Key Takeaways
  •  SPX’s 12% gains in six weeks has carried prices to just below important resistance.
  • NYSE Advance/Decline has exceeded its trendline for 2022, which is a positive.
  •  SPX issues above 50-day m.a. have reached the highest levels in more than a year.
Great breadth expansion to mark a very good July

The S&P was up ~9% for the month of July, representing its best month of gains in two years, and the best July performance since 1939.  Just since mid-June when  SPX bottomed, we’ve seen 12% gains in six weeks, or over 2% gains a week.  Not a bad recovery thus far to say the least.  Yet, prices won’t likely go up in a straight line as quickly as what’s been seen since June.  Breadth has expanded rapidly in recent weeks, and this widespread participation is certainly a welcome development, aiding weekly momentum in turning back positive using common indicators like MACD.  Overall, my thinking is different on a two-month basis than two-week at this point.  As August gets underway, I anticipate some backing and filling to this recent surge.  However, gains have proven strong enough, particularly in the all-important Technology Sector, that further strength is possible into mid-September.  This acceleration should prove particularly strong in the back half of August. 

For now, prices are right below important resistance from prior Feb/March lows as well as early June highs which could serve to cause a stall out/minor reversal.  Yet, pullbacks might not get under 3850.  Thus, it looks right to buy all dips.

Great breadth expansion to mark a very good July
Source: Trading View

1-month Performance data shows why its right to be positive   

Over the last month, we’ve seen very sharp gains out of Consumer Discretionary and Technology, representing the best July in more than 80 years.  Industrials also staged an impressive comeback, as the US Dollar has moderated its gains, with stocks like  URI,  ROK 2.38%  and  GNRC 4.84%  up more than 20%.

Given Tech’s remarkable recovery, and its ongoing strong representation in  SPX, this move likely has some intermediate-term staying power.  While short-term pullbacks are possible in the next couple weeks, this weakness should be buyable into mid-August.

Discretionary’s +16.70% rally ( XLY 1.16% ) and 10.43% gains in Equal-weighted Discretionary have resulted in Discretionary making a bullish crossover vs. Consumer Staples.  This is thought to be yet another piece of the puzzle that suggests risk assets are staging an impressive comeback.

Near-term defensive performance has dominated this past week, with Utilities outperforming Technology just as  SPX nears its 50% retracement level of the March-June selloff.  This might lead to a near-term stalling out as August gets underway.  Keeping a close eye on breadth is key.

Energy’s outperformance has not really coincided with a similar lift in WTI Crude.  Cycles and Elliott-wave structure argue for near-term weakness in WTI Crude, and this might result in Energy weakening again next month.  Yet, this pullback should be buyable, technically.

Great breadth expansion to mark a very good July
Source:  Optuma

NYSE Advance/Decline has broken its nine-month downtrend

This looks to be an important development that was not present until this week.  The Advance/Decline has made a notable shift higher and has succeeded in recapturing the downtrend from last November’s highs.

While this won’t be a straight line back to new high territory, this is a constructive development that should lead stock indices higher into the Fall.

Sentiment gauges remain negative, despite some minor improvement, and the combination of improved breadth and momentum, cycles bottoming out, more constructive price action/trend improvement along with ongoing bearish sentiment are normally a positive recipe for bullish stock prices.  

Great breadth expansion to mark a very good July
Source:  Optuma

Breadth has begun to kick into gear which provides some optimism

While many were discussing the percentage of stocks hitting new 20-day highs reaching the highest levels in over a year, another well-known breadth gauge is shown below concerning the 50-day moving average.

 SPX issues above their 50-day m.a. has now reached the highest levels also in more than one year’s time, just as July put in the best month of gains since 2020.

Note the green section in the middle which shows the percentage of names above their 50-day m.a.  This is bullish towards thinking this recent bump in stock indices is not just a bearish bounce, but something which has the power to extend.

Great breadth expansion to mark a very good July
Source: Optuma

For my 7/29/2022 Fox Business appearance see here.

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