation patterns.
Spend time with your family and make this Christmas one they won’t forget.
Merry Christmas.
Best wishes for your trading,
