#972 - How High Can Equities Fly? with Steve Miley

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0:55Welcome to Real Vision Daily Briefing. It's Monday, February 12, 2024. I'm Ash Bennington, joined today by Steve Miley, co-founder and chief analyst at Trade Day. Steve, welcome back to Real Vision. Hey, yeah, thanks for having me on, Ash. Great to be back. Well, it's great to have you here. Another day on the S &P 500 above 5 ,000. Looks like 5 ,021 on my screen here as we close out the day. Steve, big picture, where do you see us in these markets right now? Yeah, well, from a risk perspective, we're definitely in that kind of risk-on phase. We've been in it pretty much throughout this year. Clearly, S &P 500 breaking the 5 ,000 level has been a big headline grabber as a technical analyst.

1:42Taking out a psychological level is important. But once we're through that level, it's kind of history. It's in the rear view mirror now. Further closes above 5 ,000 are obviously going to help. But really, any kind of stops, any kind of option plays have been neutralized through that level. So I think that's a little bit of history, but we do have some kind of levels that we can look at where we can go potentially higher. We've broken out of an important up channel that we've been in from September, October 2022 in here. We broke out the top of that channel. The trend line that runs up from October is still very much intact from a technical perspective.

2:18So overall, it looks really bullish. For me, there's no reason to feel like we're getting any kind of exuberance in here. We're not seeing momentum indicators. Daily momentum is a little stretch. And if you look, we've been up now five straight weeks. We've also, if you look all the way, the rally from October, there's only one red candle in there. So I think it's 15 weeks. We've only had one down week in the last 15. But if you look at the momentum indicators, particularly on the weekly charts, we're not seeing those particularly overstretched. Yes, they've gone higher than they were last year.

2:52But from a momentum perspective, from a technical analysis perspective, that's a positive confirmation. We're not getting a divergence. So that's all positive as well. And are we pushing through capacity limits? What can we do? Can we go further on those weekly momentum indicators? as well, we were more overstretched through 2021 on the whole bull rally that we had post-COVID. So I guess you can take from that that I'm still pretty bullish in here, even though we have had that run. And I still see there's further upside. Do your charts give you a sense of how much upside that could be or what the indicators might be for you in terms of what you're seeing when it might, might reverse?

3:35Yeah, I mean, for me, for the upside in here, you know, just looking, I mean, percentages is probably easier, but I don't see any issue with us adding in the short to intermediate term another 5 % from here, having cleared various hurdles, including that 5 ,000 level, having broken above the 2021 high. So that really leaves us with potentially further upside of 5%, I'm thinking, into the balance of Q1, potentially as early as into late February, early March, we could add another 5 % in here. Bigger picture, I think another 10 % through into Q2 is quite easily the potential for the S &P and the Dow, maybe even a little more with the tech leadership that we're seeing in the NASDAQ.

4:20So even potentially another 10 % to 15%, I think, up in the NASDAQ as we go into the second quarter. So those are kind of the upside targets we're really looking at. I think critical to monitor really with earnings season behind us now pretty much is how overstretched we could potentially come from a momentum perspective as a technical analyst. And I'd be watching out for those kind of trend momentum indicators on the weekly charts to start becoming stretched. But we could easily rally those, you know, another 5%, 10 % over those timeframes before they start to really break, you know, capacity limits.

4:55And then we'd be looking for at least a consolidation or some kind of correction to the downside. Hey, Steve, let me ask you this, because when you look back at the gains we've already seen, I mean, here we are, middle of February, not even yet. Year-to-date, we're up nearly 6 % on the S &P 500, trailing 12 months, over 21%. I mean, this has been pretty extraordinary gains. And by the way, if we want to add that rounded out five-year chart, up 80 % on the S &P 500. Pretty significant gains, man. They are specific, yeah, certainly significant gains. But the fundamentals underlying, I think, are pretty positive.

5:30I think it's quite remarkable. I know there's a lot of bears out there are looking for this to roll over and still got some negative macro outlooks on the return of inflation or potentially hitting into recession. But for us to have hit globally in places, double-digit inflation, and for the central banks to have hiked rates as aggressively as they have done, inflation rates we haven't seen in lifetimes for 40 years. I can just about remember when we were double digit, and I was very young, even though I'm quite old now. So I can certainly, I certainly feel the central banks, and there are some central bank beaters out there, but I think they've done a remarkably good job of managing this situation to have hiked rates as they have, to have paused where they have, and to now be in that rate cutting mode.

