Market Analysis - December 26th, 2023 (Brian Shannon, altrends.net)
Key Concepts:
- Rising 5-day, 20-day, 50-day Moving Averages: Indicators of trend strength. Being above these suggests bullish momentum.
- Inverted Head and Shoulders Pattern: A bullish reversal pattern indicating a potential uptrend continuation.
- Santa Claus Rally: A seasonal tendency for stock prices to rise during the last five trading days of the year and the first two of the new year.
- VWAP (Volume Weighted Average Price): A trading benchmark that provides the average price a security has traded at throughout the day, based on both volume and price.
- Anchored VWAP: VWAP calculated from a specific significant point in time (e.g., a major low).
- Cup and Handle Pattern: A bullish continuation pattern.
- Risk Management: Utilizing stop-loss orders and understanding market context to limit potential losses.
- Multiple Time Frame Analysis: Analyzing a security across various timeframes (weekly, daily, 15-minute) to gain a comprehensive understanding of its trend.
I. S&P 500 Analysis
The S&P 500 continues to demonstrate strength, remaining above its rising 5-day, 20-day, and 50-day moving averages. Brian Shannon emphasizes the principle of “innocent until proven guilty,” suggesting that as long as these indicators hold, a bullish bias is warranted. The market recently experienced a pullback towards the 50-day moving average, followed by a resumption of the uptrend, completing an inverted head and shoulders pattern. This pattern suggests a price objective near 730, though not a precise target, but rather a likely area of price movement with expected pullbacks along the way. He strongly advises against shorting the market while it remains above these key moving averages, citing the current period of seasonal bullishness – the “Santa Claus Rally.” The focus should be on buying strength after dips and raising stop-loss orders accordingly.
II. NASDAQ Analysis
The NASDAQ is currently testing a trend line that also serves as the neckline of an inverted head and shoulders pattern. Shannon dismisses concerns about lighter volume, stating, “Only price pays.” The average buyer since the recent low (616.5) is currently profitable, negating the significance of low volume. While a breakout isn’t guaranteed, a pullback followed by a rebound and strength would present a buying opportunity. He reiterates the importance of giving the benefit of the doubt to buyers and utilizing the concepts discussed in his Alpha Trends subscription.
III. Alpha Trends Subscription & Methodology
Shannon promotes his Alpha Trends X subscription ($10/month) as a resource for in-depth market analysis and subscriber Q&A. A recent PDF compilation of answered questions details a multi-timeframe approach to trading, incorporating strategies like pulling back to the prior day’s VWAP, chasing gaps, and utilizing anchored VWAP pinches. The subscription includes an hour-long video elaborating on these concepts. The emphasis is on a holistic approach, moving from weekly to daily to 15-minute timeframes.
IV. Underperforming Sectors: Russell 2000
The Russell 2000 has been underperforming recently, exhibiting a short-term pattern of lower highs and lower lows. While currently sitting on the rising 20-day moving average (a level of interest), it’s not yet considered a buying opportunity. Past failures of the 20-day moving average highlight its potential for resistance. Shannon suggests a potential strategy: waiting for a rally on Monday, a pullback on Tuesday, and then considering a purchase with a split stop-loss order (half under each recent low). He stresses the importance of risk management and avoiding unrealistic price targets.
V. Cryptocurrency Analysis (Bitcoin & Ethereum)
Shannon advises staying away from cryptocurrencies like Bitcoin and Ethereum currently. Both are in downtrends, with the 20-day moving average below the declining 50-day and 200-day moving averages. He notes that Bitcoin’s 20-day moving average hasn’t been breached for two weeks. Ethereum is at a level of interest due to prior resistance acting as support, but this doesn’t constitute a buy signal. He warns that cryptocurrencies “don’t scare you out, they’ll typically wear you out.”
VI. Semiconductor Analysis
Semiconductors are showing strength, and Shannon cautions against interpreting the recent price action as a double top. A true double top requires a breach of the trend line and a break below the valley between the two peaks. Instead, the sector is continuing to rally. He suggests considering a cup and handle pattern, but emphasizes that the key is the breakout, pullback, and subsequent rebuilding of strength. Buyers are currently in control, and stop-loss orders should be placed under recent higher lows.
VII. Biotech & Nvidia Analysis
Biotech is holding up well, breaking resistance that is now acting as support, alongside a rising 5-day moving average. It remains “innocent until proven guilty.” Nvidia has rallied nicely above the 50-day moving average, and a higher low could signal a push towards new all-time highs.
VIII. Moving Average Considerations (Weekly vs. Daily)
Shannon explains his preference for using a 42-week moving average instead of the traditional 40-week moving average. This adjustment accounts for the approximately nine market holidays and half-days per year, ensuring a closer approximation to the 200-day moving average when comparing weekly and daily timeframes. This ensures consistency in analysis across different time scales.
Notable Quote:
“Only price pays.” – Brian Shannon, emphasizing the importance of focusing on price action rather than secondary indicators like volume.
Conclusion:
The overall market sentiment, as of December 26th, 2023, remains bullish, particularly for the S&P 500 and semiconductors. Shannon stresses the importance of following trends, utilizing multiple timeframes for analysis, and prioritizing risk management through strategic stop-loss orders. He advises caution in cryptocurrencies and a wait-and-see approach for the Russell 2000. The key takeaway is to buy strength after pullbacks, remain adaptable to market conditions, and avoid fighting established trends.
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