Runaway Momentum Crushing Everything In Its Way

It is pretty amazing what momentum can do in the markets. Once that ball gets rolling strongly in one direction it can powerfully build and build and then crush everything in its way, kind of like an avalanche which I know a little about. Let’s take a quick look.

Below is the S&P 500. From the October bottom you can count only a few red days where the index closed below where it opened. Now, go see how many times we have had back to back declines. Do you see any declines greater than 1%? Folks, this is the absolute epitome of runaway momentum.

Moves like this are rare. And they are never corrected mildly or by going sideways. They typically stay in that straight line until they don’t and then late comers are punished. They do not give you comfortable entry points after they begin and they seldomly give you easy opportunities to get out.

And to be fair and balanced, let’s look at the Russell 2000. Similar momentum but not as strong on a day to day basis with a few opps to get in.

However, let’s also zoom out and see three other times that look like today. All three failed right around this area. Is the fourth time a charm? I think so, at least that the 2000 level doesn’t stop this rally. As I mentioned the other day, don’t be surprised if we see a quick move to 2100.

Let’s remember what I have been saying. The masses came into 2023 very defensively positioned. They were emboldened in March when three banks essentially failed, including Silicon Valley Bank. Some threw in the towel when stocks soared into the summer. But the 9% Q3 decline gave the bears some hope. Since the October bottom, the rally has been relentless with year-end squarely in the sights. Countless portfolio managers were caught and in the fight for their jobs. It has been an epic, generational chase by these wrong way folks. In a word, they are screwed.

If you caught my segment yesterday on Fox Business, you know that I took a few victory laps and thumbed my nose at all those people who trolled me 12-15 months ago. I literally haven’t heard from any of those people since April. I also offered that 2024 will look nothing like 2023. I do not think it’s another one of those easy years to sit back and do less. Momentum should end in Q1 and there will be a price to pay for those who joined the party at the end.

On Monday we bought QDEC, IWO and more TYL. We sold levered inverse S&P 500, some BX, some IJS and some levered NDX. On Tuesday we bought more ERX and more levered NDX. We sold some ONTO.