On Wed 10 Jan 2024 10.22pm, I emailed Clients my latest post titled 'What will 2024 bring?''.
Below is the full transcript for your perusal:
'Dear Clients
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Happy New Year!
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I extend my sincere apologies for my apparent 'absence' over the past two months. Rest assured, I have been diligently monitoring the developments in the S&P500 Index and the US bond market on a daily basis, ensuring that your investments are well looked-after while you pursue other aspects of life.
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The delay in penning a memo was due to a series of engagements that demanded my attention, including bond deals, media interviews, private equity events, and more. Despite these commitments, I want to assure you that my focus on the global capital markets has never wavered.
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I encourage you to refer back to my memo dated October 23, 2023 (http://tinyurl.com/somethinghastogive). In that memo, I outlined a bullish script for both equities and bonds, and I am pleased to say that Mr Market has once again validated my strategy precisely as outlined in the memo.
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Let's do a refresher of my key takeaways from the 23 Oct memo:
Extract from 23 Oct 2023 investment memo for Clients
Now, let's dissect the above pointers one by one:
1. Ref to pt 1 above, the SPX/TLT ratio has indeed moved from a high of 51 to a low of 47 in a span of 2 months. Bonds have indeed outperformed Stocks in these 2 months, resulting in the SPX/TLT ratio easing off. See attached Charts 1a & 1b below to get a better grasp of my technical perspective.
If you think analyzing and predicting the movement of a single asset pricing is difficult, go try out a derivative ratio such as SPX/TLT. I'm gonna be truthful here - to decipher the direction of a ratio you will indeed require a certain level of skill and understanding of market dynamics. It involves interpreting the interplay between the two underlying assets and assessing how macroeconomic factors, investor sentiment, and other variables might impact their performance.
Chart 1a SPX/TLT ratio dated 23 Oct 2023
Chart 1b SPX/TLT ratio dated 5 Jan 2024 (see purple shaded ellipse)
2. Ref to pt 2 above, the Bond market literally reverses its downtrend on 23 Oct 2023 (ie, marking a low point) on the same day I penned my Oct memo. See Chart 2 below. That was long before the FED 'pivots' on 13 Dec 2023.
Clients who have participated in my Global Bonds Funds Portfolio have splendidly benefitted and are still collecting their monthly income stream. DM me for a non-obligatory discussion, if desired.
Chart 2 TLT ETF dated 5 Jan 2024
3. Ref to pt 3 above, the SPX (aka S&P500 Index) hits a low at 4103 on 27 Oct 2023, which is right smack between my correction target zone of 4000 to 4200, four market days after I penned my Oct memo. See Chart 3a & 3b below. Not too shabby for bottom fishing I guess?
Chart 3a S&P500 Index (SPX) dated 23 Oct 2023 (see yellow box)
Chart 3b S&P500 Index (SPX) dated 5 Jan 2024 (see pink box)
4. Ref to pt 4 above, as of 29 Dec 2023 closing, the SPX & TLT is up 16% and 21% resp'ly. I'll hope that my bullish bias has tide all clients through a tumultuous 2023 in both the equities and bond markets!
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So what's next?
For the US markets (ie S&P500 Index aka SPX):
Make no mistake, the good news is that we now might have a date with SPX 5110 target in 2024. You see, using classical technical analysis, the Inverse Head & Shoulders pattern which has now been executed on 11 Dec 2023, points to a minimum target of SPX 5110. See Chart 3b below.
Chart 3b S&P500 Index (SPX) dated 5 Jan 2024 (see light blue box)
But rallies are often NOT straight line affairs, thus a garden-variety pullback to reset current overbought conditions can be expected. The 1st week of Jan kicks off some weakness in SPX and price action just closed exactly at the midpt region of my Bollinger Bands (BB) Strategy on the 1st Friday of the year. A successful bounce off this midpt region will likely extend current bullishness. A sustained break below said midpoint region will at least bring it back to the lower line of the BB band at SPX 4642 currently.
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If the pullback persists in Jan, my current support zone will be between the 23.6% to 38.2% retracement levels, which corresponds to SPX 4630 to 4529.
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Now as for US bond markets:
Even with the recent FED aggressive talk of 'maintaining' or 'holding up' rates longer due to Jan strong NFP numbers and CPI data (in case you didn't notice it's just only 3 weeks since Powell announced 3 potential rate cuts in the Dec FOMC meeting!), there is little change in markets' expectations of rate cuts, ie market participants still thinks the FED will cut rates by May 2024 as shown in the CME FedWatch Tool.
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See below Chart 4 (link to CME Fedwatch Tool website attached).
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Chart 4 - Market's expectations dated 17 Jan 2024, Singapore time 11am
The CME FedWatch Tool is a barometer for the market's expectation of potential changes to the fed funds target rate while assessing potential Fed movements around FOMC meetings.
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Do note the CME Fedwatch Tool adjusts the probabilities according to new data points being announced, but this is the current state of affairs.
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In Layman's terms:
1. Both SPX (stocks) & TLT (bonds) rose post my last memo in Oct. However, TLT rose more than SPX in absolute terms. As a result, the SPX/TLT ratio fell in line as per my stated view.
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2. I've been bullish on the bond market since late Q3 of 2023, culminating with a presentation of my Fixed Income bullish thesis at InvestFair 2023 in Aug 2023. As I've mentioned before, the Bond Funds are literally paying you a nice income stream to wait for the FED to cut rates. Clients who are still keen in my Global Bonds Income Portfolio pls DM me for a non-obligatory discussion.
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3. The SPX Oct correction ended at 4156, right smack at my Oct memo's 'potential landing pad' of 4200 to 4000.
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4. The SPX has since broken out of its bullish Inverse Head & Shoulders Formation on 11 Dec 2023. With that sustained breakout, the pattern implied target for SPX will now be around the 5110 region.
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5. In the shorter term, my bias is for a pullback to persist into the SPX 4500 level. Buy on dips to 5110!
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6. Ten-year bond yields (TNX) have rebounded from recent lows as some FED officials have been aggressively tampering down expectations of quick cuts in 2024. However, the CME Fedwatch Tool (ie Market Participants' expectations) dated 17 Jan 2024, currently still reflects a 67% & 98% probability of a cut in the March & May FOMC Meeting respectively.
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Happy to answer any queries, pls drop me a line.
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As usual, Live Long & Trade Well!
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Thank you & regards
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Thomas Ng, CMT
Principal Trading Representative
首席股票经纪
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#plsreaddisclaimer #chartforillustrationonly #spx5jan24 #TLT5jan24 #reversiontothemean #showmethechart #tellyouthenews #befluid #wytant #livelongandtradewell
Chart source: tradingview'