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Introduction
The Momentum Mojo article builds on many prior signal event articles with extra explanations on the way to profit from one of the crucial fashionable options of the Worth & Momentum Breakouts investing group. As extra information factors are collected, extra insights are gained. We’re seeing the strongest and broadest breakout within the markets since January, however many dangers lie forward.
After very sturdy features in January, this previous February signaled the biggest market topping signal since August 2022. Since then, many sectors have declined, with financials among the many hardest hit sector this yr. A banking disaster adopted immediately after the February damaging sign, and we now have been ready via Might for indicators of a broad constructive market sign. Whereas the Know-how sector has been led by a number of mega caps in sturdy constructive momentum, it has been a slim commerce that left each the DJIA (DJI) and Russell 2000 (RTY) indices in damaging territory via Might. Momentum is shifting.
Momentum Gauges Dashboard
Market each day gauges, S&P 500 (SP500), and sector gauges are extremely constructive within the first broad rally in months. All of the sectors turned constructive this week within the strongest broad market transfer since January. Cash flows to oversold sectors like financials, power, and fundamental supplies could speed up so long as the U.S. greenback continues to say no from peak ranges in Might.
Market Momentum
Momentum continues to rocket larger once more this week after it broke out above 70 on Friday following a few of the choppiest weeks on the indicators that we now have seen in years. This lengthy interval of chop was largely as a consequence of issues a couple of debt default with frequent sector rotation to security. This week we’re seeing the strongest breakout since January as detailed right here final week:
An important cash flows to look at proper now could be the shift towards small caps and oversold worth shares and away from excessive overbought mega/know-how shares. That is illustrated within the distinction between the Russell 2000 index fund (IWM) and the ten inventory MicroSectors FANG+ Index 3X Leveraged ETN (FNGU) proven beneath. Look ahead to alternating dip-buying within the strongest breakout sign since January with many similarities to the prior stair step patterns.
MicroSectors FANG+ Index 3x bull fund
The focus of features into the ten largest mega caps is reaching peak ranges final seen in January 2022. Anticipate regular revenue taking to learn the small caps and lagging worth sectors in alternating market breakouts.
The Mega Cap share of the S&P 500 development is concentrated with over 50% development from Alphabet (GOOG, GOOGL), Microsoft (MSFT), Apple (AAPL), NVIDIA (NVDA), Meta (META), Netflix (NFLX), Amazon (AMZN) and Tesla (TSLA). These ranges mirror peak pricing again to January 2022 with out broad market participation.
Yardeni.com
Day by day Market Momentum Gauges YTD
Momentum has cleared the uneven equilibrium vary (yellow) as detailed final week, and in contrast to the mid-Might soar, all of the sectors are nonetheless collaborating within the breakout. There’s a a lot better probability that this bounce will maintain for the oversold sectors.
Weekly Momentum Gauges YTD are heading towards a 4th consecutive constructive week with a lot much less noise than the each day gauges. The weekly chart additionally illustrates the unexpectedly sturdy momentum situations in January that topped in February forward of the latest banking disaster.
These weekly momentum strikes additionally correspond strongly inverse to the motion of the Invesco DB US Greenback Index Bullish Fund ETF (UUP) proven beneath. Because the greenback declined into January, we had a robust rally that peaked on the finish of February. As Might involves a detailed with the greenback index on the highest ranges since March, we’re clearly headed towards one other rebound off the lows of this cycle.
Why do finance corporations admit that “timing is every part,” however in terms of investing your cash, the bulk inform their shoppers to “simply purchase/maintain and attempt to ignore the downturns?” I submit most traders would depend on timing indicators, however with out a mannequin just like the gauges they’re pressured to attempt to hold their shoppers in purchase/maintain positions for twenty-four months with no features, or worse.
If timing helps you acquire simply 1% every week, you’ll considerably outperform all of the long-term market averages.
Very long time members know, we will constantly beat the markets by avoiding probably the most damaging weeks and loading up throughout probably the most constructive indicators. Solely the monetary trade has incentives to make you keep within the markets yr spherical.
2023 Market Outlook
Subsequent week is vital with the Fed FOMC charge determination on June 14th. The Fed has already delivered its tenth consecutive charge hike within the quickest collection of will increase since 1977. The S&P 500 (SPX, SPY) continues to be damaging for the reason that Fed started its tightening program on March ninth, 2022 and commenced mountaineering charges early final yr. After the newest PCE inflation unexpectedly elevated once more, the chances of an eleventh hike in June jumped to 66.5% and have fallen again to 25% on the CME FedWatch Tool. Traditionally, such excessive charges have led to a market correction after every rate hiking cycle in U.S. historical past. Though I’m happy to report present constructive momentum, the biggest QT program in historical past continues to be ongoing to cut back the Fed’s steadiness sheet on the quickest charge ever performed, with goal ranges of -$95 billion per 30 days.
Yardeni.com
My technique for 2023 is to remain usually bearish whereas adjusting for big bear bounces in anticipation of sturdy similarities to the August topping sample final yr. Financial information, inflation, manufacturing productiveness, house gross sales, and the newest banking disaster proceed to point out recessionary weak point into rising rate of interest hikes on the highest ranges since Sep 2007.
Present Returns by portfolio sort via yesterday
Observe that the MDA breakout returns with sign have fewer buying and selling weeks however a lot larger per/week share returns as defined within the Weekly MDA Breakout articles. The long-term purchase/maintain portfolios proceed to outperform the S&P 500 yearly.
