Freepik

A 'Force to be reckoned with' - is how a technician might describe the S&P and NDX behavior over recent weeks, given the tenacity of the upside thrust since our indicated October washout low. Much of it 'now' also relates to what has been an extraordinary bifurcation that repressed the majority of stocks for more than a year.

Hence, soft-landing goals of the Fed or not, it's broader market behavior that's the key to cushioning inevitable pauses-to-refresh, and Fed-head push-backs, as some have already trotted-out after Chairman Powell's so-called 'pivot', do not matter much, since this force in-gear should soon catch more bids after tax-selling in those sectors abate, some of which occurred, some lies ahead.

There are a couple zingers that could be thrown at the market with variable outcomes, depending how .. a battle .. resolves. Tomorrow Defense Secretary Austin will be meeting with his peers (defense ministers) from all 'presumed or friendly' Middle East countries, to discuss 'what to do about Yemen attacks on shipping', I presume. I already opined that if not for Saudi Arabian reticence in regards to their so-called negotiations with Yemen Houthis, we'd have by now allowed the U.S. Navy to retaliate 'at least' against positions launching drones or the Iranian / North Korean versions of Russian Scud missiles they're using.

(If you didn't hear that these are Scud missiles aside drones, it's being said in hushed tones, lest the adversaries be ruffled. I'd say we'll not 'turn the other cheek' for much longer, and not await an attack in which we lose personnel.)

This takes me to U.S. and naval coalition strategy, which I suspect already is identifiable based on historical 'battle management' and 'tactical maneuvers'. The U.S. Navy (and perhaps the Yemin's and their masters in Tehran) already know they can't operate much longer with any sense of impunity from reprisal. I suggest that U.S.S. Mason & U.S.S. Carney (the destroyers in the Red Sea, plus a British destroyer) are essentially a 'Scout Fleet', which helps pinpoint a strategy weighing all the information garnered from the attacks so far.

The enemy (and they are enemy since they fired on vessels and warships, it's not solely related to ships heading to Israel) has been able to execute multiple strikes on ships, with 'so far' all ordnance fired toward our warships were very well intercepted, dozens cumulatively sop far. Oil prices firm nominally, but in my view were going to rebound anyway. Now I hear of 3 more destroyers out of the USS Ford battle group in the Med heading thru Suez to the Red Sea. It may also be that the U.S.S. Eisenhower battle group needs expansion given proximity to the action. But either way, what's there already has, been more or less 'scouting forces', with a 'Main Force' apparently being assembled now.

Basically 'if' Sec'y. Austin (and the others) determine tomorrow operationally it is time to strike, well, the Forces will have been assembled... since it's tactics in a strategy to suppress Yemini fire, means it's essentially only now near time to 'execute' a comprehensive strategy, other than lobbing a few Tomahawks as they could have done last week. Note one of the ships transiting Suez now is a 'cruiser', which has more Tomahawks and more anti-aircraft/drone/missile capability, as well as forms a cohesive task force (if it becomes 'battle surface' sound implausible, but it is, since Iran-type speedboats have launch pads).

Market X-ray: 

The market's 'ascending wedge' formation is obvious, and very normal based on everything we've outlined, including improved breadth. This latter part is the key (successful or not) to getting the Indexes even higher for early 2024, with only brief interruptions to the broadening trend for now.

Yes, I recognize that a parabolically ascending wedge typically resolves with a bearish move, and this one will likely 'at least' have a meaningful shakeout but 'not yet'. Equal-weight stocks have not had much of a run, so again this isn't as extended as some technicians suggest, because they are looking at chart action, rationalizing the fact many of them missed the move from October, as is ok if they're interested in stocks outside of the overworked mega-caps, but also with historical comparisons minimal, because the broad market lagged.

I concur with not chasing rallies, and still think most accumulation relates to a crosscurrent we've discussed, or smaller-caps versus the Index leadership. It is all sensitive to geopolitics at the moment, and indirectly energy markets too.

Bottom-line: 

We'll not worry about the worry-warts about the Fed dovish talk from the Chairman, or the more-hawkish back-pedaling talk from the others. They are worried about rates (not the official funds rate) coming down while inflation came down (as they see it, which is selective and mostly because Oil came down and supply chains were more or less fully caught-up).

It already is apparent that rates are lower and not lifting the economy 'much', a factor that might play into the first 2024 pullback, but ideally that in a bullish context will be a topic down-the-line a bit. If Oil zooms higher, then sure, we'll see the pendulum swing the other way, but that would be geopolitically related not a result of supply/demand disequilibrium.

In other words, 'temper enthusiasm' the higher the Index gets, but I wouldn't buy into the 'we need higher rates for longer' argument, which is out there. In both cases, participation (better breadth) continues to be what matters.

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