Various Technical measures suggest a low should be close
- US Equities look to be nearing a low based on Structure, breadth, momentum, and cycles
- Breadth gauges like McClellan Oscillator has fallen to the lowest since March 2023
- Percentage of SPX names above their respective 20-day moving average has reached Single Digits
As I am going to be traveling Thursday and Friday, there will be no Note or Video on either of those days.
In the very short-term, this pullback has reached levels which signify a possible Technical support zone based on wave structure, breadth, momentum, seasonality and cycles. US Dollar and Yields have not yet shown evidence of rolling over, but these arguably also have reached near-term overbought levels and various Counter-trend indicators have begun to suggest an upcoming reversal. The period between Thursday and next Monday should be important in providing a low to Stock indices and potentially Treasuries.
Simply stated, the 4% decline has proven swift and sharp and could result in the first three-week SPX decline since October. However, the following three reasons give me optimism that a low is near and could very well materialize in the next 1-3 trading days:
- Technology weakness has not violated uptrends relative to S&P 500
- Defensive strength has been lacking and absent in Consumer Staples, REITS
- Breadth is short-term overdone, while holding up well overall
Overall, the most important catalyst from a technical perspective to watch for in the weeks ahead concerns a turn back lower in the US Dollar and Treasury yields. It’s thought that when cycles start to project lower for Yields between late April and August, that Stock indices should respond positively. Furthermore, cycle composites suggest a possible low might materialize into end of week, near 4/20/24. (Might be 4/19, or 4/22-4/23).
Initially, let’s look at wave structure of this S&P 500 move to get a feel for how damaging, or not, this move has been and what stage of the decline it might represent.
The right-hand side of this chart shows the stabilization attempts near a Fibonacci-based 1.618 multiple of the initial decline from late March. While this is the clearest target under 5110, the area at 4976-5000 as a zone of support makes sense given the unfolding Elliott-wave structure.
This “green” labeling shows this as a clear five-wave decline from 4/11 peaks. This should be nearing completion, and my view is that any further deterioration into Thursday/Friday would mark a low, specifically based on this pattern.
Additionally, the area at 4976 would represent a doubling of the initial decline from 3/28 when projected from 4/11 peaks. Thus, this projection method would suggest any further decline should prove minimal and should be buyable for a bounce.
To have faith that lows are in, two levels stand out as having importance.
Initially, the lows from wave 1 shown below, or 5107.94, is important. If this is exceeded, it would strongly suggest a low should be in place. The Secondary level of importance is 5146.06, the lows from 4/4. If that level is surpassed, then a move back to new highs should commence.
S&P 500
McClellan Oscillator has also now reached levels which suggest lows should be close
This breadth oscillator has now plunged to levels which historically have been important, suggesting that market lows should be close.
While not a perfect gauge for timing lows in the market, when this oscillator reaches levels under -200, it shows a very stretched situation for market breadth that normally allows for a bounce to unfold.
As can be seen below, this gauge has undercut all the prior lows of the past year and is the lowest since last March 2023.
While I normally utilize breadth divergences as being more important than a low level from this McClellan Oscillator alone, I feel like this most recent plunge to yearly lows is important and should signify that lows could be imminent.
Sum OSC Index
Percentage stocks Under 20-day moving average for SPX has now reached Single Digits
When I wrote “breadth” in my list of three positives on page 1 of this report, this has two distinct, important pieces to discuss.
- Initially, short-term breadth has reached very low levels, as per the Percentage of Stocks > their 20-day moving average, as shown below. Normally, when this gauge dips below 10%, a low is forthcoming.
- However, it’s also informative that the percentage of stocks above their respective 200-day moving average is still near 65%. That’s a healthy sign that speaks to the degree of broadening out that markets have shown since the beginning of the year.
All in all, compressed near-term breadth gauges as per a larger, intermediate-term healthy condition normally signals that market lows could be close. The chart below highlights the Russell 3000 along with measures of Percentages of stocks above their respective 20, 50 and 200-day moving averages.
Russel 3000
SPX Breadth thrust gauge has reached levels where bottoms usually occur
A final gauge to consider is that the breadth thrust gauge that I normally look at has reached very low levels.
This is based on a formula of a 10-period Exponential Moving average (EMA) of Advances/(Advances+ Declining issues)
This has reached the lowest levels since last October (-34.56 as of 4/16/24) and signifies a very contracted situation for market breadth.
Normally, when this measure gets so low, the resulting bounce can be meaningful and should be getting close.
S&P 500
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