How Bearish are US Stock Indexes?

I’m sure most everyone in the investment industry has heard of the “Dead Cat Bounce”. The phrase is tied to the idea that no matter how high a dead cat is dropped from, it will bounce once it hits the ground. As mental pictures go, this one is up there with the oft cited “Bulls Become Steers”. On the other hand, how many of you have heard of the “Dead Cat Slap”? This one is related to the old, “You can’t swing a dead cat without hitting a such and such or so and so”. I think of this often as I read and or hear the constant drone from “nattering nabobs” (a phrase I borrowed from my friend Roger) telling us how terrible the situation is for the United States these days and that US stock indexes are likely headed to $0. I might’ve exaggerated the latter a bit, but it isn’t far from what the noise, Noise, NOISE continues to tell us. 

There’s another old saying I’d like to remind all the Chicken Littles of: Bearish markets don’t make new highs. With that in mind, let’s take a look at what happened in the three major US stock markets as November came to an end and December began: 

  • The stodgy old Dow Jones Industrial Average ($DOWI) took out its previous 2023 high of 35,679.13 on Thursday, November 30, hitting a high of 35,970.70. This was followed by an extension of the rally Friday to 26,264.85, the highest mark for the DJIA since January 2022. What’s notable about that, you ask? It was during January 2022 the DJIA hit its record high of 36,952.65 meaning at Friday’s close (36,245.50) the Dow was within 2% of its all-time high. 
  •  The high-tech driven Nasdaq ($NASX), the index that has led moves the last few years, challenged its 2023 high of 14,446.55 with a late November mark of 14,423.22. Friday saw the Nasdaq finish at 14,305.03. 
  • The catch-all S&P 500 ($INX) finished November with a high of 4,587.64, a stone’s throw from its 2023 high of 4,607.07 from this past July. Friday saw the index hit a mark of 4,599.39, unearthing discussion of the importance of round numbers at a time when algorithms don’t care about such things. 

The reality is most of the folks still talking recession and hard landings for the US economy are not analyzing markets, but rather: 

  • Talking their position. I’m reminded of the analyst/investor who was frequently on CNBC talking about why he continued to short Tesla. Meanwhile the stock continued to scream higher. I haven’t watched CNBC lately. I wonder if he still comes on. 
  • Talking their politics. I’m not going to go into this here, but I think we all realize how the US has been split politically. 

Returning to market analysis, the macro view is getting more interesting as well. 

  • US Treasury futures completed what look to be bullish 2-month reversal patterns on their respective long-term monthly charts at the end of November. While I watch 10-year T-notes (ZNZ23), we can see the same pattern with 30-year T-bonds (ZBZ23)
    • This tells us the futures markets have priced in rate hikes and are now looking ahead to possible rate cuts at some point during 2024 or beyond.
    • The type of reversal pattern (2-month) often leads to a quick retracement, meaning a final rate hike remains on the table at either the December 2023 meeting or in early 2024. 
  • The US dollar index still looks to be in a long-term uptrend on its monthly chart, though I’m having growing doubts about this technical conclusion from a fundamental point of view. 
    • It US stock indexes and Treasuries are correct, then it would seem the US dollar index is in for continued weakening over the coming months (years?)
    • From an inflation point of view[i] the three Kings of Commodities are showing us mixed results. 
      • The cash gold index (GCY00) extended its long-term uptrend to a new all-time high last week of $2,073.11.
      • WTI crude oil (CLF24) still looks to be in a long-term uptrend, though I’m expecting a third consecutive lower monthly close at the end of December based on a Benjamin Franklin Fish Analogy[ii].
      • The Barchart National Corn Price Index (ZCPAUS.CM), the intrinsic value of the market, is sharply oversold and could be ready for a bullish turn based on noncommercial short-covering.
    • If the various commodity sectors start to trend higher again, the implication would be the US dollar index could continue to come under pressure. 
  • We’ve already talked about how US stock indexes remain in long-term uptrends. It isn’t out of the question all three are testing 2022 highs in the not-too-distant future.

Oh, the bearishness of it all!

[i] I have to laugh when I hear it called “high inflation”. These folks obviously didn’t live through the 1980s. Yes the world is seeing higher prices, but not “high” prices.

[ii] A Benjamin Franklin Fish Analogy tells us: Like guests and fish, markets start to stink after three days/weeks/months (whatever timeframe is being studied) of moving against the trend.

On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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