Stock Markets Analysis and Opinion

S&P 500: Strong Price Action Favors the Bulls

2024.02.05 06:58

Craig Thompson

  • The inventory market is in a powerful bullish atmosphere.
  • Short-term the market is prolonged and nearing the higher finish of its uptrending channel which is an space the place it has pulled again in the previous.
  • Market breadth has deteriorated over the previous month which is a further issue that implies we may see a minor short-term correction in shares in the close to time period.

Stock Market

In final month’s publication, Breadth Thrust, I wrote about how the market skilled a breadth thrust that traditionally has proceeded robust longer-term returns for shares. However, at the time the was prolonged and at resistance (orange rectangle in the chart beneath) which recommended the odds of a short-term pullback have been elevated. The weak point that occurred was extra minor than what I anticipated which is a bullish signal. The index has continued to advance increased and whereas robust is prolonged.

Below is a day by day chart of the S&P 500 Index and listed here are my takeaways.

  • The index is rising inside an up-trending channel outlined by two ascending parallel strains.
  • The pullback (orange rectangle) at resistance (now assist) was minor which is an indication of market energy.
  • The index has continued to advance above its 20-day transferring common which is bullish value motion given it is a short-term transferring common.
  • All three transferring averages (20,50,200) are trending increased which signifies the development of the market is up.

The index is nearing the prime of the channel which is an space the place the index has pulled again in the previous. Any weak point that may happen in the coming weeks is assumed to be minor and never a change in the longer-term market uptrend.

S&P 500 Index-Daily ChartS&P 500 Index-Daily Chart

Market Breadth

While the market has superior strongly over the previous few months, we’re beginning to see market breadth deterioration. Meaning that the variety of shares taking part in the advance is declining. This means that the odds of a short-term pullback in the market are starting to extend.

In the chart beneath is the S&P 500 Index in the higher panel with its 50 and 200-day exponential transferring averages. In the center panel is a chart of the p.c of shares inside that index above their respective 50-day exponential transferring averages. And in the decrease panel the p.c above their 200-day exponential transferring averages.

Here are my takeaways.

  • In the higher panel, the S&P 500 is properly above each transferring averages.
  • In the center panel, the variety of shares above their respective 50-day exponential transferring averages has been declining for the previous 4 weeks.

In the decrease panel, you’ve got an analogous decline in the variety of shares above their 200-day exponential transferring common.

S&P 500-Moving-Average

Long-Term Market View

It is necessary to research market value motion from a longer-term perspective. Below is a month-to-month chart of the S&P 500 that highlights the market’s present bull market advance that started in 2009. Price motion is contained inside an up-trending channel that defines the advance and depicts the place the index has gotten overbought and oversold inside the context of the longer-term development.

My takeaway from the chart is that whereas the market could also be overbought on a short-term foundation, from a longer-term perspective, the market shouldn’t be overbought and has extra room to run so long as market technicals stay optimistic.

SPX-Monthly Chart

Client Account Update

Our conservative mannequin is absolutely invested and our aggressive mannequin is about 65% invested in equities.

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