Last week started with the anticipation of how the market would respond to its prior week’s pullback from the enthusiastic post-election rally.Even without a boost from NVDA’s earnings report, the stock market resumed its bull trend in some encouraging ways.First, as you can see in the daily chart below, the Russell 2000 (IWM) small caps had a strong week, and it bounced off of its recent breakout highs.This pattern of retracing to the prior breakout highs is bullish, and the SPY has a similar pattern.
Additionally, while the SPY rallied, the equal-weight S&P 500 (RSP), shown below, closed at all-time highs which is considered healthy bull market action.
In Keith’s video, you’ll also learn that the mid-caps and value stocks are also leading and closed at new highs.
A Happy Thanksgiving
Looking into next week’s holiday trading, there are some interesting seasonal trends for the short-term trader to consider.As you can see from the chart below, this week has a bullish bias leading up to Thanksgiving, then the day offer is weak.
So far, November has followed its seasonally bullish pattern, which you can see from the chart below tends to be most bullish in the latter half of the month. Although, strong Novembers do have a pattern of weakness in the final days.
Are Investors Cautious?
There’s no debate about where the biggest bulls are – in Bitcoin and other cryptocurrencies. As you can see from the weekly chart below, last week was the third week of explosive price action toward breaking the $100k mark.
While Crypo’s rally, much of the stock market at new highs, and strong flow of funds into stocks (see chart below) would suggest a giddy “risk on” environment, the AAII sentiment readings aren’t confirming the enthusiasm.
As you can see in the chart above, money is flowing into stocks, but the table below shows that the AAII sentiment survey reveals that bearish sentiment has edged higher since the election, and bullish sentiment hasn’t moved up substantially.
The chart below shows that these sentiment numbers are far from any extreme. However, the bearish numbers are on the high end, and the bulls are on the low end of their respective ranges over the last year.
If bull markets peak with euphoria, we’re certainly not there.The market was also able to digest the latest NVDA earnings report without any extraordinary volatility that many traders have come to expect.Is this cautious optimism?
Looking Forward
With earnings winding down and the year-end closing in, it’s the season for new projections and predictions.Since earnings are ultimately what drive stock prices let’s start there.According to Factset…
“The S&P 500 is reporting earnings growth of 5.8% for Q3 2024. However, for Q4 2024, the estimated earnings growth rate for the index is expected to more than double to 12.0%. If 12.0% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q4 2021 (31.4%).”The chart below puts that in perspective. It’s big.
Even more impressive is what analysts are expecting for 2025 – four more quarters of double digit growth. The estimates for the 2025 quarters are 12.7%, 12.1%, 15.3%, and 17.0%.Let’s hope they are right because forward-looking valuations are on the high side of historical ranges, as shown in the chart below.
It’s a good time to make sure you have a tactical investment plan in place. There are plenty of reasons to be bullish, but there are also a lot of signs of the market shifting. You’ll see more evidence of this in Keith’s video this week.More By This Author:Euphoric? Don’t Forget Money Management
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