Headwinds or Headfakes? Bullish Trend Faces Key Tests with CPI, FOMC, and NVDA Split
Did Monday and Tuesday Complete the pullback? Was that all the storm?
4 out 5 days of the week that just ended presented very weak price action, Wednesday was the green day that defined this timeframe thanks to a big decline in interest rates, but those rates reversed to the upside on Friday, is this the calm before the second stage of this consolidation?
The week concluded with a green candle, formed by intraday volatility moves. Monday and Tuesday's lows were quickly bought up, demonstrating bullish sentiment. Even Friday's economic news, featuring an interest rate hike and a substantial 3.67% jump in the 10-year note, resulted in a pre-market dip that was swiftly absorbed by buyers.
No Crash Yet
Since January, my analysis has anticipated support levels above crowd or perma-bear targets. In January, many anticipated $4200 or $4500 as support levels, my base was $4700 despite of the rally; very close to the $4682 bottom.
And since April, my worst-case scenario (not target) was $4850; today there is strong support at $5110, which is expected to act as a floor for the rest of the year. There are no technicals suggesting a decline below that level, the point of managing risk here is to protect capital or gains and stay efficient if considering jumping in.
This market environment favors buying dips, not shorting.
The hanging man candlestick pattern from last week did precede an intra-week pullback, and the current weekly formation was extremely close to the week of May 5th 2023 presented as a benchmark last week.
As expected last week, the $Cboe Volatility Index(VIX)$ experienced a red candle this one. Overall, it appears that a healthy consolidation for $S&P 500(.SPX)$ has already occurred, but four elements are still cracking under the surface.
Is this a direct pathway to $5409?
Subscribers who utilize support and resistance (S/R) levels are aware that the price is approaching this key monthly level. However, it's crucial to consider the upcoming $NVIDIA Corp(NVDA)$ stock split next week.
Stock splits are generally viewed as positive events. They:
Improve liquidity by increasing the number of outstanding shares.
Make the stock more affordable to a wider range of investors, particularly retail investors.
Signal confidence from company management, potentially indicating future growth prospects.
Historically, companies with strong past performance have often continued to see their stock price rise after a split.
Therefore, the overall outlook for NVDA remains bullish. Its staggering revenue growth of over 260% year-over-year has rendered technical indicators somewhat irrelevant, similar to $Apple(AAPL)$ 's performance before its split in 2020.
AAPL's Post-Split Performance: A Cautionary Tale
However, NVDA investors and traders should be aware of AAPL's price action after its split in 2020. As shown in the daily chart below, the split did generate a short-term top, with the price declining 25% before rebounding and continuing its climb to new highs.
One interesting aspect of the NVDA split is its timing. Occurring on a Monday, it allows for a weekend cool-down period that could potentially curb any excess emotions like hysteria or panic buying/selling.
Price action will tell, if this is not the case of NVDA, a vicious price overextension could be around the corner since fair value for Morningstar and other firms are around $1150 (divided by 10 next week).
Why This Over-bullishness?
For new subscribers, remember that just in November 2023 there was a Zweig Breadth Trust, this indicator doesn't just look at the raw numbers of advancing and declining stocks. Instead, it focuses on the rate of change in this ratio over a defined period, often 10 trading days. A Zweig Breadth Thrust historically has been associated with the beginning of bull markets and strong rallies as we are experiencing now.
For the more technically curious traders or investors reading this publication, a Zweig Breadth Thrust is considered to be triggered when the 10-day exponential moving average (EMA) of the percentage of advancing stocks rises from below 40% to above 61.5% within that 10-day window. This signifies a rapid shift from oversold to overbought territory, suggesting a surge in market momentum. History makes this very clear when analyzing SPX performance after such signal.
In a more pragmatic view, this is a very rare signal considering 17 occurrences in 74 years, and the market performance 6 and 12 months after the occurrence has proven the significance of this signal, so there are solid references to expect a bullish 2024, which does not mean that it will be turbulence or pullbacks free.
Zweig Breadth Trust Signals Since 1950:
Using a fixed time reference (6 and 12 months) is a statistical approach that I don’t usually use, I rather watch each year chart (obviously I did it) but this summary is useful for 17 events. My observation is based in the statistic approach showing for the signal of March 31st 2023 just 4% increase after six months, it is correct, but it was after a pullback, since the first rally for this March 2023 signal peaked with a 12% gain in July 27th 2023.
https://substack.com/home/post/p-145416399
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