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The Monday Morning Playbook: Week of March 11, 2024

Reversal?

Good morning,

Two weeks ago, in response to a reader’s Mailtime question, I wrote the following about Berkshire Hathaway:

Very timely request. Berkshire has been on an absolute tear and as of this weekend was up 16% in the past 5 weeks. But there are a lot of reasons to think yesterday marked a short-term top. The stock gapped higher and was up more than 3% on the day before falling sharply and ending down 1.9%. That’s the worst high-to-close fall for the stock since twice in the March 2020 Covid bear. In addition, the stock’s RSI-14 was the highest since January 2018, just days before the beginning of a 6-month, 15% correction.

All of that sounds ominous and I wouldn’t be a buyer today. But, there is a ton of support in the range from $355-$370, and (barring some broad market black swan event) I would consider that my worst-case scenario. My expectation is we find support and bottom before then, but bears should be viewed as in control as long as we’re below yesterday’s highpoint of $430.

I share this because the #1 story this weekend and heading into this week is Friday’s big reversal in Nvidia. And the reversal in Berkshire two weeks ago is technically almost identical.

So hopefully, this provides some sort of objective analysis about what a large daily reversal can or does mean.

Some additional context:

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Brown Technical Insights
Authors
Scott Brown, CMT