April Reed's Report Insight

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We had big decline off the February highs in a handful of markets like small caps and even a NYSE index broad US index. We did break briefly down below the Dec lows. We didn't on the S&P it made a higher low, it was capitulation, oversold on an intermediate term basis, we got some small demand response off of it, so we expect some kind of a near term rally and so we're back into retesting these key levels, you get to watch us 4200 and really, the last stop is a 4330 to 4340 area where we have the August highs set. Those are the last highs from which new lows and a bear market were made. So that's really the key resistance level, but what I want you to see here is that really since May of 2022, it's been a wild sideways market with a downward bias into October and an upward bias since then. We really need to have better internals and morality and things like that and clear breakouts in one direction, either below the Dec lows or above the Feb to August highs before we really have clarity on the picture and we can see that reflected in the supply and demand indexes. Normally when you get a new bull move, the strongest of these is the demand index, which is in orange. Demand index is still below a downtrend line and was not nearly as strong as supply was weak on the recent rally, so it's not behaving as you would normally suspect, supply fell sharply but came all the way back and is now back above its uptrend line which is negative because it moves in the opposite direction. You can see it in the net spread index, we've just had a wild, volatile, nowhere action. We tried to break above the August highs for one day and back into the range, false break down, we tried to break below the Dec lows for one day came back and we're just in a soup in the middle here. So far, this rally has not gained a lot of steam on a spread basis, because supply has come back substantially. Demand really hasn't done much.

If you just look at this alone, you think it's a mess and what you want to understand is a kind of a rule of technical analysis is the trend, the big trend that is in motion is assumed to remain in motion until proven otherwise and we haven't really proven otherwise. We haven't got any of the indications or major low that we normally get, we haven't gotten any kind of indications in internals that we would expect and so we're still by thinking a sideways market that's kind of a little bit to weigh in a very narrow list of groups and stocks and the rest is kind of all over the place and until we get a clear break out one way or the other, you don't really want to do much. You can see in major internals similar picture. We were talking about these August highs really have to be broken with a plurality of major internals for us to sort of shift from a downward bias or an upward bias on an intermediate term basis, but February we got closely at one index go above the August highs and then come back down and that was here and that's actually net points and that's one of the ones that is broken back below the Dec lows now. We haven't really broken above the August highs and until we do, we're still giving the former trend the benefit of doubt and right now it's really a very mixed picture.

You have the advanced decline line itself kind of back above its moving average, but not really challenging highs, and you've got the really weak one has been the NYSE cumulative net volume, which actually made a new bear market low recently and it's very rare. If you go back to the 60s, we get this data and if you go back to the 20s, where if you pay a zillion dollars for it, you can get this data, in both of those periods, it's extremely rare for any of these index major intervals to make a new bear market low in a bear market and the S&P not eventually follow. Now eventually can be many, many months later, but this suggests that there's new lows potentially in there still. If you're looking at the accumulation, it's very negative and net points is actually quite negative. The advanced decline lines are a little bit stronger and that new high's sort of tried to break out, then broke below the Dec lows and is kind of in a triangle. So really, you got a mix until we break one way or the other with some clarity with some plurality with some strong volume, you don't really want to do much outside of the very strongest and very weakest instruments.

To illustrate what we're talking about, one of the problems with this rally has been really poor participation. There's a great chart that illustrates this. Here's the S&P and here's that percent of the S&P that are above the 50DMA. See that's been in a downtrend and we're still below 50%. Normally, in a new leg up in a bull market, this thing jumps above 50 and stays above 60 really sustainably. It hasn't really done that and if you look at the mid caps, it's been a dead cat bounce for the mid caps, they're still at 27% above their 50DMA and even worse has been the small caps, they're actually on a 20.5%. These are the troops. Usually when you get a new bull market trend, the troops are following the generals, what we've really had is we've had the top 15 big cap stocks in the market have made up over 100% of the gains for the year, and the rest of the market is actually down and the mid caps and the small caps are particularly weak. You can see this as a small cap index and it doesn't look anything like the S&P. Broke the December lows and is kind of hovering there, not really bouncing much. If you just look at Apple, Nvidia and Microsoft, those three stocks, which are three of the biggest cap stocks there are, they are responsible for 91% of the gains from the S&P index for the year. That's a concentration and if you've taken some of our market timing, you understand that when investors are rotating into big caps, that is usually indicative of a top, not any kind of sustained bottom.

We're not getting the behavior you'd really ideally like to see in a new bull market, but we are getting a number of important thrusts, and we are getting some intermediate term indicators that are breaking out. Because we've had the problems in the banking sector, and we'll see more deposit flight this year than we've had at any time since 1930. What we see now is that we've already had a number of recession indicators suggesting that recession is very likely. Those have really spiked up since we had the banking problems. This is the New York Fed recession probability index, normally getting above 0.4 and even a 0.3, you get some recessions, we're at 0.6, which is the highest since the inflationary 70s and 80s.

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