Last week, long-term interest rates in the US rose sharply, and stock indices fell across the board. In particular, the sectors most sensitive to economic conditions, such as energy, materials and real estate, fell sharply, and the market movements seemed to reflect a weakening economy.
The overall market is oversold, and there is a high probability of a short-term rebound this week. On the other hand, looking at the long-term trend, the first signs of a market turnaround are beginning to appear.
This week, I would like to look for opportunities for swing trading with a relatively short-term perspective, aiming to rebound from last week's decline.
Let's take a look back at the market while checking the chart.
Long-term stock market trends
As the end of 2024 is approaching, I thought I'd take a look at the longer-term trends on a yearly basis.
The chart below shows the S&P 500 price in the top row and the market breadth in the bottom row. Market Breath is a calculation of the percentage of stocks that are above the 200-day moving average, and it shows how many of the stocks in the S&P 500 are above the 200-day moving average, in other words, how many of them are maintaining a long-term upward trend. The chart uses a 20-day moving average to remove minor noise and a 200-day moving average to show long-term trends.
The pink background indicates the period when the 200-day moving average of the Market Breath turned downward, i.e. the period when the market as a whole entered a correction phase. The Market Breath sometimes starts to fall before the stock price index, and in 2021, a signal indicating a change in the market was issued in September, and the market entered a bear market at the beginning of 2022.
The decline last week has given an early signal of an adjustment (pink background). Currently, some large-cap stocks are supporting the stock price index, and many other stocks are beginning to show weak movements.
It is impossible to predict whether the market will start to adjust from here, and there is also the possibility that it will go through a relatively mild adjustment and then start to rise again. I think that now is a phase where we should invest while carefully watching market trends, assuming the possibility of it going in either direction.
Last Week in Review
Market environment
The yield on 10-year US Treasuries rose by +3.02%. It has exceeded the July high of 4.5% this year. The weekly low has also been raised, and a medium-term uptrend is being formed.
The VIX rose by +32.97%. Last week, it rose sharply to nearly 28, then fell, dropping to the 18 range and forming a very large upper wick. It seems necessary to watch this week's movements to see whether it will fall further from here or whether there will be another rise.
The percentage of stocks in an uptrend fell sharply last week, dropping below 10% and entering oversold territory. Looking at the past year, the probability of a rebound from this level seems high.
NASDAQ Analysis
This is a monthly chart of the NASDAQ. In December, the price rose to 22,000 before falling and forming a long upper shadow. This indicates that there is strong selling pressure, and it seems that we should expect the risk of a change in trend.
This is a weekly chart of the NASDAQ. Last week, it fell by -2.17%. This is the first fall after hitting a high. It is still 50-50 as to which direction it will go in. It seems that we will need to check which direction it will go in this week.
The number of NASDAQ stocks with high-low prices continues to fall, and is in negative territory. The first signs of a rebound are beginning to appear. It will take a little more time to see whether the trend will change.
Dow Analysis
This is a monthly chart of the Dow. In December, there has been a significant decline of -4.64% at the moment, almost canceling out the strong rise in November.
This is the weekly chart for the Dow. Last week saw a large drop of -2.24%. This is the third consecutive week of decline. At one point, it fell to a level below the 20 EMA, but then rebounded and formed a lower wick. This week, it looks like there is a high possibility of a rebound.
Analysis of the S&P 500
This is a monthly chart of the S&P 500. As of December, the current rate of rise or fall is -1.67%, a decline. At the moment, it looks like a temporary adjustment level decline in a strong upward trend.
This is a weekly chart of the S&P 500. Last week, the index fell by -1.95%. After falling to around the 20 EMA, it rebounded and formed a lower wick. Trading volume has increased sharply.
Russell 2000 Analysis
This is a monthly chart of the Russell 2000. As of December, the rate of increase/decrease is -8.27%, showing a large decline. This completely cancels out the strong rise in November, and is a negative value movement.
This is a weekly chart of the Russell 2000. Last week saw a strong decline of -4.52%. After falling to the support line of 2181, we can see a movement of rebound. This is the third consecutive week of strong decline, and the possibility of a rebound is increasing.
Commodity Futures Analysis
The price of crude oil fell by -2.14%. It has continued to remain flat, and the short-term trend of rising and falling is not clear. In the long term, it is trending downward as it is being devalued.
Natural gas has risen strongly by 14.27%, clearly surpassing the resistance line of 3.57. The possibility of the uptrend continuing is increasing.
Gold fell by -1.15%. It fell to the 20 EMA and then rebounded, forming a lower wick. It seems that buyers will become dominant when it falls to around 2600.
Copper fell by -2.30%. It is continuing the downward trend that began in October. It does not seem to have decided yet which direction it will take.
Sector Analysis
Last week, all sectors fell, with the biggest falls in materials, energy and real estate. The sectors most sensitive to the economy have fallen the most. Looking at the past month, energy has fallen significantly, while consumer goods, information technology and telecommunications services have been strong.
When we check the weekly performance by industry, we can see that a few consumer-related industries such as home appliances, department stores, luxury goods, and shoes have risen, while other industries have fallen sharply. In particular, the sharpest falls have been in coal, trucks, oil and gas refining, timber, and housing construction. This appears to be a reaction to the rise in long-term interest rates.
Trend of Individual Issues
Last week, while the overall market was falling, a few stocks such as PLTR, AAPL, APP, ACN, PFE, BMY, BA, and DRI were rising.
Strategy of the Week
Since the overall market has fallen to an oversold level, we will look for opportunities for mean reversion swing trading, assuming that a rebound will come.
Swing trade watchlist
We have added ACN, CCL, and DRI to our watchlist, as these stocks showed strong price movements after last week's earnings announcements.
Click here to see a chart of the stocks monitored.
High-dividend portfolio
In my long-term portfolio, there are an increasing number of high-dividend stocks that have fallen sharply and are now oversold, so I would like to increase my holdings.
This week's candidates for additional purchases are CVX, O, LMT, JNJ, PEP, TXN, and UNH.
This week's earnings release
There are no notable earnings announcements this week.
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