Trend bullish- SPX having hit channel resistance doesn’t likely cause more than 2-3 days of stalling or minor selling pressure before a run-up into late June/early July
Top-callers continue to “come out of the woodwork” as SPX and QQQ have continued to press higher. Reasons like “overbought” or low volume, or “the market’s lacking breadth” are common refrains on Twitter, but yet a few important reasons stand out as to why it remains premature to sell stocks, and why markets still likely press even higher into July:
-Cycles show higher prices in the back half of 2023, with possible correction in July to August
-DeMark exhaustion is premature for AAPL along with the broad-based IWV and QQQ
-Some sentiment gauges from BofA Portfolio managers report continue to suggest pessimism
-Elliott-wave structure has turned a lot more bullish on recent strength
-DJIA has just broken out, suggesting a further broadening out of this rally, not a market top
-Pre-election year seasonality shows this year as being the best of the four-year cycle
-No evidence of any peak in SPX’s leading sector, Technology
-Defensive sectors which normally strengthen prior to market peaks, remain laggards
To the market bears credit, SPX has reached the highs of the most recent trading channel, shown on hourly charts, as well as daily charts below. However, similar to QQQ, I suspect that the lack of DeMark-based exhaustion could just lead to minor consolidation early next week before further strength into end of June. That would certainly help DeMark’s indicators line up with my own cycle composite towards suggesting a peak could be near.
At present, the broadening out of this rally with DJIA just having broken out this week certainly seems more bullish than bearish. Those expecting a market peak should take a quick look at the DJIA chart, which helps to add confidence that higher prices are likely in the weeks ahead.
At present, let’s look initially at the short-term SPX channel I mentioned above:
This area at 4440-4460 could certainly hold in the near-term. However, I don’t suspect we’ll see a break of the lower area of channel support, and only a move under 4337 would have importance as a near-term technical breakdown for SPX.
SPX channel from last October’s lows is also now being tested
This area for SPX also looks important for SPX on daily charts when viewing a one-year chart for SPX.
Given the parallel nature of this channel, one can expect that SPX might pause temporarily near this level. However, I don’t suspect we’ll see much selling pressure just yet.
Trends remain bullish until 4337 is violated on a very short-term basis. However, the key area of support structurally lies at 4200. Until SPX gets below this, a bullish stance is necessary, looking to buy dips.
SPX weekly cycle heading into 2023 showed a major inflection point in May which turned back higher for a bullish 2H 2023
The cycle composite below was taken as a snapshot on 11/15/22, about six weeks prior to the end of 2022. I presented this cycle composite in my 2023 Annual Technical outlook this past January.
As shown below, the trend was quite choppy before a dip into May which then followed a bottom and turn back higher.
While this composite looked bearish for early 2023, it’s important to note that in Equal-weighted terms, SPX was negative for three of the five months before June got underway.
Specifically, Invesco’s S&P 500 Equal-weighted ETF (RSP) was negative for February, March and May before bottoming and turning back sharply.
I suspect that the May bottom based on my weekly cycle composite below, occurred on schedule as brought about by the breakout in RSP and other broad-based market index ETF’s like Russell 3000 (IWV)
While this does show the potential for late year weakness, interestingly enough, from November into early 2024, the trajectory is quite positive for the back half of 2023.
Short-term breadth measures have gotten stretched; Yet consolidation should prove minor and short-lived for now
SPX percentage of stocks above their 20-day moving averages has moved close to 90%. This is close to levels that marked prior peaks last Spring, and August along with early year minor peaks.
However, it’s important to also note that the percentage of stocks above their 50, and 200-day moving averages have surpassed prior peaks seen in April (though remain under February 2023 peaks)
Overall, I don’t view this breadth expansion to high levels as all that bearish. Rather, I feel that a minor stalling out “could” happen next week, but should prove short-lived and this could rise to even higher levels into July.
SPX Advance/Decline is close to breaking out to new highs
One key chart all investors should pay attention to is the Advance/Decline(A/D) for SPX.
Given the recent breakout in the DJIA, I suspect that this has an excellent chance of breaking out to new all-time highs.
Such a development would certainly cause further capitulation from bearish investors and get more institutional investors “on board”
The next 3-4 weeks will be key to watch this gauge closely, and I suspect an A/D line breakout is right around the corner for SPX.
Sentiment mixed. Some measures bullish, but some still quite negative
The recent Bank of America (BofA) Portfolio Manager survey had some interesting results, and this sentiment gauge continues to show fairly bearish readings. As shown below, this considers growth expectations, Cash levels and Equity asset allocations.
While the AAII, Investors Intelligence and CNN’s Fear and Greed Survey have all turned quite bullish in the last week, and Equity Put/call ratios have dipped sharply along with VIX, other measures of sentiment from institutional investors along with high cash levels and CFTC bearish S&P 500 futures positioning (Still short) present a much different picture.
Overall, I feel that sentiment is mixed at present, not wildly bullish as some might suggest. Further US equity rallies into July, however, could certainly create a more “frothy” sentiment picture that would be a concern from a contrarian perspective.
