Positioning: Full, but that’s not necessarily bearish in a rip snorting bull market. Sentiment and positioning have made lower highs as equities have moved higher, a configuration typically found ahead of pullbacks. But, the fact NAAIM for instance has so quickly come in each time SPX has pulled back 1-2% speaks to the wall of worry currently in place and how the market has internally corrected enough along the way to keep chugging higher.
Breadth Levels: On one hand a variety of divergences have emerged across breadth indicators, and I suspect SPX and NDX will correct down to these implied levels here soon, but in a bull market, breadth contractions can be viewed as a good thing as they represent an internal correction that allows the market to continue rotating higher.
Breadth Thrusts: I came into 2024 a raging bull on equities based on the powerful thrust signals that fired over the course of November and December. However, I outlined key indicators I would be monitoring to ensure the thrust signals weren’t a false dawn based on a poorly communicated FED pivot away from rate hikes but not toward the imminent rate cuts that underwrote the thrust signals. Those key indicators were UST 10s and 30s, TIPS break-evens, and policymaker rhetoric. Over the course of January all three indicators moved decisively away from the configuration that underpinned the thrust signals. But the market has powered higher anyway. Of course, the equity market could simply be in denial and will eventually succumb to downward gravity, but the fact it has barreled higher despite these key factors moving against it in the wake of these key thrust signals tells me something else is afoot. IMO, this something else is AI + fiscal. Until realized inflation data start moving decisively higher to the 3.5-4% range (not just stabilizing at 2.5-3%), forcing the Fed to start hiking again (which I believe will ultimately be the case, starting at the December FOMC), there is a very clear path to SPX 6000-7200 (25-30x $240 EPS).
Relative Strength: Unequivocally bullish. Key macro pairs continue to point to a strong US economy, if not a reaccelerating one and defensive sectors remain mired in decisive relative strength downtrends. Yes, a strong economy is bad for cyclicals because the Fed’s “opportunistic disinflation” policy threatens no cuts and potential hikes if a strong economy pushes realized and/or expected inflation higher; but, for broad equity market risk purposes, the fact cyclicals are outperforming defensives is bullish.
Credit: Outside of some minor tactically bearish signs, credit is full stop bullish. Corporate credit issuance has SURGED YTD, and spreads continue to grind tighter.
Technicals: It’s on the tactical bears, myself included, to prove why SPX being up something like 15 out of 16 weeks in a 1995-1996 style rally is going to result in a decline of more than -3%. This is a smoking hot bull market.
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