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Weekly Economic and Stock Market Commentary – January 29, 2024

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As for the stock market specifically:

It was another big week for buyers on Wall Street. We saw gains across the board, and in the pattern that we saw in 2023 – just a few stocks carrying the load. International stocks continue to lag US stocks. That pattern has been in place for years.

The major market averages in the US found record levels last week.

Let’s remember that much of the gain in 2023 was concentrated in a few stocks, and they continue to account for the substantial amount of the gains in the first few weeks of the new year.

What follows for the next few paragraphs is stock text that I present occasionally. These items are the basic building blocks for the investment strategy I use. Bear in mind that this is simplified.

 

stocks

 

On the left, I highlighted a bullish chart pattern that I will call a double top break. This is a column of demand that exceeds the previous column of demand. The “signal” occurs when the stock shows demand (buyers) at $35.00.

The blue numbers and letters are used to tell time, 1 for January, 2 for February, etc., with A for October, B for November, and C for December.

 

 

 

 

On the left, I highlighted a bearish chart pattern that I will call a double bottom break. This is a column of supply that exceeds the previous column of supply. The “signal” occurs when the stock shows supply (sellers) at $38.00.

The blue numbers and letters are used to tell time, 1 for January, 2 for February, etc., with A for October, B for November, and C for December.

 

 

 

The bullish percent is the number of stocks that have bullish patterns, nothing more, nothing less. It is calculated by counting the bullish charts, and dividing that number by the number of stocks in a sector/market. Then multiply by 100 to get the percentage. A key item to remember is that all stocks that have traded for some time will be either bullish or bearish, not both.

About once a quarter I explain the difference between a market capitalization weighted index, such as the S&P 500, and the “one-stock, one-vote” weighting of the bullish percents. Today is that day.

The discussion comes down to a variation of this: “Why are the bullish percents increasing, but the numbers I see on TV are a little up, flat, or a little down?” Since this is election season, think of the difference in terms of the composition of Congress.

There are two basic answers. One potential answer comes from the nature of the bullish percent. It is based on the notion that a stock as large as General Electric counts as much as a stock of the size of the smallest stock on the NYSE. Think of the bullish percent like the US Senate – California counts as much as South Dakota.

The other potential answer stems from the composition of the index, such as the Dow Jones Industrial Average, S & P 500, or Nasdaq. The S & P 500 and the Nasdaq are known as capitalization weighted. That means the largest companies in the respective index holds greater influence than the smaller companies. The metaphor here is to the US House of Representatives. There, California has approximately 52 representatives, while South Dakota has 1.

The defense went on the field last week. I stand by my words saying that I don’t believe there is any need to make major changes at this point.

The bullish percent indicators moved up the field last week, but not enough to have an impact on the direction. We will keep the bifurcated view of WEALTH ACCUMULATION for OTC stocks, and WEALTH PRESERVATION for NYSE companies.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of January 26, 2024 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Commerce announced the economy grew at an annualized rate of 3.3% during the 4th quarter. This was well above the 2.0% rate many economists anticipated. Overall growth in 2023 was 3.1%. The Federal Reserve’s presumed favorite inflation indicator showed inflation at 1.7% in the 4th quarter, which was down from 2.6% in the 3rd quarter. Real personal disposable income finally rose, and it came in at 2.5%.

The Commerce Department also provided the December Durable Goods report. This showed a gain of 0.6% compared to the 0.2% gain expected by economists. The report I saw did not have any more elaboration.

Finally, the Commerce Department earned its pay last week, we learned that December new home sales came in at a seasonally adjusted annualized rate of 664,000 units. This was an 8% increase from November, which was revised in the lower direction.

If you want more information or have any questions, please contact me.