The Blue-Chip S&P 500 index shook off recession fears and a U.S. regional banking crisis to gain 15.9% in the first half. The Nasdaq Composite for its part gained 31.7% for its biggest first-half increase in four decades. Much of the rise was from climbing the wall of worry as shorting became costly with the Cboe Volatility Index hit its lowest level since early 2020. Interesting with all the headlines that the huge advance in the stock markets is being reported as a major surprise. That gives you an idea how many in the majority had it wrong. It is about perspective, we bounced off oversold conditions, many of the biggest gainers were last year’s biggest losers and vice versa.
The two major events that confirmed the catalyst in extreme bearishness and the technical set up. We had the yield curve control change from the BOJ and the bail out of the Californian and New York bank collapses which we cited as an effective QE.
Once the Yen began its collapse after the USDJPY correction the carry trade took hold. Simple market psychology and wave analysis coupled with positive divergence with the terrible fundamental, political and geopolitical backdrop was telling as was the VIX price action.
Let’s review the half yearly data, which we do in depth inside the weeks’ report. The standout is simple, basically what got wrecked the most which had any quality bounced the most. Mania is alive, see AI and the previous can’t lose bets sold off. In essence price matters and contrarian markets move a long way before being recognized.
The other recognition that was critical to our gameplay was the mega cap buying, simply that was what many had to buy and then the delta covering. Granted NVDA got an extra push from the AI craze, but that said it was in our AAPL. NVDA and XOM basket for the bull side from last year with the SPY. The concentration there also meant to stay away from the riskier high debt/no profit stocks such as the unperforming in the XLE and of course the RUT. Clearly, we were not the only ones thinking there.
Sector Performance in H1 2023
10 performing stocks in the S&P 500 in the first half of 2023.
The S&P 500 has jumped nearly 15% year-to-date, while the Nasdaq 100 is up about 37%. Much of the gains have been driven by hype around artificial intelligence, but the top 10 performing stocks aren’t only tech names.
Technology led, and the pattern was also the most beaten down and uber bear targets bouncing. From home builder companies to cruise line operators, these were the top 10 performing S&P 500 stocks in the first half of 2023.
- Nvidia Ticker: NVDA Year-to-date gain: 179.3%
- Meta Platforms Ticker: META Year-to-date gain: 134.0%
- Carnival Corporation Ticker: CCL Year-to-date gain: 112.9%
- Tesla Ticker: TSLA Year-to-date gain: 109.0%
- Royal Caribbean Cruises Ticker: RCL Year-to-date gain: 105.5%
- Palo Alto Networks Ticker: PANW Year-to-date gain: 81.5%
- Advanced Micro Devices Ticker: AMD Year-to-date gain: 71.8%
- Norwegian Cruise Lines Ticker: NCLH Year-to-date gain: 70.8%
- PulteGroup Ticker: PHM Year-to-date gain: 69.8%
- General Electric Ticker: GE Year-to-date gain: 64.8%
The Nasdaq 100 surged close to 40% in the first half of the year, recouping much of its 2022 losses. A handful of its biggest stocks, Apple and artificial intelligence stocks, pushed the benchmark S&P 500 Index up roughly 16%. The Russell 2000, a proxy for small-cap health, was up 7.2%.
Another factor was recognizing that oil and natural gas prices were moribund and with that a big dampener on US inflation. The yen also helped that scenario. Additionally, the pull back in food and freight indices told us much there. That is why they are on our risk matrix.
On the last Friday of June as expected there was some support from the PCE Price Index growth rate which slowed to a two-year low of 3.8% yr/yr from 4.3% in April while core PCE was up 4.6% yr/yr, down from 4.7% in April. This week’s action compressed the 2s10s spread by another five basis points, sending it to -106 bps.
Outlook for the S&P 500
For the next six months, sticking to the technical outlook via KnovaWave, watch the curve and EURUSD and USDJPY. Does France impact the Euro and CAC40? If the protests are contained, then we know the answer.
