1/ Clusters of 1% Gains
2/ More Than a Spike?
3/ Is the Dollar Topping or Digesting?
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1/ Clusters of 1% Gains
The S&P 500 now is +5.2% from the most recent October low point and up four straight days. The last two four-day winning streaks (from 10/6-10/11 and 8/25-8/29) ended abruptly, with strong multi-week declines soon to follow.
There is one key difference so far this time. The SPX just logged its second straight 1% advance and its third in the last four days. We haven’t seen a cluster of big advances like this since the index registered two straight 1% advances on June 1st and 2nd, which was part of three 1% gains in five days.
That’s important to remember because June ended up being one of the best months in recent history, and it materialized after the relatively tough month of May. We’ll recall that the SPX was flat in May, but 75% of the index declined month over month (as mega-cap Tech outperformed everything).
Right now, of course, the index is trying to break the current three-month losing streak, during which 70% of its components declined each month. Thus, it would be an opportune time to leverage this bullish start.
2/ More Than a Spike?
ARKK is no stranger to big moves, but on Thursday, the ETF ripped higher by 8.4%, which was its biggest advance since November 10, 2022. The question, of course, is “how much gas does it have left in the tank?”
As outlandish as it sounds, the monster move did not alter its chart structure, at least not yet. ARKK has been making lower highs since topping in late July. This is no different than many other ETFs and stocks. But we’ve seen the ETF come back before.
In fact, it rallied back from a sizable drawdown this past spring. Like now, that initial spike brought it right back to a noticeable supply zone, which it couldn’t break through right away. It digested the first up leg, formed a bullish pattern, broke out and extended higher from there.
For ARKK to extend this already big upswing again now, it would be helpful to replicate that same kind of behavior. One potential blueprint is noted below.
3/ Is the Dollar Topping or Digesting?
The US Dollar declined on Thursday, which helped risky assets do well across the board. If you haven’t noticed, the dollar actually has stopped going up in recent weeks. In fact, it’s now net flat since September 26th. Given what the stock market has done since then – mostly decline – we’ll need more than a continued pause for equities to continue much higher.
So, a lot will be riding on whether this slowdown in momentum actually intensifies and forces the dollar to more thoroughly reverse lower. While anything is possible, the Dollar took its time in forming a top the during the last three occasions. Sometimes that took longer and was a lot more volatile, like we saw at the end of 2022. Other times, it occurred more quickly, like what happened from earlier this year.
We also should watch the 14-day RSI closely, as the Dollar’s sell off intensified each time the indicator finally undercut the 50-threshold for good. Currently, the 14-day RSI is at 52.
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Originally posted 3d November 2023
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