{"id":199348,"date":"2023-11-27T07:44:17","date_gmt":"2023-11-27T12:44:17","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=199348"},"modified":"2024-01-24T13:54:07","modified_gmt":"2024-01-24T18:54:07","slug":"chart-advisor-evaluating-the-bullish-thesis","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/chart-advisor-evaluating-the-bullish-thesis\/","title":{"rendered":"Chart Advisor: Evaluating the Bullish Thesis"},"content":{"rendered":"\n<p>By&nbsp;<a href=\"https:\/\/links.investopedia.com\/u\/click?_t=36ba8fa8372241d58b3bfc06997a4332&amp;_m=0a45a38d705048368109c07e66506da3&amp;_e=dGKWRGvKHh7UZtKt6uKWXGzIOfYDnkEg7-145kZU8ZGBKxB-CEoZLHswOcgNNriarg8wqhpEMPVxvK1Jx8SBEbSFdveEGfnBJz-fylwq6nmTPk9jTi1QeK9jvgYxlPZGQ30zr8CDf7U8APjKJSpKfqPoiujYkqdt-YnqDxs12keqkqpUxMqypu5AmEYjCSq_LgLRjPvURBHJ_W_ksJEXH8a2Ki8x2KBm2TY4jgHrR2h1yur6Z_2PIk9oi3J-QP_PSM-tQctN3o3Aqlm8xChcGaTqWo-ArDXf34kk7mrJD6V3Oui4FigDH4Ocab48tuAikYvbdhIpbKoz12noBS5ExYtcNCYFTPK5dBwbo0eg3gkm2dGK8-T__1RVCZO6ZisN8wFDzef81bJVyQtAl9Jw_VU7dAtPjOznxywM03Ch-RNZ9RDHq6ogw0PX5TLGEykgrNXIpZ-baIc0nC5_vPn_ew%3D%3D\" target=\"_blank\" rel=\"noreferrer noopener\">Adam Koos, CFP, CMT<\/a><\/p>\n\n\n\n<p><strong>1\/ The Inverse Traffic Light<\/strong><\/p>\n\n\n\n<p><strong>2\/&nbsp;Three Ways to Analyze<\/strong><\/p>\n\n\n\n<p><strong>3\/ Looking at the NASDAQ-100<\/strong><\/p>\n\n\n\n<p><strong>4\/ Mega-Caps vs. Micro-Caps<\/strong><\/p>\n\n\n\n<p><em>Investopedia is partnering with CMT Association on this newsletter. &nbsp;The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-1-the-inverse-traffic-light\">1\/ <strong>The Inverse Traffic Light<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/11\/1-26-1100x525.png\" alt=\"\" class=\"wp-image-199349 lazyload\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/525;\" \/><\/figure>\n\n\n\n<p>First, let\u2019s take a look at the stock market with what I call an \u201cInverse Traffic Light\u201d chart of the S&amp;P 500.&nbsp;<\/p>\n\n\n\n<p>Today, we sit at the top-end of the caution-zone, which is marked by the early-2022 highs, as well as the July 2023 highs.&nbsp; If the market were to break north of this potential level of overhead resistance, it would only have the late-2021 all-time-highs to contend with.<\/p>\n\n\n\n<p>On the other hand, if it were to fall below the October low, all bets are off and it would probably make a lot of sense to be nimble, un-marry yourself from the bullish thesis, and get defensive.<\/p>\n\n\n\n<p>Now would probably be a good time to share that, oftentimes, the simpler, the better.&nbsp; Analyzing the market (or any chart, for that matter) with eight different trendlines, 10 levels of support and resistance, combined with another six \u201clower\u201d indicators might look cool (I say \u201cmessy\u201d), but it doesn\u2019t do a whole lot for a trader in terms of taking action!<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-2-three-ways-to-analyze\">2\/ <strong>Three Ways to Analyze<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/11\/2-11-1100x529.png\" alt=\"\" class=\"wp-image-199350 lazyload\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/529;\" \/><\/figure>\n\n\n\n<p>Case in point, there are three major ways of analyzing the S&amp;P 500 without turning a traffic light upside-down\u2026<\/p>\n\n\n\n<p>First, we can observe the market and two major, well-known moving averages.&nbsp; In the chart above, we can observe the fact that the market is trading above its 50 and 200-day moving averages (MA), and at the same time, the intermediate-term, 50 MA is sloping up, all while the longer-term 200 MA is also sloping up.<\/p>\n\n\n\n<p>The second way of determining whether we\u2019re in an intermediate-term uptrend would be to simply observe the major lows and highs over the last 12 months.<\/p>\n\n\n\n<p>It hasn\u2019t been pretty, but the market never goes up and to the right in a straight line!&nbsp; However, if you simply observe the higher-lows (marked with the blue dashed, horizontal lines), you\u2019ll see that all of the major lows have been higher, indicating that we are unequivocally in an uptrend.<\/p>\n\n\n\n<p>Some might consider the lower-lows (see the red dashed lines) from August thru October contradictory to uptrend claim, above.&nbsp; However, I would consider those lower-lows to be part of a counter-trend within the larger, uptrend.&nbsp;<\/p>\n\n\n\n<p>This is where everyone needs to know their timeframe.&nbsp; I personally analyze the markets via an intermediate-term timeframe, so unless the last low (printed in October) were to have remained trapped below the 200MA and\/or if the market were to have printed another lower-low and lower-high thereafter, the intermediate-term trend remains intact.