Currency and bond market shapes will help you interpret the alternatives for the S&P 500 technically. As mentioned at the top, the herd missed this move, using technical measures has successfully got ahead of the curve and herd in measuring and interpretating major moves. Take note of the herd through the stages of the market moves.
A look at the technical picture via KnovaWave:
Daily: The daily SPX closed above the previous roof (Key Spits) which were also at 7/8 and clustered around the 50% & August breakdown. With energy and with a very low VIX it has mirrored the get cloud to get through overhead. The bullish take is that we completed the correction off last year’s high at the low and this is a larger 1-2 to go higher with support at the previous resistance and cloud. The bearish outlook is this move becomes a rising wedge and we are working out the uber bears before new lows.
When we talk about crowd psychology this is a great example. The market after spitting the 4100 and 38.2% retracement broke to capture the Tenkan. This underscores the power from the SPX spat of June & October lows with impulse through the tenkan and Kijun energized by the daily cloud twist that fueled this rally. The completive wave came off extreme fear and bear that ended with relief. Now we have sated much of the greed phase and short fear phase. We have completed that cycle and from here we measure the alternatives.
It is worth looking back at the completive highs (all-time highs) and how we played out so far. Tracing back from highs the fuel from the top of the channel after completing 3 waves off ATH, accelerated after broke the Tenkan through to the 4600 OI where it reversed with impulse back to Tenkan. Bulls, this is likely a (ii) of a 5. Bears this is 1-2 of (i) completive V of degree. We watch if this low was a (iii), (a) or C. We have to respect the number of alternatives of degree of 5. With such trends keep it simple. From no fear to panic is the driving element.
On the downside the Kijun and those June lows now critical and is our trading Bear/Bull pivot in a high vol scenario. Watch each measured 3 wave move on the 240 & Murrey Math highlighted in the podcast. The prices pulled through the downward cloud pulled by the twist ‘helium contusion’ on the completive. For fractal purposes, SPX completed 5 waves up where it reversed with impulse. Energy fueled from the power impulse down from +1/8 ATH spit of a spit fail. On the way down (just like up) it accelerated after it broke the Tenkan through the rejected Kijun and then through the median after tapping 8/8.
Weekly: The SPX has a clear channel off the lows on the weekly timeframe off the sphere of influence and has ground higher since it closed over the cloud above the Tenkan. Key support is the Tenkan, channel and +1/8. Power initially came from launching out of the sphere of influence as one would expect in a 3 or C. We had the Kijun spit also. Above is the channel and +3/8.
In the bigger picture we are playing out S&P 500 energy after it held the sphere of influence from Nov 2020 reversed higher after spitting the 38% and key lows. At the time we opined “We do have a weekly cloud twist; however, the energy is waning without sharp impulse.” We got the sharp impulse right to weekly Kijun. For major cycles we watch the S&P 500 over 4,231, the 50% retracement of losses from the Jan. 3 & June 16 close. Since 1950 there has never been a bear market rally that exceeded the 50% retracement then gone on to make new cycle lows. Is this time different, as we tested and spat those June lows?
On the way up each new high evolved after testing Tenkan key support on the way and we are now getting a retest as resistance. We reiterate this needs to be recovered for a resumption of the uptrend meanwhile the bear market plays out. Watch Tenkan this week and watch for Kijun reaction. Extensions are difficult to time, keep it simple.
THE KEY: Key for the impulse higher was the spit or retest of MM 8/8 and Tenkan San, which held with the previous highs and Tenkan. To repeat “We look for 3 waves down and reactions to keep it simple with the alternatives in the daily.” Keep an eye on the put/call ratio with recognition to the sheer size of contracts AND keep in mind the stimulus distortion. The spit per channel fractal and Adams rule launched back over the cloud where we were encased AND we are back testing it. Watch if a spit or clear break support as Chikou rebalances
A reminder that Apple Inc $AAPL, Microsoft Corp $MSFT, Amazon.com Inc $AMZN, Facebook Inc $FB, and Google-parent Alphabet Inc $GOOGL make up approximately 23% of the total weight of the S&P 500. With that comes gyrations that are an outsized impact on broader markets
Earnings Ahead:
Second-quarter corporate results kick off in a few weeks. The large money center banks kick off earnings season. The banks all got a boost from the Federal Reserve passing the 23 banks in their annual stress test. Never mind that the data was done before the regional bank disaster. In a nutshell it allowed the banks to increase their dividends and make them more attractive This is important when competing with bond yields.
