Regional banks are starting to look appealing again after recent weakness

Markets have begun the process of bottoming out and have carved out the first meaningful move off the lows since late last week on above-average breadth data. Wednesday’s FOMC meeting proved to be a non-event as despite the FOMC having lowered growth forecasts and hiked inflation, they failed to judge a rate cut as being necessary. Thursday’s economic data seemed to underscore this enthusiasm with better than expected readings from Jobless Claims and also Philly Fed Business Outlook. Overall, it’s thought that a rebound in Equities might help to cure some of the poor sentiment readings at a time when the “hard” economic data has failed to show much deterioration. Technically speaking, the rebound in Technology, along with large-cap Financials and Discretionary in recent days, is encouraging, and it looks doubtful that SPX will require any movement under 5600 and should begin to turn back higher into next week. As discussed in previous days, the combination of sentiment data turning fearful followed by an above-average surge off last week’s lows looks bullish for Equities in the months ahead. Overall, it looks right to position long with movement above 5703 on a close, leading to a meaningful rally back to new all-time highs. The downside arguably should be limited to roughly 3%, while the upside back to new all-time highs should get underway to carry SPX up more than 9% initially.

As shown below, the rally off last Thursday’s lows has helped SPX regain its 50-day moving average, which has begun to slope higher this past week. That’s a welcome development as SPX fell under its 50-day m.a. three days after the market peak on 2/19 and has remained under this m.a. until early this week. (While I don’t put much stock in the power of 50-day m.a. as support, I do find that the slope of a m.a. and the percentage above and below can have far more importance.)

As shown below, the minor backing and filling seen during Thursday’s trading failed to do much damage to the new uptrend that looks to be getting underway. While a brief consolidation move is proper following a steep advance, I don’t see SPX getting back under 5600 in the days ahead. Thus, if my thinking is correct, last Thursday’s bottom stands a 75% chance of being correct, and movement back over 5703 should help jump-start the acceleration.

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