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-3-looking-at-the-nasdaq-100\">3\/ <strong>Looking at the NASDAQ-100<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/11\/3-13-1100x521.png\" alt=\"\" class=\"wp-image-199351 lazyload\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/521;\" \/><\/figure>\n\n\n\n<p>Unlike the S&amp;P 500, which is still contending with its summer \u201923 highs, the NASDAQ-100 has already broken out above those same levels.&nbsp;<\/p>\n\n\n\n<p>Furthermore, if you look back to the July to October market correction, momentum (in the lower pane) was unable to break below the bearish level of 30, and has already crossed, once again, above the bullish level of 70 on the breakout.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-4-mega-caps-vs-micro-caps\">4\/ <strong>Mega-Caps vs. Micro-Caps<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/11\/4-8-1100x531.png\" alt=\"\" class=\"wp-image-199352 lazyload\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/531;\" \/><\/figure>\n\n\n\n<p>All that being said, in order to see this market truly get some legs, we\u2019re going to need to see more stocks joining the party and participating in the uptrend.<\/p>\n\n\n\n<p>To elaborate, since the S&amp;P 500 and NASDAQ are cap-weighted indices, when the biggest stocks have a good day, \u201cthe market\u201d has a good day.&nbsp; Similarly speaking, when the biggest stocks have a BAD day, \u201cthe market\u201d has a bad day.&nbsp;<\/p>\n\n\n\n<p>So, when analyzing mega-cap stocks vs. the small and micro-caps, try to remember the analogy that the big company stocks are like the \u201cGenerals\u201d on the battlefield, while the small and micro-caps are the \u201cTroops.\u201d&nbsp; There are a LOT more Troops than there are Generals, and when the Generals run into battle, the last thing they need is to turn around and see the smaller-cap Troops hunkered down in the forest!<\/p>\n\n\n\n<p>Case-in-point, the Russell 2000 represents small-cap stocks in the U.S., which have been poisonous, at best.&nbsp; Said another way, you don\u2019t even need an RS chart to compare the IWM chart above to the S&amp;P500 or the NASDAQ-100.<\/p>\n\n\n\n<p>In order for the market to continue its uptrend and print new, all-time highs, it would help tremendously to see \u201cthe troops\u201d charging onto the battlefield.&nbsp;<\/p>\n\n\n\n<p>However, patience is going to be required as we move into the month of December, which is typically a time for heavy tax-loss harvesting\u2026 which is when weak\/laggard stocks are sold at the end of the year to wipe out realized gains taken on winning stocks from earlier in the year.<\/p>\n\n\n\n<p>When tax-loss harvesting occurs, it\u2019ll likely be these beaten down small-caps that take the brunt of the selling this year, which will likely push prices back down toward the lows observed in June \u201922, September \u201922, and October \u201923 (see the bottom of the rectangle annotated in the chart above).&nbsp;<\/p>\n\n\n\n<p>Once we get past the meat of December and into the New Year, it wouldn\u2019t surprise me to see some buyers step in to the small and micro-caps, in anticipation of a \u201ccatch-up\u201d kind of environment into the 1st quarter of 2024.<\/p>\n\n\n\n<p>&#8212;<\/p>\n\n\n\n<p>Originally posted 27th November 2023<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Today, we sit at the top-end of the caution-zone, which is marked by the early-2022 highs, as well as the July 2023 highs.  If the market were to break north of this potential level of overhead resistance, it would only have the late-2021 all-time-highs to contend with.<\/p>\n","protected":false},"author":186,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[14,18,6,9,22,23,26,3],"tags":[208,2782,207],"contributors-categories":[13686],"class_list":{"0":"post-199348","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-etfs","7":"category-macro","8":"category-north-america","9":"category-securities","10":"category-stocks","11":"category-technical-analysis","12":"category-text-articles","13":"category-traders-insight","14":"tag-iwm","15":"tag-qqq","16":"tag-spx","17":"contributors-categories-investopedia"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Chart Advisor: Evaluating the Bullish Thesis<\/title>\n<meta name=\"description\" content=\"Today, we sit at the top-end of the caution-zone, which is marked by the early-2022 highs, as well as the July 2023 highs. 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