S&P 500 companies are expected to post an overall drop in earnings of 5.7% from the year-earlier period, according to Refinitiv IBES. The S&P 500 is trading at 19.1 times forward earnings estimates, well above its historic average P/E of 15.6 times, according to Refinitiv Datastream.
Investors will obsess on results from the big seven tech and other mega cap companies, including Apple, Microsoft and Nvidia, whose outsized gains drove the S&P 500’s rise this year. Those earnings releases will be akin to crapshoot and will need to beat handedly at this point.
NVidia NVDA
NVidia surged 179.3% in H1 2023. It has been relentless since earnings and is the focus of the AI craze. With all manic moves beware of the pullbacks and topping potential. That said the extensions have played out and so far to +2/8 on the weekly. This was a classic set up as we can see. It has a textbook of KnovaWave methodology and rules from the 61.8% break and reverse through the sphere. NVDA accelerated after it broke the double top spheres at 5/8 giving is a near 4/8 move. A reminder that the dominance was in,
NVDA took off after the breakup retest from May 2021. NVidia is a clear leader of SOX & SMH look for cues there and ABC failures for changes. NVDA never looked back after the Key Break (mauve) and Tenkan to a flat cloud and holding support the recent low at the 61.8% extension.
Apple AAPL
Apple has consistently driven upwards after it held the sphere of influence after retesting 6/8 & break up. Kijun and Tenkan crossing and then the 50wma with the cloud twist have been magnetic. Apple & other mega-cap names dominant the major indices, and a plethora of funds that hold it as a core position. The Vanguard Mega-Cap Growth ETF (MGK) delta is important to watch.
A firm rejection at $175 at +2/8 triggered a waterfall down for Apple last year. We regathered that and more and broke the weekly bull flag higher. On the way up Apple gently motored up to new ATH over the massive $160 then $170 thru to $180 gamma level on the way down these levels became key energy levels all the way to $132. Support held at the May break (just like NVDA) where from there it spat the cloud pulled by a flat Tenkan and Kijun as it rebalanced Chikou. The old channel break and MM +2/8 is now key. Remember the impact $AAPL has, at least short term on all the major indices.
ExxonMobil XOM
XOM has completed 5 waves from -3/8 to +3/8 on the weekly. with a double top. Alternatives 5 complete of degree. We are in a 1-2 (A-B depending on degree. Support is the cloud which has held 3 times since the high and the 50WMA resistance the tenkan and Kijun. Pattern wise we are in the bull flag until proven otherwise.
Perspective – Looking at 2022 and 2021
Let’s look at last year, The S&P had a dismal year, down 19.4% in 2022, it was the worst performance since 2008. The benchmark index saw one new high in 2022, January 3 with the now infamous January 5 FOMC minutes from the Federal Reserve putting paid to anymore for the year. By comparison the S&P 500 clocked 70 fresh record highs in 2021. Trailing only 1995 with 77 closing highs. Last year energy companies Devon and Marathon were the top two stocks, energy was the strength this year also being the only sector to post annual gains, rising nearly 60%.
In 2021 the SPX was powered by mega-caps Apple (AAPL) Microsoft (MSFT) Alphabet (GOOG) Netflix (NFLX) Meta Platforms (FB) Tesla (TSLA) and NVIDIA (NVDA). In 2022 they were a millstone around the S&P 500’s neck. In the first six months of 2023 they are the stars. See a pattern here?
