Value Motion

Clearly, an important side of the inventory market is worth motion. That is the place all of it begins. At the moment, I just like the each day and weekly charts, however we do nonetheless have one essential worth resistance degree to clear:

S&P 500 – Weekly:

There are apparent enhancements on this chart in 2023. First, the downtrend was damaged in January and, after retesting the breakdown line, we have seen costs transfer to increased highs. Subsequent, the PPO broke above centerline resistance. It shortly returned to centerline help, however as an alternative of rolling proper again over with extra bearish momentum, PPO moved again to a better excessive – similar to worth motion. That tells us, no less than for now, that bulls stay utterly in cost. Might that change? In fact and that is precisely what the bears are hoping for. Personally, I have to see it first.

I see the market as vary certain. I imagine 3775 could be very stable intermediate-term worth help, whereas 4300 is the following wall of worth resistance. Which one breaks first? That’ll be a major clue as to what we should always count on over the steadiness of 2023 and into 2024. We should always word that whereas worth motion has been stable in 2023, we have now no RSI affirmation of a secular bull market advance simply but. Throughout downtrends, the RSI sometimes resides within the 30-60 vary, with occasional dips beneath 30. The weekly RSI is at 55 and has but to maneuver above 60. So whereas I stay bullish over the steadiness of 2023, it isn’t a slam dunk and we have to stay goal.

S&P 500 – Day by day:

This chart tells me a narrative. One historic reality is that 6 of the final 13 bear markets have ended in the course of the month of October. If October 2022 in the end proves to be the low, it will mark the seventh out of the final 14. That is a strong quantity that definitely supplies us proof of a possible market backside. The uptrend off that potential October backside is clear. There’s been a little bit of hesitation and consolidation alongside the best way, however there are a sequence of upper highs and better low, which is the definition of an uptrend. It can’t be ignored, even for those who’re within the bearish camp. There may be additionally a clearly-defined short-term closing worth resistance of 4179. We have been there twice now with no profitable breakout. A detailed above 4179 ought to be seen bullishly.

Over the previous 8 months, the 4050-4100 space has proven to have pretty severe worth help/resistance. I’ve highlighted key strikes into and out of this zone in purple (worth resistance) and inexperienced (worth help). There’s additionally the 50-day SMA, at the moment at 4057, to offer some help for the bulls. Within the very near-term, the bulls and bears are battling on this 4050-4179 space. On short-term breakouts vs. breakdowns, I might say the bears have one benefit. If worth resistance at 4179 is damaged, it is a pretty quick journey to MAJOR 4305 worth resistance. That is the August 2022 excessive that I imagine utterly modifications the image on the weekly chart, confirming the resumption of the secular bull market by ending the sequence of decrease highs and decrease lows (consult with the numbering of 1 to five on the weekly chart). However what occurs if worth help at 4050 is misplaced? There’s almost 300 factors of draw back to think about to the 3775 help degree.

Value motion is our PRIMARY indicator. The rationale I do all of the analysis I do and research historical past like I do is sort of easy. I do not wish to look ahead to the S&P 500 to maneuver from a 3491 low to a breakout above 4305 earlier than admitting the inventory market is in an uptrend. That is over 800 factors and roughly 23%. That is the equal of two 1/2 years of regular S&P 500 returns (the S&P 500 has averaged gaining 9% or so per 12 months since 1950). The inventory market does present us clues as to its “beneath the floor” energy and weak point. We are able to consider the danger of being lengthy vs. being quick or in money from these indicators. However it’s a must to know what to search for.

Management

Historical past tells us that it is essential to see management from “threat on” areas of the inventory market throughout bull market advances. That features our most aggressive sectors – expertise (XLK), client discretionary (XLY), and communication companies (XLC). The S&P 500 lastly cleared its 2000 and 2007 highs on April 10, 2013. That was the date, for my part, that the present secular bull market started. From that day by way of the January 3, 2022 market high, the S&P 500 and the 11 sectors carried out as follows:

Sectors:

• Expertise (XLK): +554.95%
• Shopper discretionary (XLY): +338.25%
• Communication companies (XLC): +303.71%
• Well being care (XLV): +239.38%
• Financials (XLF): +210.98%
• Industrials (XLI): +196.65%
• Supplies (XLB): +173.02%
• Actual property (XLRE): +171.40%
• Shopper staples (XLP): +140.95%
• Utilities (XLU): +138.39%
• Power (XLE): +0.63%

The three key “threat on” sectors – XLK, XLY, XLC – dominated the motion all through the whole secular bull market. Throughout a interval of robust financial progress and historically-low rates of interest, that management utterly is smart to me. Everyone knows we have been by way of a really difficult market for the reason that 2020 pandemic. Many imagine we have now steep challenges forward that may drive fairness costs decrease. Possibly they are going to, however I am not in that camp. We stay in a particularly low rate of interest atmosphere and the inventory market seems forward 6-9 months. The truth that we have seen the 10-year treasury yield ($TNX) falling for 7 months, dropping almost 100 foundation factors, tells me that bond market merchants are ignoring inflationary dangers and are as an alternative concentrating on the chance that the Fed will hike charges no extra – and presumably even decrease them. That, in flip, is leading to a considerable shift as soon as once more into the aggressive sectors garnering greater than their justifiable share of rotation. Take a look at this year-to-date efficiency abstract of the 11 sectors:

Discover which sectors are main, by a mile? That is regular secular bull market habits. The S&P 500 is up 7.41% year-to-date, led by aggressive progress shares. It certain looks as if the important thing sectors are main the benchmark increased in 2023, simply as they’ve completed all through the whole secular bull market. It is a important “beneath the floor” indicator that doesn’t help the bears’ argument of decrease costs forward.

Sentiment

After I spoke at our MarketVision 2022 occasion on Saturday, January eighth of that 12 months, I mentioned the #1 difficulty going through the inventory market was NOT inflation. It wasn’t rates of interest. It wasn’t a possible recession. It wasn’t the Fed. As a substitute, I argued the largest difficulty was SENTIMENT. Retail merchants had grown extremely bullish and that spelled BIG TROUBLE as we opened 2022. I instructed, in a worst-case state of affairs, that the S&P 500 might go to the 3500-3800 vary. That is when the S&P 500 was close to its all-time near 4900. That was a really daring prediction. However it got here true 9 months later when the S&P 500 hit a closing low of 3491.58 on October thirteenth. I warned the bulls and continued to take action for the following a number of months till saying the danger of being quick (or in money) had escalated and I reversed course. Historical past has confirmed me appropriate. And now sentiment is about to offer a MAJOR sign that each dealer wants to pay attention to. When this sign has been offered previously, it is preceded an unbelievable market response each time.

I am going to present that sign upfront in Monday’s FREE EB Digest article. The sign nearly definitely will set off later this month and, if it is appropriate once more, it is going to present you a really significant directional sign relating to the benchmark S&P 500. If you would like to find one of the vital essential “beneath the floor” inventory market indicators, CLICK HERE and supply your title and e mail deal with to subscribe to our EB Digest e-newsletter. Once more, it is free, there’s not bank card required, and chances are you’ll unsubscribe at any time!

Glad buying and selling!

Tom

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