Bearish thesis is being put to the test
While we have to admit that the U.S. economy is proving to be more resilient than we initially expected, we can not ignore that the market is going through a very uneven recovery. It is no myth that SPX and NDX have been propelled by a handful of companies related mainly to the hype in the AI sector (including Apple, Alphabet, Amazon, Microsoft, Meta Platforms, and Nvidia). However, when these companies are excluded from the calculation of the index, SPX’s year-to-date performance is actually negative.
As only about 40% of the stocks within the index are above the 200-day SMA, we can make a compelling case that more companies might join the rally, which could lead to more broad recovery and completely invalidate our thesis about the bear market rally. Due to that, we will pay close attention to this metric and focus on the incoming data, including Chicago PMI, JOLTs job openings, ISM Manufacturing PMI, initial jobless claims, nonfarm payrolls, and the unemployment rate. To support our thesis about the bear market rally, we would like to see an uptick in unemployment and signs of contraction in services (which is crucial because, so far, we have seen a contraction only in manufacturing). In addition to that, we would like to see further weakness in the Chinese stock market and economy (because, as we previously noted, if China is not doing well, then the West is likely not to do well).
In regard to the price action, we pay close attention to the critical level near $4,200. If SPX fails to hold above this level, it might signal exhaustion and potential short-term/medium-term trend reversal. Contrarily, if SPX holds above the resistance and more stocks start climbing above the 200-day SMA, it will be a positive sign, potentially suggesting more upside ahead.
Illustration 1.01
Illustration 1.01 portrays the daily chart of SPX minus Apple, Amazon, Alphabet, Microsoft, Meta Platforms, and Nvidia; when these six companies are excluded from the index, SPX’s year-to-date performance is actually negative at approximately -8%.
Illustration 1.02
Illustration 1.02 displays the percentage of SPX stocks above the 200-day SMA.
Technical analysis gauge
Daily time frame = Neutral
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 only about 40% of the stocks within the index are above the 200-day SMA, we can make a compelling case that more companies might join the rally, which could lead to more broad recovery and completely invalidate our thesis about the bear market rally. Due to that, we will pay close attention to this metric and focus on the incoming data, including Chicago PMI, JOLTs job openings, ISM Manufacturing PMI, initial jobless claims, nonfarm payrolls, and the unemployment rate. To support our thesis about the bear market rally, we would like to see an uptick in unemployment and signs of contraction in services (which is crucial because, so far, we have seen a contraction only in manufacturing). In addition to that, we would like to see further weakness in the Chinese stock market and economy (because, as we previously noted, if China is not doing well, then the West is likely not to do well).
In regard to the price action, we pay close attention to the critical level near $4,200. If SPX fails to hold above this level, it might signal exhaustion and potential short-term/medium-term trend reversal. Contrarily, if SPX holds above the resistance and more stocks start climbing above the 200-day SMA, it will be a positive sign, potentially suggesting more upside ahead.
Illustration 1.01
Illustration 1.01 portrays the daily chart of SPX minus Apple, Amazon, Alphabet, Microsoft, Meta Platforms, and Nvidia; when these six companies are excluded from the index, SPX’s year-to-date performance is actually negative at approximately -8%.
Illustration 1.02
Illustration 1.02 displays the percentage of SPX stocks above the 200-day SMA.
Technical analysis gauge
Daily time frame = Neutral
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.
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