VMBreakouts.com
Mid-year 2023 is almost right here and issues could get attention-grabbing with potential for a Fed pivot. Dip-buyers will proceed to attempt to pull this anticipated pivot occasion ahead in time, extending excessive market volatility whereas the Fed hikes charges.
The brand new June Russell Reconstitution anomaly report will probably be launched once more in June with the newest shares for 2023. Here is my review from final yr.
A few of my forecast articles for 2023 are right here on your profit.
Sector Momentum
For this text, I need to spotlight once more simply two of the eleven sector gauges particularly. The variations between these two sectors additionally accounts for a lot of the acute chop within the markets just lately. The Momentum Gauge ETF mannequin follows the indicators with returns proven beneath for indicators lasting greater than 3 days.
Know-how Momentum Gauges proceed for a fourth week to be the breakout sector, however momentum is weakening. Unfavorable gauges proceed to drop sharply from the height of damaging momentum on Might 4th. The Direxion Day by day Know-how Bull 3X Shares ETF (TECL) has gained over +38% from Might 4th and will proceed towards January peak constructive momentum ranges at 180. The know-how sector is the best weighted and largest sector on the key market indices, particularly the Nasdaq and associated index fund (QQQ). So long as know-how momentum will increase it’s going to profit know-how funds like Direxion Day by day Semiconductor Bull 3X Shares ETF (SOXL) and the Mega cap bull funds comprised largely in know-how like MicroSectors FANG+ and FANG Innovation 3x funds (FNGU) (BULZ).
Monetary Momentum Gauges have been probably the most damaging sector this yr from the February 21 sign upfront of the March banking disaster. This previous Friday gave us solely the 2nd and most constructive sign in over 71 days. Since that damaging market and sector gauge sign, the (FAZ) -3x Monetary bear fund has gained +29.8%. This new constructive sector sign may mark the beginning of an extended rebound in banks, with the (FAS) 3x Monetary bull fund and associated (BNKU, DPST) for sturdy potential features.
The Regional Financial institution small cap breakout
The 3x bull fund for small banks is displaying a robust early breakout with bullish stair steps alternating with the mega bounces. It takes lots much less capital to maneuver these small caps and as extra traders financial institution earnings from elevated mega caps the inflows to small caps like biotechs, regional banks, and retailers may benefit drastically from right here.
Prior Unfavorable Alerts In Advance Of Main Downturns
One of the crucial fashionable makes use of for the gauges is to get superior warning indicators forward of main market downturns with a purpose to defend your investments. Examples of prior main market topping indicators together with the 2018 quantitative tightening (QT) correction and the 2020 Covid correction are proven beneath.
The purpose of this illustration is {that a} majority of all of the indicators detected to date have been occasions exceeding -5% S&P 500 declines to as a lot as -35%, together with one of many worst one-month declines in historical past. I at all times publish many extra present examples and sign articles all year long for anybody concerned with following my market updates.
Assessment Of Prior Alerts
Sign 19 (November seventeenth, 2021) Momentum Gauge Topping Signal: The Second Largest 2021 Negative Signal To Date
- Sign 16 (June seventeenth, 2021) Momentum Gauge Topping Signal June 17: The Largest Negative Signal In 2021
- Sign 11 (January 29, 2021): First Negative Momentum Gauge® Signal For 2021: Reviewing The Signals | Seeking Alpha Marketplace
- Sign 9-10 (September 13, 2020): An Election Year Correction Signal And Only The 3rd Negative Weekly MG Signal In 2020
- Sign 8 (June 24, 2020): Evaluating The 8th Market Correction Signal On June 24th That Has Preceded Every Recent Decline
- Sign 7 (March 23, 2020): Revisiting The Signals That Forecasted Every Recent Decline, In Search Of Early Recovery Indicators
- Alerts 4-6 (Jan 28, 2020) : Revisiting The Signals That Forecasted Every Major Downturn Since “Volmageddon”: What’s Next
- Alerts 1-3 (Aug 8, 2019): These 3 Measures Forecasted Every Major Downturn Since QT Started: What’s Next
Conclusion
The Momentum Gauges proceed as a part of an energetic analysis undertaking that has delivered extremely worthwhile outcomes to many readers of my revealed monetary articles. I proceed to reinforce the mannequin as we collect extra information over many extra months and years. The present market situations with rising charge hikes and the biggest Fed quantitative tightening program in historical past could contribute to weaker than common efficiency for 2023.
Traditionally, from 1950, the six-month interval between Might to October delivers the bottom common returns for the S&P 500 relative to all six-month intervals. The present Fed tightening situations and method of a possible recession should not factored and will additional improve the market dangers this yr.
Future Updates and Cautions: If you need notifications as to when my new articles are revealed, please hit the button on the backside of the web page to “Comply with” me. If you’re a short-term dealer, weekly breakout picks are launched each week and the brand new long-term portfolios will probably be launched mid-year in July. The present purchase/maintain January Piotroski-Graham worth portfolio is up over 23% YTD. Please make sure you examine the hyperlinks to the background articles for detailed analysis data and optimum buying and selling methods.
I hope this evaluation supplies you with further market perception that advantages your buying and selling within the days forward!
JD Henning, PhD, MBA, CFE, CAMS.