6:25And I think that all sits with us going higher. The fact that we are about to enter an easing cycle, I think they've managed it well. The Fed particularly have said to the market, we're not going to be aggressive on the rate cuts. I think the market wanted that. So post the December meeting, the Fed basically said, we're going to hike. Sorry, we're going to cut. Excuse me. We're in that cutting cycle. Keep slipping into the hike. Yes, they're going to cut three times this year. Then the market immediately priced in six rate cuts starting in March, and then the Fed have pushed back against that.

7:03So the short-term interest rate curve has repriced itself to now say, we're not expecting the first cut in March, we're expecting the first cut in May or June, and maybe we're only going to get five rate cuts this year. And what's interesting, you had a very, very, very high correlation between bonds and stocks right the way through that October rally. So we saw bonds and stocks moving in the same direction, highly correlated right the way through to December. And then since the Fed, really, you've had a slight dislocation since the Fed in December. And what we've seen is bonds have gone into more of a range environment, but stocks have managed to continue higher.

7:44So despite the fact that the short-term interest rate curve plus the bond market has re-evaluated and said, OK, the Fed are not going to deliver what we expected. The Fed have pushed back against that. Don't fight the Fed, as they say. But we've gone back into a range environment in those yields, as you can see on the charts here. But then equally, what it says to me is that with stocks continue to roar higher, they're basically saying, OK, we're fine with yields going a bit higher. We don't mind the fact that the interest rates may not be cut as early, and they may not be cut as deep. But we're happy to go higher.

8:19So all of that points to me on the bigger macro picture. It just opens up further upside. Steve, we just got that 10-year yield chart up on the screen. Walk us through what you see there. Yeah, so basically, you had that correlation with we had the movement higher in bond prices throughout 2023. And then that big move back lower that we saw through the end of last year, lowering yields. So bond prices, sorry, bond yields coming down from that 502 level. And now we're kind of stuck in this range, the broader range at 325 to 502. the technically the narrower range of 450 to 350. And we are nudging to the top end of the more recent range.

9:00Potential breakout on the 10-year through 420 could take us up to 450. But I think what's really a bit impressive is that, say, that dislocation with that correlation with stocks. And we're on the precipice, really, of potentially moving through 420 towards 450 in yields on bonds, and the stock markets don't mind. They're perfectly happy to go higher, despite the potential higher yield environment. And normally, you would see growth stocks, you would see tech being weighed on by the moves higher in yield, but we've not seen that at all. You'd better think quite the reverse. Tech continues to lead as we go to a nudge towards higher yields.

9:40I think if we got through 450, it could potentially be a problem. And that, again, And as you were asking the question there, what could be the catalyst? You know, significantly higher yields. I think 3, 420 to 450 is OK. If we get up to 450 and above, then I think, you know, that could see stock indices wobble. Hey, everyone, we're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing. Whether you're a crypto newbie, an established investor or operating a business in Web3, Tax season can be an absolute headache, but it doesn't have to be a nightmare.

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12:18Hey, Steve, let me ask you this because you touched on it with the performance of tech stocks. Do you have any concerns? Is this something you watch when you think about market breadth, concentration in those big cap tech names? Or is that something that you're not really focused on for whatever reason? MARK BLYTHIER I'm not laser focused on it, but it's something I do look at. And there is a lot of talk about obviously the Magnificent Seven leading the markets higher. A lot of talk of this is akin to the tech boom that we saw in the 1990s and with the AI boom that we're getting right now. From what I look at, though, I don't see those breadth readings as being aggressively overdone at the moment.

13:00So what I don't really see is kind of the irrational exuberance that, you know, that Greenspan spoke about at the end of the last century in the tech boom that we saw back then. We're not seeing those kind of numbers. We're not seeing that kind of movement in the advanced decline. We're not seeing those kind of numbers in various breadth indicators. And what I do like to see as well is, you know, I think it's worth pointing out, is that the MSCI, we don't have the chart. I didn't drop that chart in. But the MSCI World Index hit a new high last week. So of the developed nations, we took out their high from 2022.

13:36So this is not just a US story. It's not just a tech story. It's a global story. It's across sectors. And I think that tells us that, again, it's got further to run. And I think there's a lot of bashing of the makeup of the S &P that if you look at what tech brings is like at least 30 % and potentially up to 40 % or 50%. But then equally, I think you're seeing other indices doing well. Europe continues to underperform, but does well. The Nikkei has had a really good start to 2024 as well. And we're managing to do all this with China massively lagging behind and effectively in more of a bear market from last year than in a bull market.

14:23Yeah, it certainly seems to be on a comparative basis. Boy, Steve, it makes me feel old when you say at the end of last century when we're talking about terrible. No. Hey, listen, let me just float this out there. It looks like we got a new record close on Dow Jones Industrial Average, 38 ,797 right now on my screen. Any thoughts, Steve, about the relative performance of the industrials here against S &P 500 or NASDAQ? Pick the poison. Yeah, I mean, I think it's doing, you know, again, I think it indicates that this is a broader rally, right? You know, kind of stuff. You talk about the Dow Jones Industrial Average, and we go back to Dow Theory.

