Was Thursday the Bottom and Friday the start of the Reversal?

Maybe. And we will only know later. A lot of people believe that is the case. I am also optimistic that was the case. I do want to see more proof before go long with all my money. I am holding about 50% of capital as dry powder for now.

Next week is when the wall street folks all come back in earnest. And I want to see what they do the first real week of trading in the new year.

As I go through this note it will become apparent though that the chances that we may have seen a bottom on Thursday are more than 50% per my assessment.

Let us start with the all-important major markets trending heat map:

All the major markets in unison improved a little. The bold and italicized are the changes from prior review. Interestingly, the SPY, QQQ and DIA price moved over the 5-day SMA only. Whereas the RSP, IWM and MDY price moved over the 5-day and the 10-day SMAs.

Before we get too excited with the above, I also wanted to review the weekly and monthly period charts to see the trending there.

First the weekly:

Does not give a lot of confidence here, does it? The way to read this is that the cells were all green end of November when we touched the highs. And since then, they have weakened. This is obviously going to be a slower moving trending and I do not trade using it. But does give us some perspective.

Now the monthly:

The monthly looks fine as we can see that the SPY and QQQ are still perfectly bullish. The bad month of December was not able to dent their trending. The others are slightly bearish though.

Now I will reveal what I consider the most bullish picture of all.

People who follow my notes regularly will immediately know what I am talking about. This picture gives an idea about how many of the underlying components of the major markets (SPY, QQQ and IWM is what I track for trading) are strengthening.

We can clearly see that after some dramatic declines in the trending over December, we have just started reversing. All of the 3 major markets underlying stocks strengthened and did so somewhat dramatically. For the QQQ it went from 10% to 30%.

This could be the clearest indication that we saw the bottom last week. But there is a little more. Remember a high-flyer that we have forgotten and neglected over the last several months. Yes, I am talking about that one. People, NVDA is back.

Here is the trending heat map for the Magnificent 7:

Yes, AAPL and MSFT weakened. But look at NVDA. It is now trending perfectly bullish. And we know NVDA is a leader. When it moves, it moves the markets with it.

As I said before, I am still 50% is cash and looking to deploy that capital as soon as I get proof that last week indeed was the bottom of this particular decline. And I think this coming week will provide that proof either way. How will I know?

Let us review the SPY daily chart:

We can see that on Thursday, price made an equal low and then bounced on Friday. I want to see that low hold. In other words, price going below that level next week will tell me that the reversal has failed.

On the upside, it is not necessary for price to take out the prior high in one shot or straight up. As long as price takes that out eventually without making a lower low, it will be all good.

Have a good trading week.