Top Performing Stocks in the S&P 500 for 2022
Oil and natural gas producers and renewable energy companies made some of the biggest gains in the S&P 500, as they did in 2021. Occidental Petroleum (OXY), Hess (HES) and Marathon Petroleum were the top three percentage gainers on the S&P 500.
- Occidental (OXY) rising 117.3% to end at $62.99
- Hess (HES) rising 91.6% to close at $141.82.
- Marathon (MPC) rising 81.89% to close at $63.99
The S&P 500 energy sector rallied 59% in 2022 as oil and natural gas prices surged in the first quarter. Defensive stocks such as shares of utility, consumer-staples and healthcare companies outperformed the broader index.
Worst Performing Stocks in the S&P 500 for 2022
The top S&P percentage losers were the overvalued darlings of the manic 2021 technology ESG and SPAC market. You can see TradersCommunity’s Dribbler Dirty Dozen (DDD) index for some of the pitiful performance, mostly stocks that were examples of dribbler manic crowd behavior having no solid basis for such lofty valuation. Not all are in the S&P 500.
- Generac (GNRC, declined 71.4% to close at $100.66.
- Match Group (MTCH) falling 68.6 to close at $41.49
- Align Technologies (ALGN) falling 67.9% to close at $210.90.
The biggest loser for the year was Generac (GNRC), a maker of backup generators and solar products declined 71.4% to close at $100.66. The company struggled with a higher-than-average inventory in 2022, which is likely to put pressure on revenue next year.
The market swiped left on Match Group (MTCH), the owner of dating app Tinder, was the second worst S&P performer, falling 68.6% to close at $41.49. Match’s decline was part of a broader collapse in technology and digital services companies.
Align Technologies (ALGN) was the third biggest S&P losers, falling 67.9% to settle at $210.90. The maker of 3D digital scanners and aligners used in orthodontics. A clear example of overpriced valuations coupled with inflation hitting demand for niche product, in this case medical services.
Tesla – From Hero to Villian in 2022
Let’s look at Tesla in 2022 to understand maker psychology and margin and it’s effect on prices.
Tesla the poster children in what difference a year makes for investors. Tesla stock was down ~66% in 2022 and down 70% from its all-time high in November 2021 in its biggest-ever annual decline.
The electric vehicle and battery maker Tesla finished as the fifth worst S&P 500 performer. The Elon Musk-led firm fell 66% to end at $123.18, setting several new 52-week lows through the year. From the icon of green technology, electric vehicle and ESG run by the world’s living genius, it all come back to earth swiftly. There are many facets to Tesla’s stock price collapse, down 65% in 2022, the fact is it is a dramatic fall from grace.
The move up attracted by big, short players such as Jim Chanos and Michael Burry, who were roundly mocked by the bull market geniuses and Tesla cultists. The long trade was very crowded and there were not the buyers sitting there that cultists had expected to support the stock. (That is how cults work, the live in a dream fed by like-minded and why partisan politics are a dangerous affliction when applied to investments.)
What a Difference a Year Makes from Tech to Energy
Last year risk takers pushed the Standard & Powers 500 index to fresh all times highs as vaccine optimism and the prospects of further fiscal stimulus in the US fueled the mood. This year it all came undone, last year’s move accelerated after bottoming out in late March 2020 massive action by the Fed and fiscal stimulus nudged stocks dramatically to close the year just off record highs.
The S&P 500 is weighted by market capitalization and is dependent on the largest five companies, Apple Inc. Microsoft Corp. Amazon.com Inc. Alphabet Inc and Tesla Inc made up 23% of the SPDR S&P 500 ETF as of the close on Dec. 31 in 2021. Even after last year’s declines, the five FAANG stocks have a 13% weighting in the index, down from about 17% at the end of 2021, according to S&P Dow Jones Indices.
S&P Heat Map 2022:
How Global Indices Fared in 2022
Source: KnovaWave, Finviz, TC
From The TradersCommunity Research Desk