15:02Now, I'm talking about now, not the last century. We're talking about the century before that, right? The late 1800s. I've got to wind this all back there. But Charles Dow - We don't remember that part. I don't quite remember that either. But Charles Dow said the averages have to confirm each other. And he was talking about the industrials and the transports back then. But now, if we look at what the Dow Jones Industrial Average compared to the NASDAQ, compared to the S &P 500, compared to, as I just mentioned there, the MSCI World Index, compared to the Nikkei, they're all making new highs. So what that tells me is that there is that breadth is there, right?

15:44It's not just all focused in the NASDAQ. And I think the industrials can continue to go higher, probably with their natural underperformance that you tend to get in these kind of markets. I don't see the rotation into those just yet. But that could be further down the line. But I don't think that's something we're going to see right now. And as we said there just earlier, right, tech's managing to do this, even with yields nudging higher. I said the risk with yields was breakout from 420 to 450 on the US 10-year. If we get the opposite, if it just reverts back into the range and we're back down sub 4%, then I fully anticipate growth stocks to fly and tech goes with it and NASDAQ goes with it.

16:25Okay, let me ask you this. We're talking about charts here. I know you have a chart on gold. Tell us what you see there, why it's significant. Yeah, so the gold chart in here, very much within consolidation for the last, well, for this year, really. Since the end of last year, we had that spike out of the top of the range, having previously spiked at the bottom of the range. If you look, we're in going back to 2020, we're in a much, much wider, broader range, like really 1 ,800 up to 2 ,100. Then from 2023 through early 2024, a narrower range defined by 1 ,800 up to 2 ,100. Then we had that spike out at the end of last year up to 2152.

17:07But since then, very much in consolidation. Now, I've got an underlying bullish view. I do think that we had a rejection of the downside breakout last year. We had that bullish breakout to the top side. So for me, the risk is higher. At the moment, we're kind of a little bit paralyzed, I think. And I know we've got the dollar chart, US dollar index chart there as well. RAOUL PAL Yeah, let's put up DXY as well. RAOUL PAL Yeah, because I think what we're seeing in here. Yeah, so there on the DXY chart, what you see, again, is that kind of more the market been back into that range environment for a lot of 2023 through into early 2024.

17:42We sold off at the end of last year and have rebounded since. And I think that's a little bit to do with the kind of slightly anticipation of higher yields. So higher yields, positive for the dollar, taking the dollar up. And that's kept a cap on gold, I think, the fact that the dollar has strengthened throughout this year. But if you look at the bigger picture here on the US dollar index, for me, the risk from 2022 is down. We've gone down sideways 2023 through 2024. And then the risk, I've got it there with the arrow and the question mark, is where does it break out of this range? Ultimately, I think it's down.

18:19Do I think it's down now? No. Is that more like a Q2 story? I think yes. And I think what we'll see is the US dollar potentially start to weaken as we get the anticipation of the Fed cutting rates. Because for me, what's got the fundamental backdrop of this is the Fed are going to be the first of the major central banks to cut. And they will probably be more dovish and be more consistent in cutting rates after that. I see, if we just pick, say, the ECB and the Bank of England, I see them cutting later than the Fed, and probably not as aggressively as the Fed. So that's the way I see that panning out.

18:59So then what we'll probably see is then US dollar weakness come through as the Fed become maybe a little bit more aggressive in their cutting, adopt a more dovish stance. I think initially what we see is actually the market moves towards the Fed, and then the Fed maybe moves towards the market. So I think that's how we're going to see that play out as we go through the latter stages of Q1 into Q2. So initially, the market parrying back from maybe five rate cuts towards four. And then the Fed may be starting to indicate, well, actually, we're willing to, once we start cutting rates, we're going to be a little bit more aggressive.

19:35That in turn leads to dollar weakness. And if we do want to flip back to the gold chart, ultimately, that will allow gold to break to the upside with the inverse relationship between the dollar and gold. So as we go to see the dollar weakness come through, anticipate gold to go back and test those highs and potentially extend above those highs, that's probably a Q2 story rather than a Q1 story. Steve, we've got a ton of questions coming in from the audience right now, but I wanted to ask you, any other charts you wanted to show? I know we mentioned before we came on here, we were having a little talk about Bitcoin, so I'm happy to jump in there and just talk about that.

