$QQQ at the Crossroads

The 200 day.......

December the market went straight down. January it has gone straight up into earnings.

Sure, we can debate the nuances of why, but the market is 1) clearly ignoring the Fed (expecting cuts in 2H of 2023), 2) clearly ignoring bad EPS updates unless they are seemingly a debacle, 3) clearly forcing capitulation by CTAs and investors who left 2022 with low net exposures or lazy shorts. A friend asked me today what would AMZN 0.00%↑ have to report for the stock to stay down and/or even hurt the market for more than an hour or two? Yep, that’s what animal spirits feels like (our last substack).

The GDP report for 4Q and regular weekly low jobless claims give the impression of a soft landing is upon us. Yet, many areas are reporting weakness which seems to be contained, but spreading. First, pandemic overspend the prior two years caused some slowdown. Then, the housing weakened quickly on higher rates. Then we started to see the unwind of massive inventory build (double ordering) from supply chain tightness. But, the market has gone on a run in January as Rocky Balboa said to Clubber Lang, “you ain’t that bad, cmon!”

For my taste, this is the 4th rally of this kind we have had in the last twelve months. Each has sucked all players in and spit them back out when the narrative changed. First, we had a 10% plus rally in starting mid March 2022. Then we cratered into June and rallied nearly 18% off those lows into August. The November 2022 rally was more the garden variety 10% rally. The current rally closely resembles the November bounce we had. This roller coaster action is disheartening for most investors as it is hard to match fundamentals with valuation and the overall growth (or lack thereof) narrative. But now, we are at the 200 day moving average for the $QQQ!