Hello Everyone,
During the Holiday shortened week, all the indices posted gains. The DOW continues to lead as it has now exceeded the August highs while the other indexes remain well below those levels. Late last week the SPX managed to eclipse it's prior high on from mid November so now we can count 5 waves up from 3698 but the SPX is now displaying some intraday divergences so trail up stops while watching to see if big tech can play catch up and help to extend the current uptrend.
Tech (Nasdaq and NDX) and IWM are lagging on this advance as they have yet to take out their prior highs from November 15th. So as we enter next week, we will be watching to see if these current intermarket divergences are cured or if they start to pulldown the DOW/SPX be failing to confirm.
Other divergences of note are Dow Theory - the transports have yet to make new highs (non-confirmation with the Dow Industrials). Continue to monitor closely as the prior divergence back in January led to a reversal.
While we focus on the market technicals we should always be cognizant of the FED (which wants to stop the wealth effect) which has enacted a yield curve inversion which has always brought on a recession. Historically, the stock market has only bottomed sometime after the start of a recession. Will this time be different?
Lastly, valuations remain elevated. The Buffet indicator is the ratio of the total US stock market to GDP. As of November 11, 2020 the ratio is listed below by Stock Market Valuation (source).
Aggregate US Market Value: $42.8 Trillion
Annualized GDP: $25.8 Trillion
Buffet Indicator: $42.8 / $25.8 = 166% (Peak was 202% in 2021)
For reference the 2002 peak was 142% and the 2007 peak was 107%
Please see trading community where I posted those charts.
Highlighted Events Next Week:
Wednesday - ADP/JOLTs Job report, Powell speaks on the economy.
Thursday - PCE inflation report.
Friday - November Jobs report.
Please take a moment to look at the trade ideas.