20:12But no charts in here that I can share with you at the moment. But we've broken - By the way, for folks who don't know, the big news here is Bitcoin above$50 ,000, the first time in this cycle here today. It broke out while we were doing a pro-crypto show this morning at around 12.30 Eastern time. So there you go, fresh news. Yeah, yeah. And good timing, right, with the show airing at that time. So there you go. So yeah, but I mean, again, psychologically, it's important to break out through$50 ,000 in here. I think also the fact that we took out that January peak, and we also had a peak around the 48 ,500 area from back in 2022, March 2022.

20:52So having broken and held above those levels, and now through 50 ,000, I think that's super important. And if we look at the activity, the consolidation activity we had in January, where we went up to really around 4 ,900 and then dipped back to 38 ,000, 3 ,900, you've got basically a 10 ,000 spread there. So I do think the risk is that we add that on to the upside. So that points us up to at least towards, I think, 60 ,000 as we go into the balance of Q1. So we could see that potentially in the next three to five weeks up to that kind of level. Hey, by the way, I'm pointing out something else here on Bitcoin.

21:32The next big level here is actually the$1 trillion market cap. mark. We're currently at$985 billion on Bitcoin market cap. So we're within a sneezing distance of that$1 trillion market cap. Oh, wow. That's interesting. And do you have any idea where that takes us on the chart, where we need to be in price to get to that$1 trillion? Well, we could back it out. 33 million circulating Bitcoin. So it's not a whole lot higher to get to that$1 trillion. No, it's potentially this week, right? Potentially this week, yes. And that grabs more headlines. And then Bitcoin is very, very prone to those headlines.

22:06It's a viral commodity. It sure is in both directions. Indeed. Steve, let's jump in. We've got some great questions coming in. First one from G. Blackburn. Boy, this is a great question. Wish I would have thought of this. Next technical resistance level on the S &P 500, Steve. Good one. Yeah, yeah. So I mean, there's obviously nothing. We're in no man's land. I get asked this a lot. So we have our traders at Trade Day. asking this a lot. And I produce in another guy's with my market chartist hat on. It's another company I have that produces research reports. And we get asked this a lot. And we've been publishing our outlook for the short-term target levels.

22:47They've worked really well. I mean, the real trick with this, I think, is to use Feminacci extension levels. It's kind of all we have in our armory, apart from maybe channels. And if we can flick back to the weekly chart on the S &P that we had earlier on, we've broken out of that channel that goes back to October 22. So even on that longer term chart, that longer term channel, we haven't even got the channel resistance in here to look at. So Fibonacci extension levels, I've got some important levels around 5 ,300, which kind of matches also a chart projection, another chart projection level around 5 ,250.

23:27So initial target, 52.50 to 53.00. And then the next one above that is around 55.50. So these are Fibonacci extension levels drawn off of the more recent, well, I say recent, the 22 to 23 rally, and then also extensions and pullbacks we've seen from July 23 back to October 23. So they're Fibonacci extension levels drawn off of those. And those are the upside targets that I have. Again, in the initial target there, 52, 50, 5 ,300, we're looking at maybe into late Q1, into March, and the higher target as a Q2 target. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

24:17Hey, Steve, let me ask you a follow-up on that. To what extent do you see distortions on the traditional Fibonacci levels when you got nice, big round numbers like 5 ,000? We saw today on Bitcoin 50 ,000, where we saw some what appeared to be support and resistance that was bouncing around, people presumably setting stops above and below. Yeah, I mean, that can happen, certainly. I mean, I think it kind of happens. Again, I'm going to go back into history. I grew up on the trading floor, the equivalent of the Chicago Buda Traders, Chicago Mercantile Exchange in London. So it's the London International Financial Futures Exchange.

24:52And psychological round numbers were really big, particularly when you went into no man's land like we are with the S &P with that 5 ,000 levels, a little less important, obviously, because Bitcoin's been through 50 ,000 before. So it's a little less important there. But equally, these round numbers do grab headlines. And it can distort then And sometimes what we're getting with respect to endpoints when we draw the Fibonacci projections or the Fibonacci retracement levels, it can add to a little distortion. But I think these things drive the markets. These things are important. I think, as I say, I think they're less important than back on the old floor trading days when things were a little bit more analog.

25:31In the digital world, I think it's a little less important. But option plays are still super important in the market. So these round numbers, these psychological levels are important because of option plays. I didn't really, I'll be quite frank, I didn't really see how much optionality there was around both the 50 ,000 level on Bitcoin and then equally on the 5 ,000 level on the S &P to see that it was a sustainable top. And certainly, they didn't last very long. They last maybe intraday, but we didn't see them as strong barriers to the upside for more than a day or two. Yeah. Here's an interesting question from Eric Frith from YouTube.