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I’ve acknowledged the energy displayed by the S&P 500 and Nasdaq Composite off the October lows. I’ve written concerning the New Dow Idea purchase sign and the development in breadth indicators just like the % of shares above transferring averages. So, whereas I’m not as all-in uber-bullish as my good friend Tom Bowley, I actually will admit that the energy we have now seen up to now in 2023 often results in additional energy down the street.
Three charts I am watching counsel that we could also be in short-term pullback mode, with a non-zero chance that it results in a retest of the December lows. Will this signify a greater entry level for traders which have missed all of the bullishness of the final six weeks?
Bullish P.c Index Turns into Much less Bullish
First, let’s evaluation a breadth indicator pushed solely by level & determine charts.
The Bullish P.c Index was one of the vital useful indicators to navigate 2022. A lot of the main tops final yr noticed this indicator transfer above 70 towards the top of the upswing, then proper again under 70 to point a draw back reversal. We additionally had three purchase indicators, the place the indicator dipped under 30 after which again increased. Two of these occasions superbly indicated the June and October lows.
On the finish of January, the Bullish P.c Index pushed above the important thing 70 stage, suggesting the latter levels of a bull transfer. This week, we have now famous this indicator has moved again under the 70 stage, which suggests a brand new leg down for the S&P 500.
McClellan Oscillator No Longer Bullish
I shared a video final week concerning the McClellan Oscillator, a well-designed adaptation of advance-decline information.
Merely put, the market is bullish when the McClellan Oscillator is above zero, and bearish when it’s under zero. There is definitely extra to the indicator, together with the bearish divergences indicated with pink traces on my chart.
However for those who have a look at what the S&P 500 has finished when the indicator is above zero vs. under zero, you’ll be able to see why this breakdown is a crucial gauge of market breadth and may give bulls some pause about subsequent couple weeks.
An Foreboding Improve in Volatility
Lastly, we are able to have a look at volatility, which has remained pretty low since December of final yr.
I had a nice dialog with Katie Stockton not too long ago concerning the prospects for the market to rally on decrease volatility, which is one thing we actually hadn’t seen because the October low. Effectively, this week, the VIX pushed again above the 20 stage, which stands out as the starting of a return to the next volatility regime.
Why is excessive volatility a priority? Effectively, the market does not are likely to rally on excessive volatility. The reason being that, when traders get nervous and panic, they have an inclination to promote rapidly and anxiously. This pushes the VIX, or the “concern gauge”, increased to replicate investor uncertainty.
Markets are likely to have sustained advances on decrease volatility as a result of traders are likely to accumulate shares over time throughout a bull market part. We do not anxiously accumulate shares (though that may occur within the “irrational exuberance” part on the finish of bull markets!), so a market uptrend with a comparatively low VIX can be fairly bullish. Because the VIX has moved again above 20, we’re confronted with weakening value traits because the SPX dips under 4100, declining breadth indicators with related indicators to earlier corrective strikes, and shares like GOOG in a freefall.
Bullish on shares right here? The symptoms we shared at this time may imply a good higher entry level to experience the following bull transfer increased. However these indicators might want to enhance, as, in any other case, they counsel a extra painful downdraft than some might anticipate.
Wish to be taught extra about how we use RSI to investigate value momentum? Hit my YouTube channel.
RR#6,
Dave
P.S. Able to improve your funding course of? Take a look at my free behavioral investing course!
David Keller, CMT
Chief Market Strategist
StockCharts.com
Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your individual private and monetary state of affairs, or with out consulting a monetary skilled.
The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any method signify the views or opinions of every other individual or entity.

David Keller, CMT is Chief Market Strategist at StockCharts.com, the place he helps traders decrease behavioral biases by way of technical evaluation. He’s a frequent host on StockCharts TV, and he relates mindfulness strategies to investor determination making in his weblog, The Conscious Investor.
David can also be President and Chief Strategist at Sierra Alpha Analysis LLC, a boutique funding analysis agency centered on managing danger by way of market consciousness. He combines the strengths of technical evaluation, behavioral finance, and information visualization to determine funding alternatives and enrich relationships between advisors and shoppers.
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