Breaking Down the S&P 500 Surge: Super Bulls and Swift Moves

Most of our clients and investment content viewers know that for our YouTube content, the OHFG investment team likes to stay away from general market reporting and generic comments, and provide value added insights into what we see going on behind the scenes. With the magnitude of earnings calls the last two weeks, this is one of those rare times I’m reverting to reporting.  I thought the title “super Bulls move us Swiftly to S&P 500 = 5000 was appropriate given this is being penned on Super Bowl Sunday in front of the big game.

Here’s a picture of the SP500 showing how far we’ve come the last 3 months from the lows in late October 2023 when many in the financial business were touting coming stock market crashes or economic recessions.  Here is the daily chart:

chart 1: daily s&p 500 index

The OHFG was quite positive into the market lows in late October 2023, even going so far as “calling for the coming short-term bottom” the night of our Thursday October 26th Livestream with Troy, Charles, and myself. Back then the cash S&P 500 was between 4105 and 4150 and our team was forecasting a strong 4th quarter and 1st quarter rally that could take the S&P 500 to 5000 conservatively in the first quarter of 2024 and 5150 to 5150-5200 more aggressively in the 1h2024.

Well, whether we are good at this investment management gig or just lucky, that’s what has transpired so far.  Now, I must admit that I did not anticipate the directness of the move off the October lows.  By directness, I mean the lack of almost any discernable pullback on a % basis or time basis so far.

While we have messaged since the beginning of this move that we expected the rally to last about 5 months into mid to late March, as that amount of time is quite the normal initial run off a major low, I did not expect it to be so direct.  Direct as in without almost any % pullback. We have now moved 900 points in the cash S&P500 with the only noticeable squiggle down being the first few trading days of the year as investors took gains in the new year. Additionally, the only noticeable “stall” from a time standpoint was the 4 weeks between December option expiration and January option expiration.  Here’s the weekly chart of the S&P 500 for the last 7+ years.

Chart 2: Weekly S&P 500 Chart

I hate the word “unprecedented”, largely because it became commonplace and overused.  However, in this case I’m throwing it out there.  Why? Because the S&P 500 rallied and finished positive for 14 out of the last 15 weeks.  Not since the 4th quarter of 1971 into early 1972 has this happened.  So yes, this winning streak is unprecedented in the last 52 years.  Investors, even during the Internet bubble run in the 4th quarter of 1998 through 1st quarter 2000 that our team has referenced many times in a positive fashion the last 15 months, this kind of winning streak did NOT happen.  Stocks paused and treaded water or declined sharply and rapidly several times during that history run.

But so far, not this time. Here’s the overlay of the current markets with the Internet buildout rally in the late 1999- 2000 period.  This continues to be unbelievably tight particularly when viewed through the lens of technology stocks, now accounting for nearly 45% of the S&P 500 when the communication services sector and AMZN are thrown in. Here’s the updated overlay of the Nasdaq Composite back then and now.  As Yogi Berra said, “it’s Deja Vue all over again”.  However, this time around, with a heavier weighting in tech stocks, the S&P 500 has not had much of any stall or pullback.

Chart 3: Updated overlay of the Nasdaq Composite back then and now

The S&P 500 overlay has diverged over the last 2 weeks from the early 2000 pattern largely due to the 10% heavier weighting in technology stocks now than back in the 1q2000.  How much are technology stocks and other high growth names dragging up the overall S&P 500?  Well on Friday February 9th, the first day the cash S&P 500 closed above the 5000 level ever, the Dow Jones 30 index was down -.15%, the S&P 500 index was up +.57% and the Nasdaq Composite Index was up +1.25%.  With the Nasdaq now accounting for almost 45% of the S&P 500, do you see its effect?  Let’s do that math together.

The Nasdaq up +1.25% multiplied by about 45% weight in S&P 500 = about +.5635%.  The overall S&P gained +.57% on Friday.  Pretty much spot on the math calc.  So, almost every other stock in the S&P 500 that wasn’t a Nasdaq name was flat to down on the day or didn’t contribute to the S&P 500.  That’s worsening breadth behind the scenes.

Behind the scenes, divergences continue to build.  On Friday February 9th, when the S&P 500 first closed above S&P 500 500, the fewest stocks in the S&P 500 were above their 200-day MVA since December and the fewest above their 50 day since all the way back in November.  Those are bad breadth indicators.  Here’s J/C updated breadth charts.

Chart 4: J/C updated breadth charts

This means there has been a sharp falloff in the number of stocks with positive chart profiles vs the number with negative profiles. That’s as the S&P 500 has made new ATH’s.  This is called a negative divergence and throws up a yellow caution flag.

Chart 5

Should it make one bearish and run for the exits? Not necessarily if you are a longer-term investor, as history sdays there is more upside left for 1h24, but shorter term traders should be looking increasingly to hedge positions or take some profits off the table while stocks are green versus waiting and selling when things are less than Super “Bull”ish and are “Swift”ly turning Red.

Investors, thank you for taking the time to watch this week.  I hope the team you were rooting for won last Sunday, and I hope you forward this link to your friends or others with an interest in the financial markets.   We will be taking next week off from new investment content, so please look for us again in 2 weeks.

 For the whole team here at OHFG have a blessed week and a fantastic February.