Momentum Monday - The Bull Market Continues...Divergences Be Damned For Now.

If you didn’t know that market seasonality is currently bearish would you even consider the bearish side right now? 

Let’s look at the facts. What is the history of market weakness so far in 2024? 

The year started with one week of selling on low volume as everyone was overly exuberant at the end of last year. Then QQQ and SPY bounced quickly and made new all-time highs within two weeks.

At the January FOMC meeting, the Fed alluded that they don’t plan to cut rates until May. There was a one-day selloff. QQQ and SPY recovered to new highs two days later.

Last week, CPI came above the estimates. There was a one-day selloff. QQQ and SPY closed the selloff gap within two days but haven’t made new highs yet. 

On Friday, PPI came above estimates. Most stocks sold off and finished near the lows of their daily range. This could potentially be the start of a minor pullback in the market. The key is seeing a follow-through. So far this year, any slight dips have been bought. We will know soon enough if anything has changed. 

In the meantime, any company that is remotely related to AI crushed earnings estimates and went higher – mostly semiconductors and software. We have also seen so many positive earnings reactions across various industries – fast food, apparel, shoes, transportation, industrials, biotech, medical devices, advertising, crypto, etc. The midcap ETF, MDY broke out from a long base. The small-cap ETF, IWM has been volatile but also making higher lows above a rising 50dma and setting up for a potential breakout near 205. These are all bullish developments. There will always be something to worry about but that doesn’t mean that you should get bearish without any price evidence for it.  

The big question you should ask yourself is – are you losing the big picture just because you are preparing for a 3-5% seasonal pullback? People seem so afraid of missing out on the next correction that they might not be benefiting enough from the current rally. Of course, it’ll end at some point and we will have a correction but there’s no price evidence that one is currently underway. The one thing to keep in mind for the next week is that the second half of February tends to be seasonally weak, especially after monthly option expiration. Being nimble and more selective in the next couple of weeks would make sense.