Bullish breakout from the narrow range
Updated
A few days ago, we introduced a setup with a bearish trigger coming after the breakout below the narrow range between $4,050 and $4,200. Despite that, the market decided to go in the opposite direction and broke to the upside. This development is bullish for the short term, and because of that, we will pay close attention to the index’s ability to hold above this level. We would like to see SPX close above $4,200 in at least two following trading sessions to support the continuation upwards. Contrarily, if the price closes below the level, it will indicate exhaustion; in the case that SPX falls below $4,200 and then breaks back above it, the count will reset.
As for the outlook beyond the short term, it remains unchanged (bearish). We believe the market’s rally (and increasing irrationality) is unsustainable. To support our notion, we would like to point out that only a handful of companies are responsible for more than half of SPX’s gains this year; in fact, Apple, Microsoft, and NVIDIA are responsible for about 60% of gains in SPX year to date (representing about a 5% move up in the index since the start of 2023). In our opinion, that raises a question of whether SPX and Nasdaq are even good to look at in order to assess the overall health of the economy (as few companies are having a too big impact on the overall performance of these indices).
In addition to that, we still have not seen the full impact of FED rate hikes due to a considerable lag that monetary policy tends to bring with it. Then there are also many other problems with people maxing out their credit cards at a time when delinquencies on loans are slowly starting to tick higher (for example, delinquencies on credit card loans went up approximately 36% in 2022), existing home sales faltering after a short rebound in early 2023, various commodities declining significantly (in a sign of falling demand), industrial production moving relatively sideways for the past few months, etc.
Illustration 1.01
The picture above shows the daily chart of SPX. The yellow arrow indicates a bullish breakout above the narrow range.
Technical analysis gauge
Daily time frame = Neutral/Slightly bullish
Weekly time frame = Neutral
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
As for the outlook beyond the short term, it remains unchanged (bearish). We believe the market’s rally (and increasing irrationality) is unsustainable. To support our notion, we would like to point out that only a handful of companies are responsible for more than half of SPX’s gains this year; in fact, Apple, Microsoft, and NVIDIA are responsible for about 60% of gains in SPX year to date (representing about a 5% move up in the index since the start of 2023). In our opinion, that raises a question of whether SPX and Nasdaq are even good to look at in order to assess the overall health of the economy (as few companies are having a too big impact on the overall performance of these indices).
In addition to that, we still have not seen the full impact of FED rate hikes due to a considerable lag that monetary policy tends to bring with it. Then there are also many other problems with people maxing out their credit cards at a time when delinquencies on loans are slowly starting to tick higher (for example, delinquencies on credit card loans went up approximately 36% in 2022), existing home sales faltering after a short rebound in early 2023, various commodities declining significantly (in a sign of falling demand), industrial production moving relatively sideways for the past few months, etc.
Illustration 1.01
The picture above shows the daily chart of SPX. The yellow arrow indicates a bullish breakout above the narrow range.
Technical analysis gauge
Daily time frame = Neutral/Slightly bullish
Weekly time frame = Neutral
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
Note
Just to clarify one thing, there are good arguments on both sides as to where the market might go in the coming months. But at the moment, we continue to stick toward the notion that recession still remains a likely event (eventually resulting in the selloff). However, with the lack of forecasting visibility, it is better to keep adjusting the short-term/medium-term outlook in accordance with market developments and coming data.Note
Bullish breakout became invalidated by the end of a day. Note
The price continues to test the resistance. However, so far, SPX failed to close above the resistance for two consecutive days. That is not particularly bullish. This leads us to the updated setup shown below. 
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