S&P into resistance - Growth undercuts key short-term level to Value last week
As you know, equity markets were deeply oversold heading into March’s quadruple witching with most internal technical indicators at extreme oversold levels which resulted in the VIX peaking on 3/18 coinciding with expiration of index related options.
Markets don’t always change direction during option expiration weeks but the current technical setup suggests this week is likely to see the recent rebound begin to stall.
There are 2 noteworthy technical developments we view as important heading into this week.
- Chart 1: S&P Emini futures are becoming overbought short-term near resistance. We’ll feature the S&P cash index in tomorrow’s note for comparison but the positioning of the 50-dma is noteworthy on the futures.
- Charts 2-3: Growth beginning to stall/reverse to Value after surging above trend in Q1.
CHART 1 – S&P 500 Emini futures daily
- After an impressive oversold rebound short-term momentum indicators, tracking 2-4 weeks shifts, are starting to move into overbought territory as…
- …the S&P futures rally into their next resistance band coinciding with 50-62% retracements of the Q1 collapse AND a declining 50-dma
- A pause/pullback would not be surprising to develop near current levels given option expiration and the beginning of earnings season.
- First key support is near the 200-week at 2647 (1000-dma=2627) and late March highs near 2635 followed by the 15-dma at 2554 followed by 50-62% retracements of the recent rebound between 2496-2420.
- Our expectation is that the pullbacks, should it develop, will hold between the rising 15-dma and 200-week sma.
CHART 2 – Growth vs Value – Weekly
- Growth’s has been in an uptrend to Value since 2017 but is now well advanced above trend and showing very early signs of peaking.
- It’s premature to conclude a trend reversal is underway with the 40-week sma (red moving average) a proxy for the underlying trend.
- Note in 2017 and 2018, while not perfect, the 40-week sma served as reasonable measure of the underlying trend.
CHART 3– Growth vs Value – Daily – Lower lows in place
- In last Tuesday’s weekly note, we had highlighted the late March lows as a key short-term support level.
- Last week’s trading, notably on Friday, saw a break below that key level effectively establishing lower highs and lower lows or a new short-term downtrend.
- Growth is outperforming Value today but we expect this relationship to pull back toward trend moving through Q2.
Stay Tuned – We will discuss these charts and more in our weekly Tuesday note.
If you have any thoughts or feedback on the market or key relationships that are changing that you view as important, please let us know.
